PRESTIGE CONSUMER HEALTHCARE INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2016
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
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Commission File Number: 001-32433
PRESTIGE BRANDS HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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20-1297589
(I.R.S. Employer Identification No.)
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660 White Plains Road
Tarrytown, New York 10591
(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act:
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(914) 524-6800
(Registrant's telephone number, including area code)
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Title of each class:
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Name of each exchange on which registered:
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Common Stock, par value $.01 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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No
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The aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter ended September 30, 2015 was
$2,377.1 million
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As of May 2, 2016, the Registrant had
52,759,363
shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders (the “2016 Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described herein.
TABLE OF CONTENTS
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Page
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Part I
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Item 1.
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Business
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Item 1A.
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Risk Factors
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Item 1B.
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Unresolved Staff Comments
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Item 2.
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Properties
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Item 3.
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Legal Proceedings
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Item 4.
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Mine Safety Disclosures
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Part II
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Item 5.
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Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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Item 6.
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Selected Financial Data
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Item 7.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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Item 8.
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Financial Statements and Supplementary Data
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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Item 9A.
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Controls and Procedures
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Item 9B.
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Other Information
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Part III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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Item 11.
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Executive Compensation
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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Item 14.
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Principal Accounting Fees and Services
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Part IV
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Item 15.
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Exhibits, Financial Statement Schedules
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TRADEMARKS AND TRADE NAMES
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Trademarks and trade names used in this Annual Report on Form 10-K are the property of Prestige Brands Holdings, Inc. or its subsidiaries, as the case may be. We have italicized our trademarks or trade names when they appear in this Annual Report on Form 10-K.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), including, without limitation, information within Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following cautionary statements are being made pursuant to the provisions of the PSLRA and with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA. Although we believe that our expectations are based on reasonable assumptions, actual results may differ materially from those in the forward-looking statements.
Forward-looking statements speak only as of the date of this Annual Report on Form 10-K. Except as required under federal securities laws and the rules and regulations of the SEC, we do not intend to update any forward-looking statements to reflect events or circumstances arising after the date of this Annual Report on Form 10-K, whether as a result of new information, future events or otherwise. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements included in this Annual Report on Form 10-K or that may be made elsewhere from time to time by, or on behalf of, us. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
These forward-looking statements generally can be identified by the use of words or phrases such as "believe," "anticipate," "expect," "estimate," "plan," "project," "intend," "strategy," "goal," "objective," "future," "seek," "may," "might," "should," "would," "will," "will be," or other similar words and phrases. Forward-looking statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including, without limitation:
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The high level of competition in our industry and markets;
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Our ability to increase organic growth via new product introductions, line extensions, increased spending on advertising and promotional support, and other new sales and marketing strategies;
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Our ability to invest successfully in research and development;
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Our dependence on a limited number of customers for a large portion of our sales;
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Changes in inventory management practices by retailers;
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Our ability to grow our international sales;
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General economic conditions affecting sales of our products and their respective markets;
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Economic factors, such as increases in interest rates and currency exchange rate fluctuations;
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Business, regulatory and other conditions affecting retailers;
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Changing consumer trends, additional store brand competition or other pricing pressures which may cause us to lower our prices;
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Our dependence on third-party manufacturers to produce the products we sell;
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Price increases for raw materials, labor, energy and transportation costs and for other input costs;
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Disruptions in our distribution center;
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Acquisitions, dispositions or other strategic transactions diverting managerial resources, the incurrence of additional liabilities or integration problems associated with such transactions;
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Actions of government agencies in connection with our products or regulatory matters governing our industry;
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Product liability claims, product recalls and related negative publicity;
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Our ability to protect our intellectual property rights;
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Our dependence on third parties for intellectual property relating to some of the products we sell;
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Our assets being comprised virtually entirely of goodwill and intangibles and possible changes in their value based on adverse operating results;
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Our dependence on key personnel and the transition to a new CEO and CFO;
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Shortages of supply of sourced goods or interruptions in the manufacturing of our products;
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The costs associated with any claims in litigation or arbitration and any adverse judgments rendered in such litigation or arbitration;
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Our level of indebtedness, and possible inability to service our debt;
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Our ability to obtain additional financing; and
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The restrictions imposed by our financing agreements on our operations.
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For more information, see “Risk Factors” contained in Part I Item 1A of this Annual Report on Form 10-K.
1
Overview
Unless otherwise indicated by the context, all references in this Annual Report on Form 10-K to “we,” “us,” “our,” the “Company” or “Prestige” refer to Prestige Brands Holdings, Inc. and our subsidiaries. Similarly, reference to a year (e.g., “2016”) refers to our fiscal year ended March 31 of that year.
We are engaged in the marketing, sales and distribution of well-recognized, brand name, over-the-counter (“OTC”) healthcare and household cleaning products to mass merchandisers, drug stores, supermarkets, and club, convenience, and dollar stores in North America (the United States and Canada) and in Australia and certain other international markets. We use the strength of our brands, our established retail distribution network, a low-cost operating model and our experienced management team to our competitive advantage. Our ultimate success is dependent on several factors, including our ability to:
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Develop and execute effective sales, advertising and marketing programs;
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Integrate acquired brands;
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Grow our existing product lines;
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Develop innovative new products;
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Respond to the technological advances and product introductions of our competitors; and
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Continue to grow our presence in the United States and international markets.
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We engaged in strategic mergers and acquisitions over the last three years as follows:
2016 Acquisition
Acquisition of DenTek
On February 5, 2016, the Company completed the acquisition of DenTek Holdings, Inc. ("DenTek"), a privately-held marketer and distributor of specialty oral care products. The closing was finalized pursuant to the terms of the merger agreement, announced November 23, 2015, under which Prestige agreed to acquire DenTek from its stockholders, including TSG Consumer Partners, for a purchase price of $228.3 million. The acquisition expands Prestige's portfolio of brands, strengthens its existing oral care platform and increases its geographic reach in parts of Europe. The Company financed the transaction with a combination of available cash on hand, available cash from its Asset Based Loan ("ABL") revolver, and financing of an additional unsecured bridge loan. This acquisition was accounted for in accordance with the Business Combinations topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition. The DenTek brands are primarily included in our North American and International OTC Healthcare segments.
2015 Acquisitions
Acquisition of Insight Pharmaceuticals
On September 3, 2014, the Company completed the acquisition of Insight Pharmaceuticals Corporation ("Insight"), a marketer and distributor of feminine care and other OTC healthcare products, for $745.9 million in cash after receiving a return of approximately $7.2 million from escrow related to an arbitrator's ruling. The closing followed the Federal Trade Commission’s (“FTC”) approval of the acquisition and was finalized pursuant to the terms of the purchase agreement announced on April 25, 2014. Pursuant to the Insight purchase agreement, the Company acquired 27 OTC brands sold in North America (including related trademarks, contracts and inventory), which extended the Company's portfolio of OTC brands to include a leading feminine care platform in the United States and Canada anchored by
Monistat
, the leading North American brand in OTC yeast infection treatment. The acquisition also added brands to the Company's cough & cold, pain relief, ear care and dermatological platforms. In connection with the FTC's approval of the Insight acquisition, we sold
one
of the competing brands that we acquired from Insight on the same day as the Insight closing. Insight is primarily included in our North American OTC Healthcare segment. The Insight acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost
2
of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
Acquisition of Hydralyte
On April 30, 2014, we completed the acquisition of the
Hydralyte
brand in Australia and New Zealand from The Hydration Pharmaceuticals Trust of Victoria, Australia, which was funded through a combination of cash on hand and our existing senior secured credit facility.
Hydralyte
is the leading OTC brand in oral rehydration in Australia and is marketed and sold through our Care Pharmaceuticals Pty Ltd. subsidiary ("Care Pharma").
Hydralyte
is available in pharmacies in multiple forms and is indicated for oral rehydration following diarrhea, vomiting, fever, heat and other ailments.
Hydralyte
is included in our International OTC Healthcare segment. The
Hydralyte
acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
2014 Acquisition
Acquisition of Care Pharmaceuticals Pty Ltd.
On July 1, 2013, we completed the acquisition of Care Pharma, which included brands that complemented our OTC Healthcare portfolio and was funded through a combination of our existing senior secured credit facility and cash on hand. The Care Pharma brands include the
Fess
line of cold/allergy and saline nasal health products, which is the leading saline spray for both adults and children in Australia. Other key brands include
Painstop
analgesic,
Rectogesic
for rectal discomfort, and the
Fab
line of nutritional supplements. Care Pharma also markets a line of brands for children including
Little Allergies
,
Little Eyes
,
and
Little Coughs
. This acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
3
Major Brands
Our major brands, set forth in the table below, have strong levels of consumer awareness and retail distribution across all major channels. These brands accounted for approximately
81.7%
,
86.8%
, and
86.3%
of our net revenues for 2016, 2015, and 2014, respectively, during the period the respective brands were owned by us.
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Major Brands
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Market
Position
(1)
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Market Segment
(2)
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Market
Share
(3)
(%)
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ACV
(4)
(%)
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North American and International Over-the-Counter Healthcare:
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Chloraseptic®
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#1
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Sore Throat Liquids/Lozenges
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48.4
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94.9
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Clear Eyes®
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#1
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Eye Allergy/Redness Relief
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28.6
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96.7
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Compound W®
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#1
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Wart Removal
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37.8
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88.4
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Dramamine®
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#1
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Motion Sickness
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48.0
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94.0
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Efferdent®
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#2
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Denture Cleanser Tablets
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25.1
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98.6
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Little Remedies®
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#8
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Pediatric Healthcare
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3.5
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92.3
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Luden's®
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#3
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Cough Drops
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6.4
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94.6
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The Doctor’s® NightGuard®
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#3
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Bruxism (Teeth Grinding)
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15.0
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65.8
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The Doctor’s® Brushpicks®
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#2
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Disposable Dental Picks
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12.6
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62.0
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BC®/Goody's®
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#1
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Analgesic Powders
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97.2
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79.8
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Beano®
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#1
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Gas Prevention
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80.1
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92.9
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Debrox®
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#1
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Ear Wax Removal
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53.3
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86.1
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Gaviscon
®
(5)
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#2
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Upset Stomach Remedies
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16.0
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96.0
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Dermoplast®
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#2
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Pain Relief Sprays
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21.0
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79.4
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New-Skin®
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#1
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Liquid Bandages
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62.8
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88.2
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Fess
®
(6)
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#1
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Nasal Saline Spray
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55.4
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Hydralyte®
(6)
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#1
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Oral Rehydration
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85.7
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Monistat®
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#1
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Vaginal Treatment-Anti-Fungal
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55.1
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90.5
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e.p.t™
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#3
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Pregnancy Test Kits
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9.0
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75.5
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Nix®
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#2
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Lice/Parasite Treatments
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14.4
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78.8
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DenTek®
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#2
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Peg Oral Care
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24.5
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89.4
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Household Cleaning:
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Comet®
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#1
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Abrasive Tub and Tile Cleaner
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38.7
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98.5
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(1)
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We have prepared the information included in this Annual Report on Form 10-K with regard to the market share and ranking for our brands based in part on data generated by Information Resources, Inc., an independent market research firm (“IRI”). IRI reports total U.S. Multi-Outlet retail sales data in the food, drug, mass merchandise markets (including Walmart), dollar stores (Dollar General, Family Dollar, Fred's), selected warehouse clubs (BJ's and Sam's) and DeCA military commissaries and convenience stores, representing approximately 90% of Prestige Brands' categories for retail sales.
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(2)
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“Market segment” is defined by us and is either a standard IRI category or a segment within a standard IRI category and is based on our product offerings and the categories in which we compete.
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(3)
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“Market share” is based on sales dollars in the United States, as calculated by IRI for the 52 weeks ended March 20, 2016.
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(4)
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“ACV” refers to the All Commodity Volume Food Drug Mass Index, as calculated by IRI for the 52 weeks ended March 20, 2016. ACV measures the ratio of the weighted sales volume of stores that sell a particular product to all the stores that sell products in that market segment generally. For example, if a product is sold by 50% of the stores that sell products
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in that market segment, but those stores account for 85% of the sales volume in that market segment, that product would have an ACV of 85%. We believe that a high ACV evidences a product’s attractiveness to consumers, as major national and regional retailers will carry products that are attractive to their customers. Lower ACV measures would indicate that a product is not as available to consumers because the major retailers generally would not carry products for which consumer demand is not as high. For these reasons, we believe that ACV is an important measure for investors to gauge consumer awareness of the Company’s product offerings and of the importance of those products to major retailers.
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(5)
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Gaviscon
is distributed by us in Canada only, and the market information was generated by Nielsen, an independent third party market research firm for the period ending March 5, 2016. Figures represent national, all channel retail sales data in the food, drug, mass merchandise (e.g. Walmart), general merchandise (e.g. Dollarama), and warehouse club stores (e.g. Costco). Data reported for warehouse club and general merchandise is calculated based on home scan panel data, and not direct point of sale data.
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(6)
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The Care Pharma brands include the
Fess
line of cold/allergy and saline nasal health products, which is the leading saline spray for both adults and children in Australia, and
Hydralyte
, which is the leading OTC brand in oral rehydration in Australia
.
Market information was generated by IMS Australian Proprietary Index, an independent market research firm, for the period ending February 29, 2016.
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Our products are sold through multiple channels, including mass merchandisers and drug, food, dollar, convenience, and club stores, which reduces our exposure to any single distribution channel.
We have grown our product portfolio both organically and through acquisitions. We develop our core brands organically by investing in new product lines, brand extensions and providing advertising support. Acquisitions of OTC brands have also been an important part of our growth strategy. We have acquired well-recognized brands from consumer products and pharmaceutical companies as well as from private equity investors. While many of these brands have long histories of brand development and investment, we believe that, at the time we acquired them, many were considered “non-core” by their previous owners. As a result, these acquired brands did not benefit from adequate management focus and marketing support during the period prior to their acquisition, which created opportunities for us to achieve our objective of reinvigorating these brands and improving their performance post-acquisition. After adding a brand to our portfolio, we seek to increase its sales, market share and distribution in both existing and new channels through our established retail distribution network. This is achieved often through increased spending on advertising and promotional support, new sales and marketing strategies, improved packaging and formulations and innovative development of brand extensions. Our business, business model, competitive strengths and growth strategy face various risks that are described in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.
Competitive Strengths
Diversified Portfolio of Well-Recognized and Established Consumer Brands
We own and market well-recognized consumer brands, some of which were established over 60 years ago. Our diverse portfolio of products provides us with multiple sources of growth and minimizes our reliance on any one product or category. We provide significant marketing support to our core brands that is designed to enhance our sales growth and our long-term profitability. The markets in which we sell our products, however, are highly competitive and include numerous national and global manufacturers, distributors, marketers and retailers. Many of these competitors have greater research and development and financial resources than us and may be able to spend more aggressively on sales, advertising and marketing programs and research and development, which may have an adverse effect on our competitive position.
Strong Competitor in Attractive Categories
We compete in product categories that address recurring consumer needs. We believe we are well positioned in these categories due to the long history and consumer awareness of our brands, our strong market positions, and our low-cost operating model. However, a significant increase in the number of product introductions or increased advertising, marketing and trade support by our competitors in these markets could have a material adverse effect on our results from operations.
Proven Ability to Develop and Introduce New Products
We focus our marketing and product development efforts on the identification of under-served consumer needs, the design of products that directly address those needs, and the ability to extend our highly recognizable brand names to other products. As an example of this philosophy, in 2016, we launched
Clear Eyes Pure Relief for Dry Eyes
and
Multi Symptom
,
Nix Ultra Lice Elimination System
,
Little Remedies Probiotic Plus Electrolytes
,
Fiber Choice Flavor Drops Tropical Orange,
and
Goody's Mixed Fruit Blast
and
Back and Body Single Dose
.
In 2015, we launched
Dramamine Naturals
,
Compound W Freeze Off Advanced
,
Fiber Choice Immunity Support
and
Fiber Choice Metabolism
and Energy
. Although line extensions and new product introductions
5
are important to the overall growth of a brand, our efforts may reduce sales of existing products within that brand. In addition, certain of our product introductions may not be successful.
Efficient Operating Model
To gain operating efficiencies, we oversee the production planning and quality control aspects of the manufacturing, warehousing and distribution of our products, while we outsource the operating elements of these functions to well-established third-party providers. This approach allows us to benefit from their core competencies and maintain a highly variable cost structure, with low overhead, limited working capital requirements, and minimal investment in capital expenditures, as evidenced by the following:
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Gross
Margin %
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G&A %
To Total Revenues
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CapEx %
To Total Revenues
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2016
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57.9
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9.0
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0.4
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2015
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56.8
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11.4
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0.9
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2014
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56.2
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8.1
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0.5
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In 2016, our gross margin percentage was comparable to the prior year with an increase of
110
basis points. In 2015, our gross margin percentage was comparable to the prior year with a slight increase of
60
basis points from 2014. General and administrative costs, as a percentage of total revenues, decreased
240
basis points in 2016 versus 2015, primarily as a result of costs associated with the acquisition of Insight in the prior year period and a lease termination charge related to lease payments from the Insight office incurred during the third quarter of fiscal 2015. In 2016, our capital expenditures remained consistent as a percentage of revenues, with a decrease of
50
basis points versus 2015.
Management Team with Proven Ability to Acquire, Integrate and Grow Brands
Our business has grown through acquisition, integration and expansion of the many brands we have purchased. Our management team has significant experience in consumer product marketing, sales, legal and regulatory compliance, product development and customer service. Unlike many larger consumer products companies, which we believe often entrust their smaller brands to successive junior employees, we dedicate experienced managers to specific brands. We seek more experienced personnel to bear the substantial responsibility of brand management and to effectuate our growth strategy. These managers nurture the brands to allow the brands to grow and evolve.
Growth Strategy
In order to continue to enhance our brands and drive growth, we focus our growth strategy on our core competencies:
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Effective Marketing and Advertising;
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•
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Sales Excellence;
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•
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Extraordinary Customer Service; and
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•
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Innovation and Product Development.
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We execute this strategy through the following efforts:
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Investments in Advertising and Promotion
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We invest in advertising and promotion to drive the growth of our core brands. Our marketing strategy is focused primarily on consumer-oriented programs that include targeted coupon programs, media, in-store and digital advertising. While the absolute level of marketing expenditures differs by brand and category, we have often increased the amount of investment in our brands after acquiring them. Advertising and promotion spend on our top five selling brands was approximately
13.9%
of the revenues associated with these brands in 2016.
In 2016 and 2015, advertising and promotional spend on the core brands was approximately
15.7%
and
16.0%
, respectively, of the revenues associated with these brands. In 2016, advertising and promotional spend for the newly acquired DenTek brands was approximately
18.1%
of revenues associated with those brands, from the acquisition date of February 5, 2016 through March 31, 2016. Given the competition in our industry, there is a risk that our marketing efforts may not result in increased sales and profitability. Additionally, we can offer no assurance that we can maintain any increased sales and profitability levels once attained.
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Growing our Categories and Market Share with Innovative New Products
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One of our strategies is to broaden the categories in which we participate and increase our share within those categories through ongoing product innovation. In 2016, we launched
Clear Eyes Pure Relief for Dry Eyes
and
Multi Symptom
,
Nix Ultra Lice Elimination System
,
Little Remedies Probiotic Plus Electrolytes
,
Fiber Choice Flavor Drops Tropical Orange,
and
Goody's Mixed Fruit Blast
and
Back and Body Single Dose
. In 2015, we launched
Dramamine Naturals
,
Compound W Freeze Off Advanced
,
Fiber Choice Immunity Support
and
Fiber Choice Metabolism and Energy
. While there is always a risk that sales of existing products may be reduced by new product introductions, our goal is to grow the overall sales of our brands.
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Increasing Distribution Across Multiple Channels
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Our broad distribution base attempts to ensure that our products are well positioned across all available channels and that we are able to participate in changing consumer retail trends. In an effort to ensure continued sales growth, we have altered our focus by expanding our reliance on direct sales while reducing our reliance on brokers. We believe this philosophy allows us to better:
•
Know our customer;
•
Service our customer; and
•
Support our customer.
While we make great efforts to both maintain our customer base and grow in new markets, there is a risk that we may not be able to maintain or enhance our relationships across distribution channels, which could adversely impact our business, and results from operations.
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Growing Our International Business
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International sales beyond the borders of North America represented
7.4%
,
8.9%
and
5.4%
of revenues in 2016, 2015, and 2014, respectively, and are primarily from the acquisition of DenTek in 2016, the acquisition of
Hydralyte
in 2015, and the acquisition of Care Pharma in 2014. We have designed and developed both products and packaging for specific international markets and expect that our international revenues will continue to grow. In addition to
Clear Eyes
,
Murine
and
Chloraseptic,
which are currently sold internationally, we have licensed to an international consumer packaged goods company (the "licensee") the right to use the
Comet, Spic and Span
and
Chlorinol®
trademarks in the commercial/institutional/industrial business throughout the world (excluding Russia and specified Eastern European countries). We have also transferred to the licensee the
Comet
and
Chlorinol
trademarks in Russia and specified Eastern European countries. These agreements were amended in December 2014 to allow the licensee to obtain the trademarks in certain specified Eastern European countries for $10.0 million. The amended agreement expires December 31, 2025, and includes an option (which we expect the licensee will elect to exercise such option) for the licensee to buy out the remaining commercial/institutional/industrial business at any time after July 1, 2016 for an exercise price of $10.0 million.
A number of our other brands have previously been sold internationally, and we seek to expand the number of brands sold through our existing international distribution network and continue to identify additional distribution partners for further expansion into other international markets.
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Pursuing Strategic Acquisitions
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Acquisitions are an important part of our overall strategy for growing revenue. We have a history of growth through acquisition (see "Our History and Accomplishments" below). In 2016, we acquired DenTek, a privately-held marketer and distributor of specialty oral care products. In 2015, we acquired Insight, including a leading feminine care platform in the United States and Canada anchored by
Monistat
, the leading North American brand in OTC yeast infection treatment. The acquisition also added brands to the Company's cough & cold, pain relief, ear care and dermatological platforms. Additionally, in 2015, we acquired the
Hydralyte
brand in Australia and New Zealand.
Hydralyte
is the leading OTC brand in oral rehydration in Australia. In 2014, we acquired Care Pharma, including the
Fess
line of cold/allergy and saline nasal health products. Other key brands acquired from Care Pharma include
Painstop
analgesic,
Rectogesic
for rectal discomfort, and the
Fab
line of nutritional supplements. Care Pharma also markets a line of brands for children including
Little Allergies
,
Little Eyes
, and
Little Coughs
. While we believe that there will continue to be a pipeline of acquisition candidates for us to investigate, strategic fit and relative cost are of the utmost importance in our decision to pursue such opportunities. We believe our business model allows us to integrate acquisitions in an efficient manner, while also providing opportunities to realize significant cost savings. However, there is a risk that our financial condition and operating results could be adversely affected in the event we (i) do not realize all of the anticipated operating synergies and cost savings from acquisitions, (ii) do not successfully integrate acquisitions or (iii) pay too much for these acquisitions. In the past, we utilized various debt offerings to help us acquire certain brands or businesses. For example, in 2010, we refinanced our long-term debt and significantly improved our liquidity position, debt maturities and covenants, all of which better positioned us to pursue the Blacksmith Brands, Inc. ("Blacksmith") and
Dramamine
acquisitions we consummated that year and potential future acquisition targets. In 2012, we completed an offering of senior notes, entered into new senior secured term loan and revolving credit facilities and ratably secured our existing senior notes with the new term loan facility. We used the net proceeds from the senior notes offering, together with borrowings under the new senior secured term loan facility, to finance the acquisition of the 17 OTC brands acquired from GSK that year, to repay our existing senior secured credit facilities, to pay fees and expenses incurred in connection with these transactions and for general corporate purposes. In 2013, we sold one of the acquired GSK Brands,
Phazyme
, and used the proceeds to repay debt. In 2014, we amended our credit facilities and used the net proceeds to repay existing senior secured credit facilities, to pay fees and expenses incurred in connection with Care Pharma transactions and for general corporate purposes. In 2015, we further amended our credit facilities and used the net proceeds to finance the acquisition of Insight and to pay fees and expenses incurred in connection with the Insight and
Hydralyte
transactions. Additionally, in 2016, we further amended our credit facilities and used the net proceeds to repay an existing senior credit facility and to finance the acquisition of DenTek, including fees and expenses incurred in connection with the DenTek transaction.
Market Position
During 2016, approximately
72.1%
of our net revenues were from brands with a number one or number two market position, compared with approximately
73.0%
and
71.5%
during 2015 and 2014, respectively. These brands included
Chloraseptic
,
Clear Eyes
,
Compound W
,
Dramamine,
Efferdent
,
The Doctor's Brushpicks
,
BC/Goody's, Beano, Debrox,
Gaviscon, Dermoplast, New-Skin, Fess, Hydralyte, Monistat, Nix,
and
Comet
.
See “Major Brands” above for information regarding market share and ACV calculations.
Our History and Accomplishments
We were originally formed in 1996 as a joint venture of Medtech Labs and The Shansby Group (a private equity firm), to acquire certain OTC drug brands from American Home Products. Since 2001, our portfolio of brand name products has expanded from OTC brands to also include household cleaning products. We have added brands to our portfolio principally by acquiring strong and well-recognized brands from larger consumer products and pharmaceutical companies. In February 2004, GTCR Golder Rauner II, LLC (“GTCR”), a private equity firm, acquired our business from the owners of Medtech Labs and The Shansby Group. In addition, we acquired the
Spic and Span
business in March 2004.
In April 2004, we acquired Bonita Bay Holdings, Inc. (“Bonita Bay”), the parent holding company of Prestige Brands International, Inc., which conducted its business under the “Prestige” name. After we completed the Bonita Bay acquisition, we began to conduct our business under the “Prestige” name as well. The Bonita Bay brand portfolio included
Chloraseptic, Comet, Clear Eyes
and
Murine
.
Prestige Brands Holdings, Inc. was incorporated in the State of Delaware in June 2004.
8
In October 2004, we acquired the
Little Remedies
brand of pediatric OTC products through our purchase of Vetco, Inc. Products offered under the
Little Remedies
brand included
Little Noses®
nasal products,
Little Tummys®
digestive health products,
Little Colds®
cough & cold remedies, and
Little Remedies
New Parents Survival Kit.
In February 2005, we raised $448.0 million through an initial public offering of 28.0 million shares of common stock. We used the net proceeds of the offering ($416.8 million), plus $3.0 million from our revolving credit facility and $8.8 million of cash on hand, to (i) repay $100.0 million of our existing senior indebtedness, (ii) redeem $84.0 million in aggregate principal amount of our then existing 9.25% senior subordinated notes, (iii) repurchase an aggregate of 4.7 million shares of our common stock held by the investment funds affiliated with GTCR and TCW/Crescent Mezzanine, LLC for $30.2 million, and (iv) redeem all outstanding senior preferred units and class B preferred units of one of our subsidiaries for $199.8 million.
In October 2005, we acquired the
Chore Boy
brand of metal cleaning pads, scrubbing sponges, and non-metal soap pads, which had over 84 years of history in the scouring pad and cleaning accessories categories.
In November 2005, we acquired Dental Concepts LLC, a marketer of therapeutic oral care products sold under
The Doctor’s
brand. The brand is driven primarily by two niche segments, bruxism (nighttime teeth grinding) and interdental cleaning. Products marketed under
The Doctor’s
brand include
The Doctor’s NightGuard
Dental Protector, the first Food and Drug Administration (“FDA”) cleared OTC treatment for bruxism, and
The Doctor’s BrushPicks,
disposable interdental toothpicks.
In September 2006, we acquired Wartner USA B.V., the owner of the
Wartner
brand of OTC wart treatment products in the United States and Canada. The
Wartner
brand, which is the number three brand in the U.S. OTC wart treatment category, has enhanced our market position in the category, complementing
Compound W
.
On October 28, 2009, we sold our three shampoo brands -
Prell
Shampoo,
Denorex
Dandruff Shampoo and
Zincon
Dandruff Shampoo. The terms of the sale included an upfront receipt of $8.0 million in cash, with a subsequent receipt of $1.0 million in cash on October 28, 2010. We used the proceeds from the sale to reduce outstanding bank indebtedness.
In March 2010, we refinanced our outstanding long-term indebtedness through entry into a $150.0 million senior term loan facility due April 1, 2016 (the “2010 Senior Term Loan”), and the issuance of $150.0 million in senior notes with an 8.25% interest rate due 2018 (the "2010 Senior Notes"). Proceeds from the new indebtedness were used to retire our senior term loan facility originally due April 1, 2011 and 9.25% senior subordinated notes originally due April 15, 2012. Additionally, our new credit agreement included a $30.0 million revolving credit facility due April 1, 2015. The refinancing and new credit facility improved our liquidity, extended maturities, and improved covenant ratios, all of which better positioned us to pursue strategic acquisitions.
On September 1, 2010, we sold certain assets related to the
Cutex
nail polish remover brand for $4.1 million.
On November 1, 2010, we acquired 100% of the capital stock of Blacksmith for $190.0 million in cash, plus a working capital adjustment of $13.4 million. Additionally, we paid $1.1 million on behalf of Blacksmith for the sellers' transaction costs. As a result of this acquisition, we acquired five OTC brands:
Efferdent, Effergrip, PediaCare, Luden's
and
NasalCrom.
In connection with the acquisition of Blacksmith, in November 2010, we (i) executed an Increase Joinder to our existing credit agreement pursuant to which we entered into an incremental term loan in the amount of $115.0 million and increased our revolving credit facility by $10.0 million to $40.0 million; and (ii) issued an additional $100.0 million aggregate principal amount of 2010 Senior Notes. The purchase price for Blacksmith was funded from the incremental term loan and the issuance of the 2010 Senior Notes and cash on hand.
On January 6, 2011, we completed the acquisition of certain assets comprising the
Dramamine
brand in the United States for $77.1 million in cash, including transaction costs incurred in the acquisition of $1.2 million. The purchase price was funded by cash on hand.
On January 31, 2012, we completed the acquisition of 15 GlaxoSmithKline brands (the "GSK Brands I"), including the related contracts, trademarks and inventory, for $615.0 million in cash, subject to a post-closing inventory and apportionment adjustment. The GSK Brands I include
BC
,
Goody's
and
Ecotrin
brands of pain relievers;
Beano
,
Gaviscon
,
Phazyme
,
Tagamet
and
Fiber Choice
gastrointestinal brands; and the
Sominex
sleep aid brand. On March 30, 2012, we completed the acquisition from GSK of
Debrox
and
Gly-Oxide
(the "GSK Brands II") in the United States, including the related contracts, trademarks and inventory, for $45.0 million in cash, subject to a post-closing inventory and apportionment adjustment.
On January 31, 2012, in connection with the acquisition of the GSK Brands I, we (i) issued 8.125% senior notes due in 2020 in an aggregate principal amount of $250.0 million (the “2012 Senior Notes”), and (ii) entered into a new senior secured credit facility, which consists of a $660.0 million term loan facility with a seven-year maturity (the “2012 Term Loan”) and a $50.0
9
million asset-based revolving credit facility with a five-year maturity (the “2012 ABL Revolver”). In September 2012, we utilized a portion of our accordion feature to increase the amount of our borrowing capacity under the 2012 ABL Revolver by $25.0 million to $75.0 million. Additionally, in connection with the entry into the new senior secured credit facilities, we repaid the outstanding balance of and terminated our 2010 Senior Term Loan.
On October 31, 2012, we divested the
Phazyme
gas treatment brand, which was a non-core OTC brand that we acquired from GSK in January 2012. We received $21.7 million from the divestiture on October 31, 2012 and the remaining $0.6 million on January 4, 2013. The proceeds were used to repay debt. No significant gain or loss was recorded as a result of the sale.
On February 21, 2013, we entered into Amendment No. 1 ("Term Loan Amendment No. 1") to the 2012 Term Loan. Term Loan Amendment No. 1 provided for the refinancing of all of our existing Term B Loans with new Term B-1 Loans. The interest rate on the Term B-1 Loans was based, at our option, on a LIBOR rate plus a margin of 2.75% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin. The new Term B-1 Loans will mature on the same date as the Term B Loans' original maturity date. In addition, Term Loan Amendment No. 1 provides us with certain additional capacity to prepay subordinated debt, the 2012 Senior Notes and certain other unsecured indebtedness permitted to be incurred under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver.
On July 1, 2013, we completed the acquisition of Care Pharma, which was funded through a combination of our existing senior secured credit facilities and cash on hand. The Care Pharma brands include the
Fess
line of cold/allergy and saline nasal health products, which is the leading saline spray for both adults and children in Australia. Other key brands include
Painstop
analgesic,
Rectogesic
for rectal discomfort, and the
Fab
line of nutritional supplements. Care Pharma also markets a line of brands for children including
Little Allergies
,
Little Eyes
,
and
Little Coughs
. The brands acquired are complementary to our OTC Healthcare portfolio.
On December 17, 2013, we issued $400.0 million aggregate principal amount of senior unsecured notes, with an interest rate of 5.375% and a maturity date of December 15, 2021 (the "2013 Senior Notes"). We may redeem some or all of the 2013 Senior Notes at redemption prices set forth in the indenture governing the 2013 Senior Notes. As a result of this issuance, we redeemed $201.7 million of the 2010 Senior Notes in December 2013 and the balance of $48.3 million in January 2014 and repaid approximately $120.0 million toward our 2012 Term Loan.
On September 3, 2014, the Company completed its previously announced acquisition of Insight, a marketer and distributor of feminine care and other OTC healthcare products, for $753.2 million in cash. The closing followed the FTC approval of the acquisition and was finalized pursuant to the terms of the purchase agreement announced on April 25, 2014. Pursuant to the Insight purchase agreement, the Company acquired 27 OTC brands sold in North America (including related trademarks, contracts and inventory), which extended the Company's portfolio of OTC brands to include a leading feminine care platform in the United States and Canada anchored by
Monistat
, the leading North American brand in OTC yeast infection treatment. The acquisition also added brands to the Company's cough & cold, pain relief, ear care and dermatological platforms. In connection with the FTC's approval of the Insight acquisition, we sold one of the competing brands that we acquired from Insight on the same day as the Insight closing. Insight is primarily included in our North American OTC Healthcare segment.
On September 3, 2014, we entered into Amendment No. 2 ("Term Loan Amendment No. 2") to the 2012 Term Loan. Term Loan Amendment No. 2 provides for (i) the creation of a new class of Term B-2 Loans under the 2012 Term Loan (the "Term B-2 Loans") in an aggregate principal amount of $720.0 million, (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility and financial maintenance covenant relief, and (iii) an interest rate on (x) the Term B-1 Loans that is based, at our option, on a LIBOR rate plus a margin of 3.125% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin, and (y) the Term B-2 Loans that is based, at our option, on a LIBOR rate plus a margin of 3.50% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin (with a margin step-down to 3.25% per annum, based upon achievement of a specified secured net leverage ratio).
The 2012 Term Loan, as amended, bears interest at a rate per annum equal to an applicable margin plus, at our option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus 1.00% and (d) a floor of 2.00% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, with a floor of 1.00%.
On September 3, 2014, we entered into Amendment No. 3 (“ABL Amendment No. 3”) to the 2012 ABL Revolver. ABL Amendment No. 3 provides for (i) a $40.0 million increase in revolving commitments under the 2012 ABL Revolver and (ii) increased flexibility
10
under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility. Borrowings under the 2012 ABL Revolver, as amended, bear interest at a rate per annum equal to an applicable margin, plus, at our option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus 1.00% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs. The initial applicable margin for borrowings under the 2012 ABL Revolver is 1.75% with respect to LIBOR borrowings and 0.75% with respect to base-rate borrowings. The applicable margin for borrowings under the 2012 ABL Revolver may be increased to 2.00% or 2.25% for LIBOR borrowings and 1.00% or 1.25% for base-rate borrowings, depending on average excess availability under the 2012 ABL Revolver during the prior fiscal quarter. In addition to paying interest on outstanding principal under the 2012 ABL Revolver, we are required to pay a commitment fee to the lenders under the 2012 ABL Revolver in respect of the unutilized commitments thereunder. The initial commitment fee rate is 0.50% per annum. The commitment fee rate will be reduced to 0.375% per annum at any time when the average daily unused commitments for the prior quarter is less than a percentage of total commitments by an amount set forth in the credit agreement covering the 2012 ABL Revolver.
On June 9, 2015, we entered into Amendment No. 4 (“ABL Amendment No. 4”) to the 2012 ABL Revolver. ABL Amendment No. 4 provides for (i) a $35.0 million increase in the accordion feature under the 2012 ABL Revolver and (ii) increased flexibility under the credit agreement governing the 2012 ABL Revolver, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant relief and (iii) extended the maturity date of the 2012 ABL Revolver to June 9, 2020, which is five years from the effective date. We may voluntarily repay outstanding loans under the 2012 ABL Revolver at any time without a premium or penalty.
On February 4, 2016, in anticipation of closing the DenTek acquisition, we entered into a bridge credit agreement. The Bridge Credit Agreement provides for term loans in an aggregate principal amount of $80.0 million (the “Bridge Term Loan”), at an applicable interest rate margin equal to (i) for the period beginning on the closing date and ending on the 179th day following the closing date, 4.75% for Eurocurrency rate loans and 3.75% for base rate loans, (ii) for the period from and including the 180th day following the closing date and ending on the 269th day following the closing date, 5.00% for Eurocurrency rate loans and 4.00% for base rate loans, and (iii) for the period from and after the 270th day following the closing date, 5.25% for Eurocurrency rate loans and 4.25% for base rate loans. The Bridge Term Loans would have matured on February 2, 2017. However, as of March 31, 2016, there were no outstanding balances as the Company used the net proceeds from the 2016 Senior Notes issuance (discussed below) to repay all of these Bridge Term Loans.
In connection with the Bridge Credit Agreement and DenTek Acquisition on February 5, 2016, we entered into Amendment No. 5 (the “ABL Amendment No. 5”) to the 2012 ABL Revolver. ABL Amendment No. 5 temporarily suspended certain financial and related reporting covenants in the 2012 ABL Revolver until the earliest of (i) the date that is 60 calendar days following February 4, 2016, (ii) the date upon which certain of DenTek’s assets are included in the Company’s borrowing base under the 2012 ABL Revolver and (iii) the date upon which the Company receives net proceeds from an offering of debt securities.
On February 19, 2016, we issued $350.0 million aggregate principal amount of unsecured notes, with an interest rate of 6.375% and a maturity date of March 1, 2024 (the "2016 Senior Notes"). We may redeem some or all of the 2016 Senior Notes at redemption prices set forth in the indenture governing the 2016 Senior Notes. On February 29, 2016, the Company used the net proceeds from the 2016 Senior Notes issuance to redeem all of the 2012 Senior Notes at a redemption price equal to 104.063%, plus accrued and unpaid interest, and repay all of the Bridge Term Loan.
Products
We conduct our operations through three reportable segments:
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North American Over-the-Counter ("OTC") Healthcare;
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International Over-the-Counter Healthcare; and
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•
|
Household Cleaning.
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11
North American and International OTC Healthcare Segments
Our portfolio of OTC Healthcare products includes the following core brands:
DenTek
specialty oral care products,
Monistat
women’s health products,
Nix
lice treatment,
Chloraseptic
sore throat treatments,
Clear Eyes
eye care products,
Compound W
wart treatments,
The Doctor's NightGuard
dental protector,
Little Remedies
pediatric over-the-counter products,
Efferdent
denture care products,
Luden's
throat drops,
Dramamine
motion sickness treatment,
BC
and
Goody's
pain relievers,
Beano
gas prevention,
Debrox
earwax remover, and
Gaviscon
antacid in Canada.
Our other significant brands include
Dermoplast
first-aid products,
New-Skin
liquid bandage,
Ecotrin
aspirin,
e.p.t
family planning products and
Uristat
urinary tract infection treatments.
Our significant international brands include
Fess
nasal saline spray and
Hydralyte
for dehydration and electrolyte replacement. In 2016, the North American OTC Healthcare segments accounted for
81.6%
of our net revenues, compared to
79.3%
and
80.8%
in 2015 and 2014, respectively. In 2016, the International OTC Healthcare segment accounted for
7.2%
of our net revenues, compared to
8.1%
and
4.5%
in 2015 and 2014, respectively.
Chloraseptic
Chloraseptic
was originally developed by a dentist in 1957 to relieve sore throats and mouth pain.
Chloraseptic’s
6 oz. cherry liquid sore throat spray is the number one selling product in the U.S. sore throat liquids/lozenges market and the number one U.S. pharmacist recommended spray according to Pharmacy Times. The
Chloraseptic
brand has an ACV of
94.9%
and is number one in the U.S. Sore Throat Liquids/Lozenges category with a
48.4%
U.S. market share.
Clear Eyes
Clear Eyes
, with an ACV of
96.7%
, has been marketed as an effective eye care product that helps eliminate redness and helps moisturize the eye.
Clear Eyes
is among the leading brands in the U.S. OTC personal eye care category.
Clear Eyes
is the number one U.S. brand in the Redness Relief category, with
28.6%
U.S. market share.
Compound W
Compound W
has a long heritage, with its wart removal products having been introduced more than 50 years ago.
Compound W
products are specially designed to provide relief from common and plantar warts and are sold in multiple forms of treatment depending on the consumer’s need, including Fast-Acting Liquid, Fast-Acting Gel, One Step Pads and
Freeze Off®
, a cryogenic-based wart removal system that works in as little as one application.
Compound W
is the number one U.S. pharmacist recommended wart remover according to Pharmacy Times. Additionally,
Compound W
is the number one wart removal brand in the United States, with a
37.8%
U.S. market share and an ACV of
88.4%
.
Dramamine
Dramamine
is the number one brand and the number one pharmacist recommended brand, according to Pharmacy Times, in the $95.5 million U.S. Motion Sickness Relief category with a
48.0%
U.S. market share and distribution of over
94.0%
ACV. The product line includes the new
Dramamine
Non-Drowsy Naturals,
Dramamine
for Kids, a Less Drowsy formula and a Chewable form, in addition to the top selling
Dramamine
original product.
Efferdent
Efferdent
Denture Cleanser holds a
25.1%
U.S. market share and the number two position in the $147.8 million U.S. Denture Cleanser Tablets category. The January 2011 introduction of
Efferdent
PM
extended the brand into the growing overnight cleanser market. In 2012, we introduced
Efferdent
Power Clean Crystals
denture cleanser. This product is designed specifically for the cleaning of mouth guards, retainers, removable braces and mouth guard appliances.
Efferdent
enjoys distribution of over
98.6%
ACV.
Little Remedies
Little Remedies
is a line of gentle and soothing pediatric OTC products made specifically for little ones and their symptoms like gas, colic or a stuffy nose. The products contain safe ingredients needed to help children feel better, at the right strength for their growing bodies, and never any alcohol, dyes, or artificial flavors. The portfolio includes: (i) an assortment of nasal saline products; (ii) products for coughs & colds; (iii) products for tummy relief, which include gas relief drops and gripe water, an herbal supplement used to ease discomfort often associated with colic and hiccups; and (iv) fever and pain relievers.
Little Remedies
holds a
3.5%
market share of the competitive U.S. Pediatric Healthcare market and ACV of
92.3%
.
Luden's
Luden's
throat drops heritage spans more than 130 years. Among the fastest growing brands in the $661.6 million U.S. Cough Drops category,
Luden's
has a
6.4%
share of the market and distribution of more than
94.6%
ACV.
Luden's
Wild Cherry is the number two selling item in the U.S. Cough Drop category, and a Sugar Free line extension was launched in 2011. In 2014,
Luden’s
12
continued to expand its product portfolio with the introduction of deliciously soothing Sugar Free Black Cherry, Watermelon and Blue Raspberry throat drops.
The Doctor’s
The Doctor’s
is a line of products designed to help consumers maintain good oral hygiene in between dental office visits. The market is driven primarily by two niche segments: bruxism (nighttime teeth grinding) and interdental cleaning.
The Doctor’s NightGuard
dental protector was designed to "Protect your smile while you sleep
TM
" and was the first FDA cleared OTC treatment for bruxism.
The
Doctor's NightGuard
currently holds a
15.0%
share of the U.S. market and the number three position in the U.S. Teeth Grinding market.
The Doctor's NightGuard
also has a distribution of
65.8%
ACV.
The Doctor's Brushpicks
is number two in the Disposable Dental Picks market, with a 12.6% share of the market.
BC/Goody's
BC
and
Goody's
compete in the $3.6 billion U.S. Adult Analgesic category. They are the top two U.S. OTC pain reliever brands in a powder form. Developed in the Southeast region over 80 years ago, their unique form delivers fast pain relief. The combined brands have a 5.3% share of the Adult Analgesic category nationally according to IRI, but are the number one Adult Analgesic product in convenience stores according to IRI.
BC
is available in Original, Cherry and Arthritis formulas.
Goody's
includes Mixed Fruit Blast, Extra Strength, Back & Body, PM, Cool Orange, and the single dose liquid pain reliever, Headache Relief Shot.
Beano
Beano
commands an
80.1%
share and the number one position in the U.S. Gas Prevention category and the number two overall position in the larger $223.9 million U.S. Anti-gas category. The product is formulated with a unique digestive enzyme that works naturally with the body to prevent gas symptoms before they start. In 2010, the brand developed a proprietary delivery system and launched
Beano
Meltaways, a dissolvable tablet that fills the consumer need for a more discreet way to manage the condition.
Debrox
Debrox
is the number one brand of U.S. OTC ear wax removal aids, with a
53.3%
share of the U.S. Ear Wax Removal market, and an 86.1% ACV. The product line consists of two items: an ear wax removal kit containing liquid drops and an ear washer bulb, and a second item containing just the liquid drops as a refill. With
Debrox
, consumers have a safe, gentle method for removing ear wax build up while in the privacy of their homes.
Debrox
is the number one recommended brand with doctors and pharmacists in the United States according to Pharmacy Times.
Gaviscon
Gaviscon
is currently the number two brand in the $158.1 million Canadian Upset Stomach Remedy category with a
16.0%
market share.
Gaviscon
's success is partly attributed to a differentiated method of action versus traditional antacid products, as it creates a foam barrier to keep stomach acid from backing up into the esophagus.
Dermoplast
Dermoplast
is currently the number two brand and the number one pharmacist recommended brand, according to Pharmacy Times, in the $33.7 million U.S. Pain Relief Sprays market.
Dermoplast
brings hospital-strength pain and itch relief to consumers’ homes. It is available in Original Burn & Itch and Antibacterial First Aid Sprays. Widely used in hospitals, it is sold to institutions in addition to retail stores. The brand holds a
21.0%
U.S. market share and a
79.4%
ACV.
New-Skin
New-Skin
is the number one brand in the $18.7 million U.S. Liquid Bandages market with a
62.8%
market share. It provides a flexible, antiseptic seal to prevent infections and friction injuries in hard-to-cover areas.
New-Skin
has an
88.2%
ACV.
Fess
In the Australia market,
Fess
is currently the leading brand in the Nasal Saline Spray market with a
55.4%
market share.
Hydralyte
Hydralyte
is the leading OTC brand in oral rehydration in Australia with an
85.7
% market share.
Monistat
Monistat,
the number one OB/GYN recommended U.S. OTC brand for yeast infection treatment,
was acquired as part of the Insight acquisition and is currently the largest brand in the Company. The active ingredient, miconazole, is as effective at curing yeast infections as the leading prescription pill.
Monistat
comes in 3 different doses: 1-day, 3-day and 7-day; in 3 different forms: cream, ovule and suppository; and with or without symptom relief accessories: external cream and wipes. As the number one brand in the U.S. vaginal treatments/anti-fungal category,
Monistat
holds a 55.1% share of the market and has a distribution of 90.5% ACV. The
Monistat® Complete Care™
line of products was introduced in 2014 and includes 4 products in feminine care,
13
including an Instant Itch Relief cream, Vaginal Health Test, Chafing Relief Powder Gel®, and Stay Fresh Feminine Freshness Gel. The
Complete Care™
line holds a 3.8% share of the U.S. feminine care market and has a distribution of 79.7% ACV.
e.p.t
The first U.S. brand to market an over the counter pregnancy test kit,
e.p.t
has been on the market for over 35 years.
e.p.t
provides over 99% accuracy and can be used up to five days before the expected period.
e.p.t
features advanced technology available in both analog and digital tests. Both provide easy to read and clear results.
e.p.t
is the number three brand in the U.S. Pregnancy Test Kits category and holds a 9.0% share of the market and has a distribution of 75.5% ACV.
Nix
Nix
is the number two brand in the $163.6 million U.S. Lice/Parasite treatments category with a 14.4% market share.
Nix
kills lice and their eggs while also protecting against lice re-infestation for up to 14 days. It is safe for use on children as young as 2 months old and is the number one recommended brand for lice treatments according to Pharmacy Times.
DenTek
DenTek
is the number two brand in the Peg Oral Care market with a 24.5% market share. The
DenTek
brand is part of the Peg Oral Care Segment, which includes floss picks, dental guards, disposable picks, dental repair and wax, floss threaders, dental picks, and tongue cleaners.
Household Cleaning Segment
Our portfolio of Household Cleaning brands includes the
Chore Boy, Comet
and
Spic and Span
brands. During 2016, the Household Cleaning segment accounted for
11.2%
of our revenues, compared with
12.6%
and
14.7%
in 2015 and 2014, respectively.
Comet
Comet
was originally introduced in 1956 and is one of the most widely recognized Household Cleaning brands with an ACV of
98.5%
.
Comet
is the number one brand with a 38.7% market share in the U.S. Abrasive Tub and Tile Cleaner segment of the Household Cleaning category that includes non-scratch, abrasive powders, creams, and liquids.
Comet
products include several varieties of cleaning powders, spray and cream, both abrasive and non-abrasive.
For additional information concerning our business segments, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 18 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Marketing and Sales
Our marketing strategy is based on the acquisition and the rejuvenation of established consumer brands that possess what we believe to be significant brand value and unrealized potential. Our marketing objective is to increase sales and market share by developing innovative new products and line extensions and executing creative and cost-effective advertising and promotional programs. After we acquire a brand, we implement a brand building strategy that uses the brand’s existing consumer awareness to maximize sales of current products and provides a vehicle to drive growth through product innovation. This brand building process involves the evaluation of the existing brand name, the development and introduction of innovative new products, and the execution of support programs. Recognizing that financial resources are limited, we allocate our resources to focus on our core brands with the most impactful, consumer-relevant initiatives, which we believe have the greatest opportunities for growth and financial success. Brand priorities vary from year-to-year and generally revolve around new product introductions.
Customers
Our senior management team and dedicated sales force strive to maintain long-standing relationships with our top 50 domestic customers. We also contract with third-party sales management enterprises that interface directly with our remaining customers and report directly to members of our sales management team.
We enjoy broad distribution across each of the major retail channels, including mass merchandisers, drug, food, dollar, convenience and club stores. The following table sets forth the percentage of gross sales across our six major distribution channels during each of the past three years ended March 31:
14
|
|
Percentage of
Gross Sales
(1)
|
||||
|
Channel of Distribution
|
2016
|
2015
|
2014
|
||
|
Mass
|
30.2
|
30.1
|
29.6
|
||
|
Drug
|
22.3
|
26.5
|
23.5
|
||
|
Food
|
18.0
|
18.4
|
19.6
|
||
|
Dollar
|
10.7
|
9.3
|
9.0
|
||
|
Convenience
|
6.6
|
5.7
|
7.3
|
||
|
Club
|
2.7
|
2.0
|
3.0
|
||
|
Other
|
9.5
|
8.0
|
8.0
|
||
|
(1)
|
Includes estimates for some of our wholesale customers that service more than one distribution channel.
|
Due to the diversity of our product lines, we believe that each of these channels is important to our business, and we continue to seek opportunities for growth in each channel.
Our principal customer relationships include Walmart, Walgreens, and CVS. During 2016, 2015, and 2014, Walmart accounted for approximately
20.2%
,
18.1%
, and
19.5%
, respectively, of our gross revenues. We expect that for future periods, our top ten customers, including Walmart, will, in the aggregate, continue to account for a large portion of our sales.
Our strong customer relationships and product recognition allow us to attempt to capitalize on a number of important strategic opportunities, including (i) minimization of slotting fees, (ii) maximization of new product introductions, (iii) maximization of shelf space prominence, and (iv) minimization of cash collection days. We believe that our emphasis on strong customer relationships, speed and flexibility and leading sales technology capabilities, combined with consistent marketing support programs and ongoing product innovation, will continue to maximize our competitiveness in the increasingly complex retail environment.
The following table sets forth a list of our primary distribution channels and our principal customers for each channel:
|
Distribution Channel
|
|
Customers
|
Distribution Channel
|
|
Customers
|
|
|
Mass
|
|
Meijer
|
Drug
|
|
CVS
|
|
|
|
|
Target
|
|
|
Rite Aid
|
|
|
|
|
Walmart
|
|
|
Walgreens
|
|
|
|
|
|
|
|
||
|
|
|
|
||||
|
Food
|
|
Ahold
|
Dollar
|
|
Dollar General
|
|
|
|
|
Kroger
|
|
|
Dollar Tree
|
|
|
|
|
Publix
|
|
|
Family Dollar
|
|
|
|
|
Safeway
|
||||
|
|
|
Supervalu
|
||||
|
|
|
|
||||
|
Convenience
|
McLane
|
Club
|
|
BJ’s Wholesale Club
|
||
|
HT Hackney
|
|
|
Costco
|
|||
|
Core Mark
|
|
|
Sam’s Club
|
|||
Outsourcing and Manufacturing
In order to maximize our competitiveness and efficiently allocate our resources, third-party manufacturers fulfill our manufacturing needs. We have found that contract manufacturing maximizes our flexibility and responsiveness to industry and consumer trends while minimizing the need for capital expenditures. We select contract manufacturers based on their core competencies and our perception of the best overall value, including factors such as (i) depth of services, (ii) professionalism and integrity of the management team, (iii) manufacturing agility and capacity, (iv) regulatory compliance, and (v) competitive pricing. We also conduct thorough reviews of each potential manufacturer’s facilities, quality standards, capacity and financial stability. We generally purchase only finished products from our manufacturers.
15
Our primary contract manufacturers provide comprehensive services from product development through the manufacturing of finished goods. They are responsible for such matters as (i) production planning, (ii) product research and development, (iii) procurement, (iv) production, (v) quality testing, and (vi) almost all capital expenditures. In most instances, we provide our contract manufacturers with guidance in the areas of (i) product development, (ii) performance criteria, (iii) regulatory guidance, (iv) sourcing of packaging materials, and (v) monthly master production schedules. This management approach results in minimal capital expenditures and maximizes our cash flow, which allows us to reinvest to support our marketing initiatives, fund brand acquisitions or repay outstanding indebtedness.
At March 31, 2016, we had relationships with
119
third-party manufacturers. Of those, we had long-term contracts with
55
manufacturers that produced items that accounted for approximately
79.9%
of our gross sales for 2016, compared to
44
manufacturers with long-term contracts that accounted for approximately
82.9%
of our gross sales in 2015. The fact that we do not have long-term contracts with certain manufacturers means that they could cease manufacturing our products at any time and for any reason or initiate arbitrary and costly price increases, which could have a material adverse effect on our business and results from operations.
At March 31, 2016, suppliers for our key brands included GSK, Denison Pharmaceuticals, Inc., Aspen Pharmacare, Olds Products Company, Tower Laboratories Ltd., and Contract Pharmaceuticals Corp. We enter into manufacturing agreements for a majority of our products by sales volume, each of which vary based on the capabilities of the third-party manufacturer and the products being supplied. These agreements explicitly outline the manufacturer’s obligations and product specifications with respect to the brand or brands being produced. The purchase price of products is subject to change pursuant to the terms of these agreements due to fluctuations in raw material, packaging and labor costs. Other products are manufactured on a purchase order basis, which is generally based on batch sizes and results in no long-term obligations or commitments.
Warehousing and Distribution
We receive orders from retailers and/or brokers primarily by electronic data interchange, which automatically enters each order into our computer systems and then routes the order to our distribution center. The distribution center will, in turn, send a confirmation that the order was received, fill the order and ship the order to the customer, while sending a shipment confirmation to us. Upon receipt of the shipment confirmation, we send an invoice to the customer.
We manage product distribution in the continental United States primarily through one facility located in St. Louis, which is owned and operated by a third-party provider. Our U.S. warehouse provider provides warehouse services including storage, handling and shipping, as well as transportation services, with respect to our full line of products, including (i) complete management services, (ii) claims administration, (iii) proof of delivery, (iv) procurement, (v) report generation, and (vi) automation and freight payment services.
If our warehouse provider abruptly stopped providing warehousing or transportation services to us, our business operations could suffer a temporary disruption while we engage new service providers. We believe this process could be completed quickly and any resulting temporary disruption would not be likely to have a significant adverse effect on our business, operating results or financial condition. However, a serious disruption, such as a flood or fire, to our distribution center could damage our inventory and could materially impair our ability to distribute our products to customers in a timely manner or at a reasonable cost. We could incur significantly higher costs and experience longer lead times associated with the distribution of our products to our customers during the time required to reopen or replace our distribution center. As a result, any such serious or prolonged disruption could have a material adverse effect on our business, financial condition and results from operations.
Competition
The business of selling brand name consumer products in the OTC Healthcare and Household Cleaning categories is highly competitive. These markets include numerous national and global manufacturers, distributors, marketers and retailers that actively compete for consumers’ business both in the United States and abroad. In addition, like most companies that market products in these categories, we are experiencing increased competition from “private label” products introduced by major retail chains. While we believe that our branded products provide superior quality and benefits, we are unable to predict the extent to which consumers will purchase “private label” products as an alternative to branded products.
Our principal competitors vary by industry category. Competitors in the OTC Healthcare category include: Johnson & Johnson, maker of Visine®, which competes with our
Clear Eyes
and
Murine
brands; McNeil-PPC (owned by Johnson & Johnson), maker of Children's Tylenol®, and Novartis Consumer Healthcare, maker of Triaminic
®
, each of which competes with our
PediaCare
and
Little Remedies
brands; The Procter & Gamble Company, maker of Vicks®, Reckitt Benckiser, maker of Cepacol®, and Kraft Foods, maker of Halls®, each of which competes with our
Chloraseptic
and
Luden's
brands; and The Procter & Gamble Company,
16
maker of Fixodent®, and GSK, maker of Polident®, each of which competes with our
Efferdent
brand. Sunstar America, Inc., maker of the GUM® line of oral care products, competes with our
DenTek
and
The Doctor's
oral care brands. Top competitors of our acquired GSK Brands categories include: McNeil-PPC (owned by Johnson & Johnson), maker of Tylenol®, Pfizer, maker of Advil®, and Novartis Consumer Healthcare, maker of Excedrin®, each of which competes with our
BC, Goody's
and
Ecotrin
brands. The Procter & Gamble Company, maker of Metamucil®, competes with our
Fiber Choice
brand; Novartis Consumer Healthcare, maker of Gas X®, competes with our
Beano
brand; and GSK, maker of Tums®, competes with our
Gaviscon
and
Tagamet
brands.
Competitors in the Household Cleaning category include: Henkel AG & Co., maker of Soft Scrub®, Colgate-Palmolive Company, maker of Ajax® Cleanser, and The Clorox Company, maker of Tilex®, each of which competes with our
Comet
brand. Additionally, Clorox’s Pine Sol® and The Procter & Gamble Company’s Mr. Clean® compete with our
Spic and Span
brand, while 3M Company, maker of
Scotch-Brite
®,
O-Cel-O
®
and Dobie® brands, and Clorox’s SOS® compete with our
Chore Boy
brand.
We compete on the basis of numerous factors, including brand recognition, product quality, performance, value to customers, price, and product availability at the retail level. Advertising, promotion, merchandising and packaging, the timing of new product introductions, and line extensions also have a significant impact on customers’ buying decisions and, as a result, on our sales. The structure and quality of our sales force, as well as sell-through of our products, affect in-store position, wall display space and inventory levels in retail outlets. If we are unable to maintain the inventory levels and in-store positioning of our products in retail stores, our sales and operating results would be adversely affected. Our markets are also highly sensitive to the introduction of new products, which may rapidly capture a significant share of the market. An increase in the amount of new product introductions and the levels of advertising spending by our competitors could have a material adverse effect on our results from operations.
Many of the competitors noted above are larger and have substantially greater research and development and financial resources than we do, and may therefore have the ability to spend more aggressively and consistently on research and development, advertising and marketing, and to respond more effectively to changing business and economic conditions. See “Competitive Strengths” above for additional information regarding our competitive strengths and Part I, Item 1A “Risk Factors” below for additional information regarding competition in our industry.
Regulation
Product Regulation
The formulation, manufacturing, packaging, labeling, distribution, importation, sale and storage of our products are subject to extensive regulation by various U.S. federal agencies, including the FDA, FTC, the Consumer Product Safety Commission (“CPSC”), and the Environmental Protection Agency (“EPA”), and various agencies of the states, localities and foreign countries in which our products are manufactured, distributed and sold. Our Regulatory Team is guided by a senior member of management and staffed by individuals with appropriate legal and regulatory experience. Our Regulatory and Operations teams work closely with our third-party manufacturers on quality-related matters, while we monitor their compliance with FDA and foreign regulations and perform periodic audits to ensure compliance. This continual evaluation process is designed to ensure that our manufacturing processes and products are of the highest quality and in compliance with known regulatory requirements. If the FDA or a foreign governmental authority chooses to audit a particular manufacturing facility, we require the third-party manufacturer to notify us immediately and update us on the progress of the audit as it proceeds. If we or our manufacturers fail to comply with applicable regulations, we could become subject to significant claims or penalties or be required to discontinue the sale of the non-compliant product, which could have a material adverse effect our business, financial condition and results from operations. These circumstances occur from time to time. In addition, the adoption of new regulations or changes in the interpretations of existing regulations may result in significant additional compliance costs or discontinuation of product sales and may also have a material adverse effect on our financial condition and results from operations.
Most of our U.S. OTC drug products are regulated pursuant to the FDA’s monograph system. The monographs set out the active ingredients and labeling indications that are permitted for certain broad categories of U.S. OTC drug products. When the FDA has finalized a particular monograph, it has concluded that a properly labeled product formulation is generally recognized as safe and effective and not misbranded. A tentative final monograph indicates that the FDA has not made a final determination about products in a category to establish safety and efficacy for a product and its uses. However, unless there is a serious safety or efficacy issue, the FDA typically will exercise enforcement discretion and permit companies to sell products conforming to a tentative final monograph until the final monograph is published. Products that comply with either final or tentative final monograph standards do not require pre-market approval from the FDA.
Certain of our U.S. OTC drug products are New Drug Application (“NDA”) or Abbreviated New Drug Application (“ANDA”) products and are manufactured and labeled in accordance with a FDA-approved submission. These products are subject to reporting requirements as set forth in FDA regulations.
17
Certain of our U.S. OTC Healthcare products are medical devices regulated by the FDA through a system which usually involves pre-market clearance. During the review process, the FDA makes an affirmative determination as to the sufficiency of the label directions, cautions and warnings for the medical devices in question.
In accordance with the Federal Food, Drug and Cosmetic Act (“FDC Act”) and FDA regulations, we and our third-party manufacturers of U.S. products must also comply with the FDA’s current Good Manufacturing Practices (“GMPs”). The FDA inspects our facilities and those of our third-party manufacturers periodically to determine that both we and our third-party manufacturers are complying with GMPs.
A number of our products are regulated by the CPSC under the Federal Hazardous Substances Act (the “FHSA”), the Poison Prevention Packaging Act of 1970 (the “PPPA”) and the Consumer Products Safety Improvement Act of 2008 (the “CPSIA”). Certain of our household products are considered to be hazardous substances under the FHSA and therefore require specific cautionary warnings to be included in their labeling for such products to be legally marketed. In addition, a small number of our products are subject to regulation under the PPPA and can only be legally marketed if they are dispensed in child-resistant packaging or labeled for use in households where there are no children. The CPSIA requires us to make available to our customers certificates stating that we are in compliance with any applicable regulation administered by the CPSC.
Nix
spray and certain Household Cleaning products are considered pesticides under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”). Generally speaking, any substance intended for preventing, destroying, repelling, or mitigating any pest is considered to be a pesticide under FIFRA. We market and distribute certain household products under our
Comet
and
Spic and Span
brands that make antibacterial and/or disinfectant claims governed by FIFRA. Due to the antibacterial and/or disinfectant claims on certain of the
Comet
and
Spic and Span
products and the lice killing claims on
Nix
spray, such products are considered to be pesticides under FIFRA and are required to be registered with the EPA and contain certain disclosures on the product labels. In addition, the contract manufacturers from which we source these products must be registered with the EPA. Our EPA registered products are also subject to state regulations and the rules and regulations of the various jurisdictions where these products are sold.
Our international business is also subject to product regulations by local regulatory authorities in the various regions these businesses operate, including regulations regarding manufacturing, labeling, distribution, sale and storage.
Other Regulations
We are also subject to a variety of other regulations in various foreign markets, including regulations pertaining to import/export regulations and antitrust issues. To the extent we decide to commence or expand operations in additional countries, we may be required to obtain an approval, license or certification from the country’s ministry of health or comparable agency. We must also comply with product labeling and packaging regulations that may vary from country to country. Government regulations in both our domestic and international markets can delay or prevent the introduction, or require the reformulation or withdrawal, of some of our products. Our failure to comply with these regulations can also result in a product being removed from sale in a particular market, either temporarily or permanently. In addition, we are subject to FTC and state regulations, as well as foreign regulations, relating to our product claims and advertising. If we fail to comply with these regulations, we could be subject to enforcement actions and the imposition of penalties, which could have a material adverse effect on our business, financial condition and results from operations.
Intellectual Property
We own a number of trademark registrations and applications in the United States, Canada and other foreign countries. The following are some of the most important registered trademarks we own in the United States and/or Canada:
Chloraseptic, Chore Boy, Cinch®, Clear Eyes, Comet, Compound W, Dermoplast, Dramamine, Efferdent, Effergrip, Freeze Off, Little Remedies, Luden's, Murine, NasalCrom, New-Skin, Spic and Span, The Doctor’s Brushpicks, DenTek, The Doctor’s NightGuard, Wartner,
BC
,
Goody's, Ecotrin, Beano
,
Gaviscon
,
Tagamet,
Debrox,
Gly-Oxide, Monistat, e.p.t
and
Nix.
Our trademarks and trade names are how we convey that the products we sell are “brand name” products. Our ownership of these trademarks and trade names is very important to our business, as it allows us to compete based on the value and goodwill associated with these marks. We may also license others to use these marks. Additionally, we own or license patents on innovative and proprietary technology. The patents evidence the unique nature of our products, provide us with exclusivity, and afford us protection from the encroachment of others. None of the patents that we own or license, however, is material to us on a consolidated basis. Enforcing our rights, or the rights of any of our licensors, represented by these trademarks, trade names and patents is critical to our business but is expensive. If we are not able to effectively enforce our rights, others may be able to dilute our trademarks, trade names and patents and diminish the value associated with our brands and technologies, which could have a material adverse effect on our business, financial condition and results from operations.
18
We do not own all of the intellectual property rights applicable to our products. In those cases where our third-party manufacturers own patents that protect our products, we are dependent on them as a source of supply for our products. Unless other non-infringing technologies are available, we must continue to purchase patented products from our suppliers who sell patented products to us. In addition, we rely on our suppliers for their enforcement of their intellectual property rights against infringing products.
We have licensed to an international consumer packaged goods company the right to use the
Comet, Spic and Span
and
Chlorinol®
trademarks in the commercial/institutional/industrial business throughout the world (excluding Russia and specified Eastern European countries). We have also transferred to the licensee the
Comet
and
Chlorinol
trademarks in Russia and specified Eastern European countries. These agreements were amended in December 2014 to allow the licensee to obtain the trademarks in certain specified Eastern European countries for $10.0 million. The amended agreement expires December 31, 2025, and includes an option (which we expect the licensee will elect to exercise such option) for the licensee to buy out the remaining commercial/institutional/industrial business at any time after July 1, 2016 for an exercise price of $10.0 million.
Seasonality
The first quarter of our fiscal year typically has the lowest level of revenue due to the seasonal nature of certain of our brands relative to the summer and winter months. In addition, the first quarter generally is the least profitable quarter due to the increased advertising and promotional spending to support those brands with a summer selling season, such as
Clear Eyes
products,
Compound W
,
Wartner
and
New-Skin
. The level of advertising and promotional campaigns in the third quarter influences sales of our cough/cold products, such as
Chloraseptic,
Little Remedies, Luden's
and
PediaCare,
during the fourth quarter cough & cold winter months. Additionally, the fourth quarter typically has the lowest level of advertising and promotional spending as a percent of revenue.
Employees
We employed approximately 259 full time individuals at March 31, 2016. None of our employees is a party to a collective bargaining agreement. Management believes that our relations with our employees are good.
Backlog Orders
We define backlog as orders with requested delivery dates prior to March 31, 2016 that were not shipped as of March 31, 2016. We had no significant backlog orders at March 31, 2016 or 2015.
Available Information
Our Internet address is www.prestigebrands.com. We make available free of charge on or through our Internet website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, as well as the Proxy Statement for our annual stockholders’ meetings, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). Information on our Internet website does not constitute a part of this Annual Report on Form 10-K and is not incorporated herein by reference, including any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
We have adopted a Code of Conduct Policy, Code of Ethics for Senior Financial Employees, Policy and Procedures for Complaints Regarding Accounting, Internal Controls and Auditing Matters, Corporate Governance Guidelines, Audit Committee Pre-Approval Policy, and Charters for our Audit, Compensation and Nominating and Corporate Governance Committees, as well as a Related Persons Transaction Policy and Stock Ownership Guidelines. We will provide to any person without charge, upon request, a copy of the foregoing materials. Any requests for the foregoing documents from us should be made in writing to:
Prestige Brands Holdings, Inc.
660 White Plains Road
Tarrytown, New York 10591
Attention: Secretary
We intend to disclose future amendments to the provisions of the foregoing documents, policies and guidelines and waivers therefrom, if any, on our Internet website and/or through the filing of a Current Report on Form 8-K with the SEC, to the extent required under the Exchange Act.
19
The high level of competition in our industry, much of which comes from competitors with greater resources, could adversely affect our business, financial condition and results from operations.
The business of selling brand name consumer products in the OTC Healthcare and Household Cleaning categories is highly competitive. These markets include numerous manufacturers, distributors, marketers and retailers that actively compete for consumers’ business both in the United States and abroad. Many of these competitors are larger and have substantially greater resources than we do, and may therefore have the ability to spend more aggressively on research and development, advertising and marketing, and to respond more effectively to changing business and economic conditions. If this were to occur, it could have a material adverse effect on our financial condition and results from operations.
Certain of our product lines that account for a large percentage of our sales have a smaller market share relative to our competitors. For example, while
Clear Eyes
has a number one market share position of
28.6%
within the U.S. Eye Allergy/Redness Relief category, its top competitor, Visine®, has a market share of 20.8% in the same segment. In contrast, certain of our brands with number one market positions have a similar market share relative to our competitors. For example,
Compound W
has a number one market position of
37.8%
of the U.S. Wart Removal segment and its top competitor, Dr. Scholl’s®, has a market position of 31.4% in the same category. See “Part I, Item 1. Business - Major Brands” of this Annual Report on Form 10-K for information regarding market share calculations.
We compete for customers’ attention based on a number of factors, including brand recognition, product quality, performance, value to customers, price and product availability at the retail level. Advertising, promotion, merchandising and packaging and the timing of new product introductions and line extensions also have a significant impact on consumer buying decisions and, as a result, on our sales. If our advertising, marketing and promotional programs are not effective, our sales may decline. New product innovations by our competitors or the failure to develop new products or the failure of a new product launch by the Company could have a material adverse effect on our business, financial condition and results from operations. In addition, the introduction or expansion of store brand products that compete with our products has impacted and could in the future impact our sales and results from operations. Additionally, the return to the market of previously recalled competitive products has impacted and could continue to impact our sales. The structure and quality of our sales force, as well as sell-through of our products, affect in-store position, wall display space and inventory levels in retail stores. If we are unable to maintain our current distribution network, product offerings in retail stores, inventory levels and in-store positioning of our products, our sales and operating results will be adversely affected. Our markets are highly sensitive to the introduction of new products, which may rapidly capture a significant share of the market.
In addition, competitors may attempt to gain market share by offering products at prices at or below those typically offered by us. Competitive pricing may require us to reduce prices, which may result in lost sales revenue or a reduction of our profit margins. Future price adjustments by our competitors or our inability to react with price adjustments of our own could result in a loss of market share, which could have a material adverse effect on our financial condition and results from operations.
We depend on a limited number of customers with whom we have no long-term agreements for a large portion of our gross sales, and the loss of one or more of these customers could reduce our gross sales and have a material adverse effect on our financial condition and results of operations.
For the three and twelve months ended March 31, 2016, Walmart, which accounted for approximately
20.9%
and
20.2%
, respectively, of our gross sales, was our only customer that accounted for 10% or more of our gross sales. We expect that for future periods, our top five and top ten customers, including Walmart, will, in the aggregate, continue to account for a large and potentially increasing portion of our sales. The loss of one or more of our top customers, any significant decrease in sales to these customers based on changes in their strategies including a reduction in the number of brands they carry, the amount of shelf space they dedicate to store brand products, inventory management, or a significant decrease in our retail display space in any of these customers’ stores, could reduce our sales and have a material adverse effect on our financial condition and results from operations.
In addition, our business is based primarily upon individual sales orders. We typically do not enter into long-term contracts with our customers. Accordingly, our customers could cease buying products or reduce the number of items they buy from us at any time and for any reason. The fact that we do not have long-term contracts with our customers means that we have no recourse in the event a customer no longer wants to purchase products from us or reduces the number of items purchased. If a significant number of our smaller customers, or any of our significant customers, elect not to purchase products from us, our financial condition and results from operations could be adversely affected.
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We depend on third-party manufacturers to produce the products we sell. If we are unable to maintain these manufacturing relationships or fail to enter into additional relationships, as necessary, we may be unable to meet customer demand and our business, sales and profitability could suffer as a result.
All of our products are produced by a limited number of third-party manufacturers. Our ability to retain our current manufacturing relationships and engage in and successfully transition to new relationships is critical to our ability to deliver quality products to our customers in a timely manner. Without adequate supplies of quality merchandise, our sales would decrease materially and our business would suffer. In the event that our primary third-party manufacturers are unable or unwilling to ship products to us in a timely manner, we would have to rely on secondary manufacturing relationships or, to the extent unavailable, identify and qualify new manufacturing relationships. Because of the unique manufacturing requirements of certain products, the Company may be unable to qualify new suppliers in a timely way or at the quantities, quality and price levels needed. From time to time, certain of the Company's manufacturers have had difficulty meeting demand, which can cause shortages of certain of our most popular products. In such instances, we may not be able to identify or qualify secondary manufacturers for such products in a timely manner, and such manufacturers may not allocate sufficient capacity to allow us to meet our commitments to customers. In addition, identifying alternative manufacturers without adequate lead times may involve additional manufacturing expense, delay in production or product disadvantage in the marketplace. In general, the consequences of not securing adequate, high quality and timely supplies of merchandise would negatively impact inventory levels, which could damage our reputation and result in lost customers and sales, and could have a material adverse effect on our business, financial condition and results from operations.
The manufacturers we use have increased the cost of many of the products we purchase, which could adversely affect our margins in the event we are unable to pass along these increased costs to our customers or identify and qualify new manufacturers. Increased costs could also have a material adverse effect on our financial condition and results from operations.
At March 31, 2016, we had relationships with
119
third-party manufacturers. Of those, we had long-term contracts with
55
manufacturers that produced items that accounted for approximately
79.9%
of our gross sales for 2016, compared to
44
manufacturers with long-term contracts that produced approximately
82.9%
of gross sales in 2015. The fact that we do not have long-term contracts with certain manufacturers means that they could cease manufacturing our products at any time and for any reason or initiate arbitrary and costly price increases, which could have a material adverse effect on our business and results from operations. Although we are in the process of negotiating long-term contracts with certain key manufacturers, we may not be able to reach agreement, which could have a material adverse effect on our business and results of operations.
Price increases for raw materials, labor, energy, transportation costs and other manufacturer demands could have an adverse impact on our margins.
The costs to manufacture and distribute our products are subject to fluctuation based on a variety of factors. Increases in commodity raw material (including resins), packaging component prices, and labor, energy and fuel costs and other input costs could have a significant impact on our financial condition and results from operations. If we are unable to increase the price for our products or continue to achieve cost savings in a rising cost environment, such cost increases would reduce our gross margins and could have a material adverse effect on our financial condition and results from operations. If we increase the price for our products in order to maintain our current gross margins for our products, such increase may adversely affect demand for, and sales of, our products, which could have a material adverse effect on our business, financial condition and results of operations.
Disruption in our St. Louis distribution center may prevent us from meeting customer demand, and our sales and profitability may suffer as a result.
We manage our product distribution in the United States through one primary distribution center near St. Louis, Missouri. A serious disruption, such as a flood or fire, to our primary distribution center could damage our inventory and could materially impair our ability to distribute our products to customers in a timely manner or at a reasonable cost. We could incur significantly higher costs and experience longer lead times during the time required to reopen or replace our primary distribution center. As a result, any serious disruption could have a material adverse effect on our business, financial condition and results from operations.
Achievement of our strategic objectives requires the acquisition, or potentially the disposition, of certain brands or product lines, and these acquisitions and dispositions may not be successful.
The majority of our growth has been driven by acquiring other brands and companies. At any given time, we may be engaged in discussions with respect to possible acquisitions that are intended to enhance our product portfolio, enable us to realize cost savings and further diversify our category, customer and channel focus. Our ability to successfully grow through acquisitions depends on our ability to identify, negotiate, complete and integrate suitable acquisition candidates and to obtain any necessary financing. However, we may not be able to identify and successfully negotiate suitable strategic acquisitions at attractive valuations,
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obtain financing for future acquisitions on satisfactory terms or otherwise complete future acquisitions. These efforts could divert the attention of our management and key personnel from our business operations. All acquisitions entail various risks such that after completing an acquisition, we may also experience:
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Difficulties achieving our expected returns;
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Difficulties in integrating any acquired companies, suppliers, personnel and products into our existing business;
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Difficulties in realizing the benefits of the acquired company or products;
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Higher costs of integration than we anticipated;
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Exposure to unexpected liabilities of the acquired business;
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Difficulties in retaining key employees of the acquired business who are necessary to operate the business;
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Difficulties in maintaining uniform standards, controls, procedures and policies throughout our acquired companies; or
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Adverse customer or stockholder reaction to the acquisition.
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As a result, any acquisitions we pursue or complete could adversely impact our financial condition and results from operations.
In addition, any acquisition could adversely affect our operating results as a result of higher interest costs from any acquisition-related debt and higher amortization expenses related to the acquired intangible assets.
In the event that we decide to divest of a brand or product line, we may encounter difficulty finding, or be unable to find, a buyer on acceptable terms in a timely manner. The pursuit of divestitures could also divert management's attention from our business operations and result in a delay in our efforts to achieve our strategic objectives.
Our risks associated with doing business internationally increase as we expand our international footprint
.
During 2016, 2015, and 2014, approximately
7.4%
,
8.9%
and
5.4%
, respectively, of our total revenues were attributable to our international business. As of July 1, 2013, we acquired Care Pharmaceuticals, which markets and sells healthcare products in Australia. On April 30, 2014, we acquired the
Hydralyte
brand in Australia and New Zealand. In addition, on February 5, 2016, we acquired DenTek, which increases our geographic reach in parts of Europe. We generally rely on brokers and distributors for the sale of our products in the foreign countries. Risks of doing business internationally include:
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Political instability or declining economic conditions in the countries or regions where we operate that adversely affect sales of our products;
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Currency controls that restrict or prohibit the payment of funds or the repatriation of earnings to the United States;
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Fluctuating foreign exchange rates that result in unfavorable increases in the price of our products or cause increases in the cost of certain products purchased from our foreign third-party manufacturers;
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Compliance with laws and regulations concerning ethical business practices;
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Trade restrictions and exchange controls;
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Difficulties in staffing and managing international operations;
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Difficulty in protecting our intellectual property rights in these markets; and
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Increased costs of compliance with general business and tax regulations in these countries or regions.
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If new products and product line extensions do not gain widespread customer acceptance or are otherwise discontinued, the Company's financial performance could be impacted.
The Company's future performance and growth depends on its ability to successfully develop and introduce new products and product line extensions. We cannot be certain that we will achieve our innovation goals. The successful development and
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introduction of new products involves substantial research, development, marketing and promotional expenditures, which the Company may be unable to recover if the new products do not gain widespread market acceptance. New product development and marketing efforts, including efforts to enter markets or product categories in which the Company has limited or no prior experience, have inherent risks. These risks include product development or launch delays, competitor actions, regulatory approval hurdles and the failure of new products and line extensions to achieve anticipated levels of market acceptance.
Regulatory matters governing our industry could have a significant negative effect on our sales and operating costs.
In both the United States and in our foreign markets, our operations are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations and other constraints exist at the federal, state and local levels in the United States and at analogous levels of government in foreign jurisdictions.
The formulation, manufacturing, packaging, labeling, distribution, importation, marketing, sale and storage of our products are subject to extensive regulation by various U.S. federal agencies, including the FDA, the FTC, the CPSC, the EPA, and by various agencies of the states, localities and foreign countries in which our products are manufactured, distributed, stored and sold. The FDC Act and FDA regulations require that the manufacturing processes of our third-party manufacturers of U.S. products must also comply with the FDA’s GMPs. The FDA inspects our facilities and those of our third-party manufacturers periodically to determine if we and our third-party manufacturers are complying with GMPs. A history of general compliance in the past is not a guarantee that future GMPs will not mandate other compliance steps and associated expense.
If we or our third-party manufacturers or distributors fail to comply with applicable regulations, we could become subject to enforcement actions, significant penalties or claims, which could materially adversely affect our business, financial condition and results from operations. In addition, we could be required to:
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Suspend manufacturing operations;
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Modify product formulations or processes;
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Suspend the sale of products with non-complying specifications; or
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Change product labeling, packaging, marketing, or advertising, recall non-compliant products, or take other corrective action.
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The adoption of new regulations or changes in the interpretations of existing regulations may result in significant compliance costs or the cessation of product sales and may adversely affect the marketing of our products, which could have a material adverse effect on our financial condition and results from operations.
In addition, our failure to comply with FDA, FTC, EPA or any other federal and state regulations, or with similar regulations in foreign markets, that cover our product registration, product claims and advertising, including direct claims and advertising by us, may result in enforcement actions and imposition of penalties, litigation by private parties, or otherwise materially adversely affect the distribution and sale of our products, which could have a material adverse effect on our business, financial condition and results from operations.
Product liability claims and product recalls and related negative publicity could adversely affect our sales and operating results.
From time to time we are subjected to various product liability claims. Claims could be based on allegations that, among other things, our products contain contaminants, include inadequate instructions or warnings regarding their use or include inadequate warnings concerning side effects and interactions with other substances. Whether or not successful, product liability claims could result in negative publicity that could adversely affect the reputation of our brands and our business, sales and operating results. Additionally, we may be required to pay for losses or injuries purportedly caused by our products. In addition, we could be required for a variety of reasons to initiate product recalls, which we have done on several other occasions. Any product recalls could have a material adverse effect on our business, financial condition and results from operations.
We are dependent on consumers’ perception of the safety and quality of our products. Negative consumer perception may arise from product liability claims and product recalls, regardless of whether such claims or recalls involve us or our products. The mere publication of information asserting concerns about the safety of our products or the ingredients used in our products could have a material adverse effect on our business and results from operations. For example, several of our products contain the active ingredient acetaminophen, which is a pain reliever and fever reducer. Products containing acetaminophen have been the subject of recent negative publicity. We believe our products are safe and effective when used in accordance with label directions. However,
23
adverse publicity about acetaminophen or other ingredients used in our products may discourage consumers from buying our products containing those ingredients, which would have an adverse impact on our sales.
In addition, although we maintain, and require our suppliers and third-party manufacturers to maintain, product liability insurance coverage, potential product liability claims may exceed the amount of insurance coverage or may be excluded under the terms of the policy, which could have a material adverse effect on our financial condition. In addition, in the future we may not be able to obtain adequate insurance coverage or we may be required to pay higher premiums and accept higher deductibles in order to secure adequate insurance coverage.
If we are unable to protect our intellectual property rights, our ability to compete effectively in the market for our products could be negatively impacted.
The market for our products depends to a significant extent upon the goodwill associated with our trademarks, trade names and patents. Our trademarks and trade names convey that the products we sell are “brand name” products. We believe consumers ascribe value to our brands, some of which are over 100 years old. We own or license the material trademarks, trade names and patents used in connection with the packaging, marketing and sale of our products. These rights prevent our competitors or new entrants to the market from using our valuable brand names and technologies. Therefore, trademark, trade name and patent protection is critical to our business. Although most of our material intellectual property is registered in the United States and in applicable foreign countries, we may not be successful in asserting protection. If we were to lose the exclusive right to use one or more of our intellectual property rights, the loss of such exclusive right could have a material adverse effect on our financial condition and results from operations.
In addition, other parties may infringe on our intellectual property rights and may thereby dilute the value of our brands in the marketplace. Brand dilution could cause confusion in the marketplace and adversely affect the value that consumers associate with our brands, which could negatively impact our business and sales. In addition, third parties may assert claims against our intellectual property rights, and we may not be able to successfully resolve those claims, which would cause us to lose the right to use the intellectual property subject to those claims. Such loss could have a material adverse effect on our financial condition and results from operations. Furthermore, from time to time, we may be involved in litigation in which we are enforcing or defending our intellectual property rights, which could require us to incur substantial fees and expenses and have a material adverse effect on our financial condition and results from operations.
We license certain of our trademarks to third party licensees, who are bound by their respective license agreements to protect our trademarks from infringement and adhere to defined quality requirements. If a licensee of our trademarks fails to adhere to the contractually defined quality requirements, our business and financial results could be negatively impacted if one of our brands suffers a substantial impairment to its reputation due to real or perceived quality issues. Further, if a licensee fails to protect one of our licensed trademarks from infringement, we might be required to take action, which could require us to incur substantial fees and expenses.
Virtually all of our assets consist of goodwill and intangibles and are subject to impairment risk.
As our financial statements indicate, virtually all of our assets consist of goodwill and intangibles, principally the trademarks, trade names and patents that we have acquired. On an annual basis, and otherwise when there is evidence that events or changes in circumstances indicate that the carrying value of intangible assets might not be recoverable, we assess the potential impairment of our goodwill and other intangible assets. Upon any such evaluation, we may be required to record a significant charge in our financial statements, which would negatively impact our financial condition and results of operations. We recorded impairment charges in 2010 and 2009 for certain assets. If any of our brands sustain significant or prolonged declines in revenues or performance not in line with our expectations, the carrying value may no longer be recoverable, in which case a non-cash impairment charge may be recorded in future periods. For example, if the Company’s brand performance is weaker than projections used in valuation calculations, the value of such brands may become impaired. In the event that such analysis would result in the fair value being lower than the carrying value, we would be required to record an impairment charge. Although we experienced revenue declines in
Pediacare, Beano
and in certain other brands in the past, we continue to believe that the fair value of our brands exceed their carrying values. However, sustained or significant future declines in revenue, profitability, lost distribution, other adverse changes in expected operating results, and / or unfavorable changes in economic factors used to estimate fair value of certain brands could indicate that the fair value no longer exceeds the carrying value in which case a non-cash impairment charge may be recorded in future periods. Should the value of those assets or other assets become further impaired or our financial condition is materially adversely affected in any way, we would not have tangible assets that could be sold to repay our liabilities. As a result, our creditors and investors may not be able to recoup the amount of the indebtedness that they have extended to us or the amount they have invested in us.
24
We depend on third parties for intellectual property relating to some of the products we sell, and our inability to maintain or enter into future license agreements may result in our failure to meet customer demand, which would adversely affect our operating results.
We have licenses or manufacturing agreements with third parties that own intellectual property (e.g., formulae, copyrights, trademarks, trade dress, patents and other technology) used in the manufacture and sale of certain of our products. In the event that any such license or manufacturing agreement expires or is otherwise terminated, we will lose the right to use the intellectual property covered by such license or agreement and will have to develop or obtain rights to use other intellectual property. Similarly, our rights could be reduced if the applicable licensor or third-party manufacturer fails to maintain or protect the licensed intellectual property because, in such event, our competitors could obtain the right to use the intellectual property without restriction. If this were to occur, we might not be able to develop or obtain replacement intellectual property in a timely or cost effective manner. Additionally, any modified products may not be well-received by customers. The consequences of losing the right to use or having reduced rights to such intellectual property could negatively impact our sales due to our failure to meet consumer demand for the affected products or require us to incur costs for development of new or different intellectual property, either of which could have a material adverse effect on our business, financial condition and results from operations. In addition, development of replacement products may be time-consuming and ultimately may not be feasible.
We depend on our key personnel, and the loss of the services provided by any of our executive officers or other key employees could harm our business and results of operations.
Our success depends to a significant degree upon the continued contributions of our senior management, many of whom would be difficult to replace. These employees may voluntarily terminate their employment with us at any time. We may not be able to successfully retain existing personnel or identify, hire and integrate new personnel. While we believe we have developed depth and experience among our key personnel, our business may be adversely affected if one or more of these key individuals were to leave. We do not maintain any key-man or similar insurance policies covering any of our senior management or key personnel.
Our indebtedness could adversely affect our financial condition, and the significant amount of cash we need to service our debt will not be available to reinvest in our business.
At March 31, 2016, our total indebtedness, including current maturities, was approximately
$1,652.5 million
.
Our indebtedness could:
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Increase our vulnerability to general adverse economic and industry conditions;
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Limit our ability to engage in strategic acquisitions;
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Require us to dedicate a substantial portion of our cash flow from operations toward repayment of our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes;
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Limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate;
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Place us at a competitive disadvantage compared to our competitors that have less debt; and
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Limit, among other things, our ability to borrow additional funds on favorable terms or at all.
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The terms of the indentures governing the 2016 Senior Notes and the 2013 Senior Notes, and the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, allow us to issue and incur additional debt only upon satisfaction of the conditions set forth in those respective agreements. If new debt is added to current debt levels, the related risks described above could increase.
At March 31, 2016, we had
$37.9 million
of borrowing capacity available under the 2012 ABL Revolver to support our operating activities.
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Our operating flexibility is limited in significant respects by the restrictive covenants in our senior credit facility and the indentures governing our senior notes.
Our senior credit facility and the indentures governing our senior notes impose restrictions that could impede our ability to enter into certain corporate transactions, as well as increase our vulnerability to adverse economic and industry conditions, by limiting our flexibility in planning for, and reacting to, changes in our business and industry. These restrictions limit our ability to, among other things:
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Borrow money or issue guarantees;
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Pay dividends, repurchase stock from, or make other restricted payments to, stockholders;
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Make investments or acquisitions;
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Use assets as security in other transactions;
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Sell assets or merge with or into other companies;
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Enter into transactions with affiliates;
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Sell stock in our subsidiaries; and
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Direct our subsidiaries to pay dividends or make other payments to us.
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Our ability to engage in these types of transactions is generally limited by the terms of the senior credit facility and the indentures governing the senior notes, even if we believe that a specific transaction would positively contribute to our future growth, operating results or profitability.
In addition, our senior credit facility requires us to maintain certain leverage, interest coverage and fixed charge ratios. Although we believe we can continue to meet and/or maintain the financial covenants contained in our credit agreement, our ability to do so may be affected by events outside our control. Covenants in our senior credit facility also require us to use 100% of the proceeds we receive from debt issuances to repay outstanding borrowings under our senior credit facility. Any failure by us to comply with the terms and conditions of the credit agreement and the indentures governing the senior notes could result in an event of default, which may allow our creditors to accelerate our debt and therefore have a material adverse effect on our financial condition.
The senior credit facility and the indentures governing the senior notes contain cross-default provisions that could result in the acceleration of all of our indebtedness.
The senior credit facility and the indentures governing the senior notes contain provisions that allow the respective creditors to declare all outstanding borrowings under one agreement to be immediately due and payable as a result of a default under another agreement. Consequently, failure to make a payment required by the indentures governing the senior notes, among other things, may lead to an event of default under the senior credit facility. Similarly, an event of default or failure to make a required payment at maturity under the senior credit facility, among other things, may lead to an event of default under the indentures governing the senior notes. If the debt under the senior credit facility and indentures governing the senior notes were to both be accelerated, the aggregate amount immediately due and payable as of March 31, 2016 would have been approximately
$1,652.5 million
. We presently do not have sufficient liquidity to repay these borrowings in the event they were to be accelerated, and we may not have sufficient liquidity in the future to do so. Additionally, we may not be able to borrow money from other lenders to enable us to refinance our indebtedness. At March 31, 2016, the book value of our current assets was
$249.0 million
. Although the book value of our total assets was
$2,948.8 million
, approximately
$2,682.9 million
was in the form of intangible assets, including goodwill of
$360.2 million
, a significant portion of which may not be available to satisfy our creditors in the event our debt is accelerated.
Any failure to comply with the restrictions of the senior credit facility, the indentures governing the senior notes or any other subsequent financing agreements may result in an event of default. Such default may allow the creditors to accelerate the related debt, as well as any other debt to which the cross-acceleration or cross-default provisions apply. In addition, the lenders may be able to terminate any commitments they had made to supply us with additional funding. As a result, any default by us under our credit agreement, indentures governing the senior notes or any other financing agreement could have a material adverse effect on our financial condition.
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Litigation may adversely affect our business, financial condition and results of operations.
Our business is subject to the risk of, and from time to time in the ordinary course of business we are involved in, litigation by employees, customers, consumers, suppliers, competitors, regulators, stockholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend current and future litigation may be significant. There may also be adverse publicity associated with litigation that could decrease customer acceptance of our products, regardless of whether the allegations are valid or whether we are ultimately found liable. Conversely, we have, and may be required in the future to initiate litigation against others to protect the value of our intellectual property and the related goodwill or enforce an agreement or contract that has been breached. These matters are extremely time consuming and expensive, but may be necessary to protect our assets and realize the benefits of the agreements and contracts that we have negotiated. As a result, litigation may adversely affect our business, financial condition and results of operations.
The trading price of our common stock may be volatile.
The trading price of our common stock could be subject to significant fluctuations in response to several factors, some of which are beyond our control, including (i) general stock market volatility, (ii) variations in our quarterly operating results, (iii) our leveraged financial position, (iv) potential sales of additional shares of our common stock, (v) perceptions associated with the identification of material weaknesses in internal control over financial reporting, (vi) general trends in the consumer products industry, (vii) changes by securities analysts in their estimates or investment ratings, (viii) the relative illiquidity of our common stock, (ix) voluntary withdrawal or recall of products, (x) news regarding litigation in which we are or become involved, (xi) potential changes in demand for common stock related to the Company's inclusion in the S&P 400 index, and (xii) general marketplace conditions brought on by economic recession.
We have no current intention of paying dividends to holders of our common stock.
We presently intend to retain our earnings, if any, for use in our operations, to facilitate strategic acquisitions, or to repay our outstanding indebtedness and have no current intention of paying dividends to holders of our common stock. In addition, our debt instruments limit our ability to declare and pay cash dividends on our common stock. As a result, your only opportunity to achieve a return on your investment in our common stock will be if the market price of our common stock appreciates and you sell your shares at a profit.
Our annual and quarterly results from operations may fluctuate significantly and could fall below the expectations of securities analysts and investors due to a number of factors, many of which are beyond our control, resulting in a decline in the price of our securities.
Our annual and quarterly results from operations may fluctuate significantly because of numerous factors, including:
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The timing of when we make acquisitions or introduce new products;
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Our inability to increase the sales of our existing products and expand their distribution;
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The timing of the introduction or return to the market of competitive products and the introduction of store brand products;
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Adverse regulatory or market events in the United States or in our international markets;
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Changes in consumer preferences, spending habits and competitive conditions, including the effects of competitors’ operational, promotional or expansion activities;
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Seasonality of our products;
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Fluctuations in commodity prices, product costs, utilities and energy costs, prevailing wage rates, insurance costs and other costs;
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The discontinuation and return of our products from retailers;
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Our ability to recruit, train and retain qualified employees, and the costs associated with those activities;
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Changes in advertising and promotional activities and expansion to new markets;
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Negative publicity relating to us and the products we sell;
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Litigation matters;
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Unanticipated increases in infrastructure costs;
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Impairment of goodwill or long-lived assets;
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Changes in interest rates; and
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Changes in accounting, tax, regulatory or other rules applicable to our business.
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Our quarterly operating results and revenues may fluctuate as a result of any of these or other factors. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year, and revenues for any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors. In that event, the market price of our outstanding securities could be adversely impacted.
Provisions in our amended and restated certificate of incorporation and Delaware law may discourage potential acquirers of our company, which could adversely affect the value of our securities.
Our amended and restated certificate of incorporation provides that our Board of Directors is authorized to issue from time to time, without further stockholder approval, up to five million shares of preferred stock in one or more series of preferred stock issuances. Our Board of Directors may establish the number of shares to be included in each series of preferred stock and determine, as applicable, the voting and other powers, designations, preferences, rights, qualifications, limitations and restrictions for such series of preferred stock. The shares of preferred stock could have preferences over our common stock with respect to dividends and liquidation rights. We may issue additional preferred stock in ways which may delay, defer or prevent a change in control of the Company without further action by our stockholders. The shares of preferred stock may be issued with voting rights that may adversely affect the voting power of the holders of our common stock by increasing the number of outstanding shares having voting rights, and by the creation of class or series voting rights.
Our amended and restated certificate of incorporation, as amended, contains additional provisions that may have the effect of making it more difficult for a third party to acquire or attempt to acquire control of our company. In addition, we are subject to certain provisions of Delaware law that limit, in some cases, our ability to engage in certain business combinations with significant stockholders.
These provisions, either alone, or in combination with each other, give our current directors and executive officers the ability to significantly influence the outcome of a proposed acquisition of the Company. These provisions would apply even if an acquisition or other significant corporate transaction was considered beneficial by some of our stockholders. If a change in control or change in management is delayed or prevented by these provisions, the market price of our outstanding securities could be adversely impacted.
We rely significantly on information technology. Any inadequacy, interruption, theft or loss of data, malicious attack, integration failure, failure to maintain the security, confidentiality or privacy of sensitive data residing on our systems or other security failure of that technology could harm our ability to effectively operate our business and damage the reputation of our brands.
The Company relies extensively on information technology systems, some of which are managed by third-party service providers, to conduct its business. These systems include, but are not limited to, programs and processes relating to internal communications and communications with other parties, ordering and managing materials from suppliers, converting materials to finished products, shipping product to customers, billing customers and receiving and applying payment, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, collecting and storing customer, consumer, employee, investor, and other stakeholder information and personal data, and other processes necessary to manage the Company's business.
28
Increased information technology security threats and more sophisticated computer crime, including advanced persistent threats, pose a potential risk to the security of the information technology systems, networks, and services of the Company, its customers and other business partners, as well as the confidentiality, availability, and integrity of the data of the Company, its customers and other business partners. As a result, the Company's information technology systems, networks or service providers could be damaged or cease to function properly or the Company could suffer a loss or disclosure of business, personal or stakeholder information, due to any number of causes, including catastrophic events, power outages and security breaches. The Company has conducted regular security audits by an outside firm to address any potential service interruptions or vulnerabilities. However, if these plans do not provide effective protection, the Company may suffer interruptions in its ability to manage or conduct its operations, which may adversely affect its business. The Company may need to expend additional resources in the future to continue to protect against, or to address problems caused by, any business interruptions or data security breaches.
Any business interruptions or data security breaches, including cyber security breaches resulting in private data disclosure, could result in lawsuits or regulatory proceedings, damage the Company's reputation or adversely impact the Company's results of operations and financial condition.
Our information technology systems may be susceptible to disruptions.
We utilize information technology systems to improve the effectiveness of our operations and support our business, including systems to support financial reporting and an enterprise resource planning system. During post-production and future enterprise resource planning phases, we could be subject to transaction errors, processing inefficiencies and other business disruptions that could lead to the loss of revenue or inaccuracies in our financial information. The occurrence of these or other challenges could disrupt our information technology systems and adversely affect our operations.
Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.
Our provision for income taxes is subject to volatility and could be adversely affected by several factors, some of which are outside of our control, including:
|
•
|
changes in the income allocation methods for state taxes, and the determination of which states or countries have jurisdiction to tax our Company;
|
|
•
|
an increase in non-deductible expenses for tax purposes, including certain stock-based compensation, executive compensation and impairment of goodwill;
|
|
•
|
transfer pricing adjustments;
|
|
•
|
tax assessments resulting from tax audits or any related tax interest or penalties that could significantly affect our income tax provision for the period in which the settlement takes place;
|
|
•
|
a change in our decision to indefinitely reinvest foreign earnings;
|
|
•
|
changes in accounting principles; and
|
|
•
|
changes in tax laws or related interpretations, accounting standards, regulations, and interpretations in multiple tax jurisdictions in which we operate.
|
Significant judgment is required to determine the recognition and measurement attribute prescribed in FASB ASC 740. As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions. The taxation of our business is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. Our effective tax rate is dependent upon the availability of tax credits and carryforwards. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax assessments or judgments against us that could materially impact our tax liability and/or our effective income tax rate.
In addition, we may be subject to examination of our income tax returns by the Internal Revenue Service and other tax authorities. If tax authorities challenge the relative mix of our U.S. and international income, or successfully assert the jurisdiction to tax our earnings, our future effective income tax rates could be adversely affected.
29
We may be adversely impacted by inadequacies in, or security breaches of, our information technology systems.
Our information technology systems are critically important to our operations. We rely on our information technology systems (some of which are outsourced to third parties) to manage the data, communications and business processes for all of our functions, including our marketing, sales, manufacturing, logistics, customer service, accounting and administrative functions. If we do not allocate and effectively manage the resources necessary to build, sustain and protect an appropriate technology infrastructure, our business or financial results could be negatively impacted. Furthermore, hackers and data thieves are increasingly sophisticated and operate large scale and complex automated attacks and our information technology systems may be vulnerable to material security breaches (including the access to or acquisition of customer, consumer or other confidential data), cyber-based attacks or other material system failures. Any breach of our data security could result in an unauthorized release or transfer of customer, consumer, user or employee information, or the loss of valuable business data or cause a disruption in our business. These events could give rise to unwanted media attention, damage our reputation, damage our customer, consumer or user relationships and result in lost sales, fines or lawsuits. We may also be required to expend significant capital and other resources to protect against or respond to or alleviate problems caused by a security breach. If we are unable to prevent material failures, our operations may be impacted, and we may suffer other negative consequences such as reputational damage, litigation, remediation costs and/or penalties under various data privacy laws and regulations.
None.
30
Our corporate headquarters is located in Tarrytown, New York, a suburb of New York City. Primary functions performed at the Tarrytown facility include marketing, sales, operations, quality control and regulatory affairs, finance, information technology and legal. We believe our Tarrytown facility is adequate for these functions, and the lease expires on September 30, 2020. We also have facilities located in Australia. Primary functions performed include marketing, sales, operations, quality control and regulatory affairs, and finance. We believe our Australia facility is adequate for these functions, and the lease expires on May 25, 2017. We also have an administrative center in Jackson, Wyoming, which we also believe is adequate for our needs there. Primary functions performed at the Jackson facility include back office functions, such as invoicing, credit and collection, and customer service. The lease on the Jackson facility expires on December 31, 2016; however, we have the option to renew the lease on an annual basis. With the recent acquisition of DenTek, we also lease a facility in Maryville, Tennessee. We are currently in the process of transitioning out of this space, and will do so before the lease is set to expire in December 2016. All of our facilities serve the North American OTC Healthcare, International OTC Healthcare, and Household Cleaning segments.
We are involved from time to time in routine legal matters and other claims incidental to our business. We review outstanding claims and proceedings internally and with external counsel as necessary to assess probability and amount of potential loss. These assessments are re-evaluated at each reporting period and as new information becomes available to determine whether a reserve should be established or if any existing reserve should be adjusted. The actual cost of resolving a claim or proceeding ultimately may be substantially different than the amount of the recorded reserve. In addition, because it is not permissible under GAAP to establish a litigation reserve until the loss is both probable and estimable, in some cases there may be insufficient time to establish a reserve prior to the actual incurrence of the loss (upon verdict and judgment at trial, for example, or in the case of a quickly negotiated settlement). We believe the resolution of routine matters and other incidental claims, taking our reserves into account, will not have a material adverse effect on our business, financial condition or results from operations.
None.
31
Market Information
Our common stock is listed on The New York Stock Exchange (“NYSE”) under the symbol “PBH.” The high and low sales prices of our common stock as reported by the NYSE for the two most recently completed fiscal years on a quarterly basis and the current year through April 30, 2016 are as follows:
|
|
High
|
Low
|
||||||
|
Year Ending March 31, 2017
|
||||||||
|
April 1, 2016 - April 30, 2016
|
$
|
57.81
|
|
$
|
52.58
|
|
||
|
Year Ended March 31, 2016
|
|
|
||||||
|
Quarter Ended
:
|
|
|
||||||
|
June 30, 2015
|
$
|
47.80
|
|
$
|
39.10
|
|
||
|
September 30, 2015
|
51.74
|
|
42.49
|
|
||||
|
December 31, 2015
|
54.25
|
|
44.50
|
|
||||
|
March 31, 2016
|
53.74
|
|
43.63
|
|
||||
|
Year Ended March 31, 2015
|
|
|
||||||
|
Quarter Ended
:
|
|
|
||||||
|
June 30, 2014
|
$
|
35.95
|
|
$
|
25.94
|
|
||
|
September 30, 2014
|
35.84
|
|
30.55
|
|
||||
|
December 31, 2014
|
38.15
|
|
30.02
|
|
||||
|
March 31, 2015
|
43.36
|
|
33.25
|
|
||||
Unregistered Sales of Equity Securities and Use of Proceeds
There were no equity securities sold by us during the years ended March 31, 2016, 2015, or 2014 that were not registered under the Securities Act.
There were no purchases of shares of our common stock made during the quarter ended March 31, 2016, by or on behalf of us or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act.
Holders
As of May 2, 2016, there were
36
holders of record of our common stock. The number of record holders does not include beneficial owners whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
Dividend Policy
Common Stock
We have not in the past paid, and do not expect for the foreseeable future to pay, cash dividends on our common stock. Instead, we anticipate that all of our earnings in the foreseeable future will be used in our operations, to facilitate strategic acquisitions, or to pay down our outstanding indebtedness. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend, among other factors, on our results from operations, financial condition, capital requirements and contractual restrictions limiting our ability to declare and pay cash dividends, including restrictions under our 2012 Term Loan and the indentures governing our senior notes, and any other considerations our Board of Directors deems relevant.
Part III, Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" of this Annual Report on Form 10-K is incorporated herein by reference.
32
PERFORMANCE GRAPH
The following graph (“Performance Graph”) compares our cumulative total stockholder return since March 31, 2011, with the cumulative total stockholder return for the Standard & Poor's SmallCap 600 Index, the Russell 2000 Index and our peer group index. The Company is included in each of the Standard & Poor's SmallCap 600 Index and the Russell 2000 Index. The Performance Graph assumes that the value of the investment in the Company’s common stock and each index was $100.00 on March 31, 2011. The Performance Graph was also prepared based on the assumption that all dividends paid, if any, were reinvested. The peer group index was established in 2016 by the Company in connection with research regarding improvements to our executive compensation program in light of the significant recent growth of the Company. Based on the Company’s use of the peer group for executive compensation benchmarking purposes, we believe the peer group should be included in the Performance Graph.
|
March 31,
|
|||||||||||||||||||||||
|
Company/Market/Peer Group
|
2011
|
2012
|
2013
|
2014
|
2015
|
2016
|
|||||||||||||||||
|
Prestige Brands Holdings, Inc.
|
$
|
100.00
|
|
$
|
152.00
|
|
$
|
223.39
|
|
$
|
236.96
|
|
$
|
372.96
|
|
$
|
464.26
|
|
|||||
|
Russell 2000 Index
|
100.00
|
|
99.82
|
|
116.09
|
|
145.00
|
|
156.90
|
|
141.59
|
|
|||||||||||
|
S&P SmallCap 600 Index
|
100.00
|
|
105.03
|
|
121.98
|
|
155.90
|
|
169.50
|
|
164.07
|
|
|||||||||||
|
New Peer Group Index
(1)
|
100.00
|
|
137.30
|
|
150.81
|
|
190.99
|
|
289.57
|
|
265.33
|
|
|||||||||||
|
Old Peer Group Index
(2)
|
100.00
|
|
145.71
|
|
153.51
|
|
201.94
|
|
310.29
|
|
287.07
|
|
|||||||||||
|
(1)
|
The New Peer Group Index is a self-constructed peer group consisting of companies in the consumer products industry with comparable revenues and market capitalization, from which the Company has been excluded. The new peer group index was constructed in 2016 in connection with the Company’s analysis of its compensation program. The new peer group index is comprised of: (i) B&G Food Holdings Corp., (ii) Hain Celestial Group, Inc., (iii) Church & Dwight Co., Inc., (iv) Helen of Troy, Ltd., (v) Monster Beverage Corp., (vi) Impax Laboratories, Inc., (vii) Snyders-Lance Inc., (viii) Revlon, Inc., (ix) Lancaster Colony Corp, (x) Akorn, Inc., (xi) Edgewell Personal Care Company, (xii) Energizer Holdings, Inc. and (xiii) Calavo Growers, Inc.
|
|
(2)
|
The Old Peer Group Index is a self-constructed peer group consisting of companies in the consumer products industry with comparable revenues and market capitalization, from which the Company has been excluded. The old peer group index was constructed in 2015 in connection with the Company’s analysis of its compensation program. The old peer
|
33
group index is comprised of: (i) B&G Food Holdings Corp., (ii) Hain Celestial Group, Inc., (iii) Church & Dwight Co., Inc., (iv) Helen of Troy, Ltd., (v) Monster Beverage Corp., (vi) Impax Laboratories, Inc., (vii) Snyders-Lance Inc., (viii) Revlon, Inc., (ix) Lancaster Colony Corp, and (x) Akorn, Inc.
The Performance Graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.
34
The following table furnishes selected consolidated financial data for the five years ended March 31, 2016. This selected consolidated financial data should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.
|
(In thousands, except per share data)
|
Year Ended March 31,
|
||||||||||||||||||
|
|
2016
|
2015
|
2014
|
2013
|
2012
|
||||||||||||||
|
Income Statement Data
|
|
|
|
|
|
||||||||||||||
|
Total revenues
|
$
|
806,247
|
|
$
|
714,623
|
|
$
|
597,381
|
|
$
|
620,118
|
|
$
|
437,819
|
|
||||
|
Cost of sales
(1)
|
339,036
|
|
308,400
|
|
261,830
|
|
276,381
|
|
213,701
|
|
|||||||||
|
Gross profit
|
467,211
|
|
406,223
|
|
335,551
|
|
343,737
|
|
224,118
|
|
|||||||||
|
Advertising and promotion
|
110,802
|
|
99,651
|
|
84,968
|
|
87,151
|
|
53,861
|
|
|||||||||
|
General and administrative
(2)
|
72,418
|
|
81,273
|
|
48,481
|
|
51,467
|
|
56,700
|
|
|||||||||
|
Depreciation and amortization
|
23,676
|
|
17,740
|
|
13,486
|
|
13,235
|
|
10,734
|
|
|||||||||
|
Interest expense, net
|
85,160
|
|
81,234
|
|
68,582
|
|
84,407
|
|
41,320
|
|
|||||||||
|
Gain on sale of asset
|
—
|
|
(1,133
|
)
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Gain on settlement
|
—
|
|
—
|
|
—
|
|
—
|
|
(5,063
|
)
|
|||||||||
|
Loss on extinguishment of debt
|
17,970
|
|
—
|
|
18,286
|
|
1,443
|
|
5,409
|
|
|||||||||
|
Income before income taxes
|
157,185
|
|
127,458
|
|
101,748
|
|
106,034
|
|
61,157
|
|
|||||||||
|
Provision for income taxes
|
57,278
|
|
49,198
|
|
29,133
|
|
40,529
|
|
23,945
|
|
|||||||||
|
Net Income
|
$
|
99,907
|
|
$
|
78,260
|
|
$
|
72,615
|
|
$
|
65,505
|
|
$
|
37,212
|
|
||||
|
Earnings Per Share:
|
|
|
|
|
|
|
|||||||||||||
|
Basic
|
$
|
1.89
|
|
$
|
1.50
|
|
$
|
1.41
|
|
$
|
1.29
|
|
$
|
0.74
|
|
||||
|
Diluted
|
$
|
1.88
|
|
$
|
1.49
|
|
$
|
1.39
|
|
$
|
1.27
|
|
$
|
0.73
|
|
||||
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Basic
|
52,754
|
|
52,170
|
|
51,641
|
|
50,633
|
|
50,270
|
|
|||||||||
|
Diluted
|
53,143
|
|
52,670
|
|
52,349
|
|
51,440
|
|
50,748
|
|
|||||||||
|
Other comprehensive income (loss)
|
(113
|
)
|
(24,151
|
)
|
843
|
|
(91
|
)
|
(13
|
)
|
|||||||||
|
Comprehensive income
|
$
|
99,794
|
|
$
|
54,109
|
|
$
|
73,458
|
|
$
|
65,414
|
|
$
|
37,199
|
|
||||
35
|
|
Year Ended March 31,
|
||||||||||||||||||
|
Other Financial Data
|
2016
|
2015
|
2014
|
2013
|
2012
|
||||||||||||||
|
Capital expenditures
|
$
|
3,568
|
|
$
|
6,101
|
|
$
|
2,764
|
|
$
|
10,268
|
|
$
|
606
|
|
||||
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Operating activities
|
174,350
|
|
156,255
|
|
111,582
|
|
137,605
|
|
67,452
|
|
|||||||||
|
Investing activities
|
(222,971
|
)
|
(805,258
|
)
|
(57,976
|
)
|
11,221
|
|
(662,206
|
)
|
|||||||||
|
Financing activities
|
54,036
|
|
643,265
|
|
(41,153
|
)
|
(152,117
|
)
|
600,434
|
|
|||||||||
|
|
March 31,
|
||||||||||||||||||
|
Balance Sheet Data
|
2016
|
2015
|
2014
|
2013
|
2012
|
||||||||||||||
|
Cash and cash equivalents
|
$
|
27,230
|
|
$
|
21,318
|
|
$
|
28,331
|
|
$
|
15,670
|
|
$
|
19,015
|
|
||||
|
Total assets
(3)
|
2,948,791
|
|
2,641,967
|
|
1,773,773
|
|
1,716,274
|
|
1,724,300
|
|
|||||||||
|
Total long-term debt, including current maturities
|
1,652,500
|
|
1,593,600
|
|
937,500
|
|
978,000
|
|
1,135,000
|
|
|||||||||
|
Stockholders’ equity
|
744,336
|
|
627,624
|
|
563,360
|
|
477,943
|
|
402,728
|
|
|||||||||
|
(1)
|
For 2016, 2015, 2014, 2013, and 2012, cost of sales included $1.4 million, $2.2 million, $0.6 million, $6.1 million and $1.8 million, respectively, of charges related to inventory step-up and other costs associated with acquisitions.
|
|
(2)
|
For 2016, 2015, 2014, and 2012, general and administrative expense included $2.4 million, $13.9 million, $1.1 million, and $13.8 million, respectively, of costs related to acquisitions. For 2016, an additional $1.4 million of costs associated with a Chief Executive Officer transition was included in general and administrative expense. For 2012, an additional $1.7 million of unsolicited offer defense costs was included in general and administrative expense.
|
|
(3)
|
Effective April 1, 2015, the Company elected to change its method of presentation relating to debt issuance costs in accordance with Accounting Standards Update ("ASU") 2015-03. Prior to 2016, the Company's policy was to present these costs in other-long term assets on the balance sheet, net of accumulated amortization. Beginning in 2016, the Company has presented these fees as a direct deduction to the related long-term debt. As a result, in 2015, 2014, 2013, and 2012, we reclassified $27.4 million, $21.9 million, $23.5 million, and $34.0 million, respectively, of deferred financing costs from other long-term assets, which are currently presented as a direct deduction from the long-term debt liability.
|
36
The following discussion of our financial condition and results of operations should be read together with the “Selected Financial Data” and the Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis may contain forward-looking statements that involve certain risks, assumptions and uncertainties that could cause actual results to differ materially from those implied or described by the forward-looking statements. Future results could differ materially from the discussion that follows for many reasons, including the factors described in Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K, as well as those described in future reports filed with the SEC.
General
We are engaged in the marketing, sales and distribution of well-recognized, brand name OTC healthcare and household cleaning products to mass merchandisers, drug stores, supermarkets, and club, convenience, and dollar stores in North America (the United States and Canada) and in Australia and certain other international markets. We use the strength of our brands, our established retail distribution network, a low-cost operating model and our experienced management team to our competitive advantage.
We have grown our brand portfolio both organically and through acquisitions. We develop our existing brands by investing in new product lines, brand extensions and strong advertising support. Acquisitions of OTC brands have also been an important part of our growth strategy. We have acquired strong and well-recognized brands from consumer products, pharmaceutical and private equity companies. While many of these brands have long histories of brand development and investment, we believe that, at the time we acquired them, most were considered “non-core” by their previous owners. As a result, these acquired brands did not benefit from adequate management focus and marketing support during the period prior to their acquisition, which created opportunities for us to reinvigorate these brands and improve their performance post-acquisition. After adding a core brand to our portfolio, we seek to increase its sales, market share and distribution in both existing and new channels through our established retail distribution network. We pursue this growth through increased spending on advertising and promotional support, new sales and marketing strategies, improved packaging and formulations, and innovative development of brand extensions.
Acquisitions
Acquisition of DenTek
On February 5, 2016, the Company completed the acquisition of DenTek, a privately-held marketer and distributor of specialty oral care products. The closing was finalized pursuant to the terms of the merger agreement, announced November 23, 2015, under which the Company agreed to acquire DenTek from its stockholders, including TSG Consumer Partners, for a purchase price of
$228.3 million
. The acquisition expands the Company's portfolio of brands, strengthens its existing oral care platform and increases its geographic reach in parts of Europe. The Company financed the transaction with a combination of available cash on hand, available cash from its ABL revolver, and financing of an additional unsecured bridge loan. The DenTek brands are primarily included in our North American and International OTC Healthcare segments.
The DenTek acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our preliminary allocation of the assets acquired and liabilities assumed as of the February 5, 2016 acquisition date.
37
|
(In thousands)
|
February 5, 2016
|
||
|
Cash acquired
|
$
|
1,359
|
|
|
Accounts receivable
|
9,187
|
|
|
|
Inventories
|
14,304
|
|
|
|
Deferred income taxes
|
3,303
|
|
|
|
Prepaids and other current assets
|
6,728
|
|
|
|
Property, plant and equipment, net
|
3,555
|
|
|
|
Goodwill
|
76,529
|
|
|
|
Intangible assets, net
|
206,700
|
|
|
|
Total assets acquired
|
321,665
|
|
|
|
Accounts payable
|
3,261
|
|
|
|
Accrued expenses
|
16,488
|
|
|
|
Deferred income tax liabilities - long term
|
73,573
|
|
|
|
Total liabilities assumed
|
93,322
|
|
|
|
Total purchase price
|
$
|
228,343
|
|
Based on this preliminary analysis, we allocated
$179.8 million
to non-amortizable intangible assets and
$26.9 million
to amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of
18.5
years. The weighted average remaining life for amortizable intangible assets at March 31, 2016 was
18.4
years.
We also recorded goodwill of
$76.5 million
based on the amount by which the purchase price exceeded the fair value of the net assets acquired. Goodwill is not deductible for income tax purposes.
The pro forma effect of this acquisition on revenues and earnings was not material. However, revenues recorded during the period ended March 31, 2016 were $10.7 million since the date of the acquisition.
Acquisition of Insight Pharmaceuticals
On September 3, 2014, the Company completed the acquisition of Insight , a marketer and distributor of feminine care and other OTC healthcare products, for
$745.9 million
in cash after receiving a return of approximately
$7.2 million
from escrow related to an arbitrator's ruling. The closing followed the FTC approval of the acquisition and was finalized pursuant to the terms of the purchase agreement announced on April 25, 2014. Pursuant to the Insight purchase agreement, the Company acquired
27
OTC brands sold in North America (including related trademarks, contracts and inventory), which extended the Company's portfolio of OTC brands to include a leading feminine care platform in the United States and Canada anchored by
Monistat
, the leading North American brand in OTC yeast infection treatment. The acquisition also added brands to the Company's cough & cold, pain relief, ear care and dermatological platforms. In connection with the FTC's approval of the Insight acquisition, we sold
one
of the competing brands that we acquired from Insight on the same day as the Insight closing. Insight is primarily included in our North American OTC Healthcare segment.
The Insight acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. During the quarter ended June 30, 2015, we adjusted the fair values of the assets acquired and liabilities assumed by increasing goodwill for certain immaterial items that came to our attention subsequent to the date of acquisition. Additionally, during the quarter ended December 31, 2015, we reduced goodwill, as we received
$7.2 million
as a result of a finalized arbitration ruling relating to a disputed working capital calculation as determined under GAAP, as of the date of the Insight acquisition, which is clearly and directly related to the purchase price. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the September 3, 2014 acquisition date, after giving effect of the adjustments noted above.
38
|
(In thousands)
|
September 3, 2014
|
||
|
Cash acquired
|
$
|
3,507
|
|
|
Accounts receivable
|
26,012
|
|
|
|
Inventories
|
23,456
|
|
|
|
Deferred income tax assets - current
|
1,032
|
|
|
|
Prepaids and other current assets
|
1,341
|
|
|
|
Property, plant and equipment
|
2,308
|
|
|
|
Goodwill
|
96,323
|
|
|
|
Intangible assets
|
724,374
|
|
|
|
Total assets acquired
|
878,353
|
|
|
|
Accounts payable
|
16,079
|
|
|
|
Accrued expenses
|
8,539
|
|
|
|
Deferred income tax liabilities - long term
|
107,799
|
|
|
|
Total liabilities assumed
|
132,417
|
|
|
|
Total purchase price
|
$
|
745,936
|
|
Based on this analysis, we allocated
$599.6 million
to indefinite-lived intangible assets and
$124.8 million
to amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of
16.2
years. The weighted average remaining life for amortizable intangible assets at March 31, 2016 was
14.6
years.
We also recorded goodwill of
$96.3 million
based on the amount by which the purchase price exceeded the fair value of the net assets acquired after of the adjustments described above. Goodwill is not deductible for income tax purposes.
The operating results of Insight have been included in our Consolidated Financial Statements beginning September 3, 2014. On September 3, 2014, we sold one of the brands we acquired from the Insight acquisition for $18.5 million, for which we had allocated $17.7 million, $0.6 million and $0.2 million to intangible assets, inventory and property, plant and equipment, respectively.
The following table provides our unaudited pro forma revenues, net income and net income per basic and diluted common share had the results of Insight's operations been included in our operations commencing on April 1, 2013, based upon available information related to Insight's operations. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized by us had the Insight acquisition been consummated at the beginning of the period for which the pro forma information is presented, or of future results.
|
Year Ended March 31,
|
|||||||
|
(In thousands, except per share data)
|
2015
|
2014
|
|||||
|
(Unaudited)
|
|||||||
|
Revenues
|
$
|
783,217
|
|
$
|
767,897
|
|
|
|
Net income
|
$
|
86,844
|
|
$
|
82,762
|
|
|
|
Earnings per share:
|
|||||||
|
Basic
|
$
|
1.66
|
|
$
|
1.60
|
|
|
|
Diluted
|
$
|
1.65
|
|
$
|
1.58
|
|
|
Acquisition of the Hydralyte brand
On April 30, 2014, we completed the acquisition of the
Hydralyte
brand in Australia and New Zealand from The Hydration Pharmaceuticals Trust of Victoria, Australia, which was funded through a combination of cash on hand and our existing senior secured credit facility.
39
Hydralyte
is the leading OTC brand in oral rehydration in Australia and is marketed and sold through our Care Pharma subsidiary.
Hydralyte
is available in pharmacies in multiple forms and is indicated for oral rehydration following diarrhea, vomiting, fever, heat and other ailments.
Hydralyte
is included in our International OTC Healthcare segment.
The
Hydralyte
acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the April 30, 2014 acquisition date.
|
(In thousands)
|
April 30, 2014
|
||
|
Inventories
|
$
|
1,970
|
|
|
Property, plant and equipment, net
|
1,267
|
|
|
|
Goodwill
|
1,224
|
|
|
|
Intangible assets, net
|
73,580
|
|
|
|
Total assets acquired
|
78,041
|
|
|
|
Accrued expenses
|
38
|
|
|
|
Other long term liabilities
|
12
|
|
|
|
Total liabilities assumed
|
50
|
|
|
|
Net assets acquired
|
$
|
77,991
|
|
Based on this analysis, we allocated
$73.6 million
to non-amortizable intangible assets and no allocation was made to amortizable intangible assets.
We also recorded goodwill of
$1.2 million
based on the amount by which the purchase price exceeded the fair value of the net assets acquired. Goodwill is not deductible for income tax purposes.
The pro forma effect of this acquisition on revenues and earnings was not material.
Acquisition of Care Pharmaceuticals Pty Ltd.
On July 1, 2013, we completed the acquisition of Care Pharma, which was funded through a combination of our existing senior secured credit facility and cash on hand.
The Care Pharma brands include the
Fess
line of cold/allergy and saline nasal health products, which is the leading saline spray for both adults and children in Australia. Other key brands include
Painstop
analgesic,
Rectogesic
for rectal discomfort, and the
Fab
line of nutritional supplements. Care Pharma also carries a line of brands for children including
Little Allergies
,
Little Eyes
,
and
Little Coughs
. The brands acquired are complementary to our OTC Healthcare portfolio.
This acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the July 1, 2013 acquisition date.
40
|
(In thousands)
|
July 1, 2013
|
|
|
|
Cash acquired
|
$
|
1,546
|
|
|
Accounts receivable
|
1,658
|
|
|
|
Inventories
|
2,465
|
|
|
|
Deferred income tax assets
|
283
|
|
|
|
Prepaids and other current assets
|
647
|
|
|
|
Property, plant and equipment
|
163
|
|
|
|
Goodwill
|
23,122
|
|
|
|
Intangible assets
|
31,502
|
|
|
|
Total assets acquired
|
61,386
|
|
|
|
Accounts payable
|
1,537
|
|
|
|
Accrued expenses
|
2,788
|
|
|
|
Other long term liabilities
|
300
|
|
|
|
Total liabilities assumed
|
4,625
|
|
|
|
Net assets acquired
|
$
|
56,761
|
|
Based on this analysis, we allocated
$29.8 million
to non-amortizable intangible assets and
$1.7 million
to amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of
15.1
years. The weighted average remaining life for amortizable intangible assets at March 31, 2016 was
12.5
years.
We also recorded goodwill of
$23.1 million
based on the amount by which the purchase price exceeded the fair value of the net assets acquired. The full amount of goodwill is deductible for income tax purposes.
The pro forma effect of this acquisition on revenues and earnings was not material.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in the notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. While all significant accounting policies are important to our Consolidated Financial Statements, certain of these policies may be viewed as being critical. Such policies are those that are both most important to the portrayal of our financial condition and results from operations and require our most difficult, subjective and complex estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses or the related disclosure of contingent assets and liabilities. These estimates are based on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates. The most critical accounting policies are as follows:
Revenue Recognition
We recognize revenue when the following revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the selling price is fixed or determinable; (iii) the product has been shipped and the customer takes ownership and assumes the risk of loss; and (iv) collection of the resulting receivable is reasonably assured. We have determined that these criteria are met and the transfer of risk of loss generally occurs when product is received by the customer, and, accordingly we recognize revenue at that time. Provisions are made for estimated discounts related to customer payment terms and estimated product returns at the time of sale based on our historical experience.
As is customary in the consumer products industry, we participate in the promotional programs of our customers to enhance the sale of our products. The cost of these promotional programs varies based on the actual number of units sold during a finite period of time. These promotional programs consist of direct-to-consumer incentives, such as coupons and temporary price reductions, as well as incentives to our customers, such as allowances for new distribution, including slotting fees, and cooperative advertising. Estimates of the costs of these promotional programs are based on (i) historical sales experience, (ii) the current promotional offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel. We recognize the cost of such sales incentives by recording an estimate of such cost as a reduction of revenue, at the
41
later of (a) the date the related revenue is recognized, or (b) the date when a particular sales incentive is offered. At the completion of the promotional program, these estimated amounts are adjusted to actual amounts. Our related promotional expense for 2016, 2015, and 2014 was
$56.4 million
,
$53.2 million
, and
$33.4 million
, respectively. In 2016, 2015, and 2014, we participated in over 26,000, 14,000, and 10,000 promotional campaigns, respectively. Of those campaigns, approximately 1,300, 1,900, and 1,700 payments were in excess of $5,000 in 2016, 2015, and 2014, respectively. For all three years, the average cost per campaign was less than $5,000. 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 each of 2016, 2015, and 2014, our operating income would have been reduced by approximately
$5.6 million
, $5.3 million, and $3.3 million, respectively. Net income would have been adversely affected by approximately
$3.6 million
, $3.4 million, and $2.1 million, respectively.
We also periodically run coupon programs in Sunday newspaper inserts, on our product websites, or as on-package instant redeemable coupons. We utilize a national clearing house to process coupons redeemed by customers. At the time a coupon is distributed, a provision is 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 2016, we had
395
coupon events. The amount recorded against revenues and accrued for these events during the year was
$5.6 million
. Cash settlement of coupon redemptions during the year was
$3.5 million
.
Allowances for Product Returns
Due to the nature of the consumer products industry, we are required to estimate future product returns. Accordingly, we record an estimate of product returns concurrent with recording sales. Such estimates are made after analyzing (i) historical return rates, (ii) current economic trends, (iii) changes in customer demand, (iv) product acceptance, (v) seasonality of our product offerings, and (vi) the impact of changes in product formulation, packaging and advertising.
We construct our returns analysis by looking at the previous year’s return history for each brand. Subsequently, each month, we estimate our current return rate based upon an average of the previous twelve months’ return rate and review that calculated rate for reasonableness, giving consideration to the other factors described above. Our historical return rate has been relatively stable; for example, for the years ended March 31, 2016, 2015 and 2014, returns represented
3.7%
,
4.2%
and
2.2%
, respectively, of gross sales. At March 31, 2016 and 2015, the allowance for sales returns was
$10.7 million
and
$8.6 million
, respectively.
While we utilize the methodology described above to estimate product returns, actual results may differ materially from our estimates, causing our future financial results to be adversely affected. Among the factors that could cause a material change in the estimated return rate would be significant unexpected returns with respect to a product or products that comprise a significant portion of our revenues. Based on the methodology described above and our actual returns experience, management believes the likelihood of such an event remains remote. As noted, over the last three years our actual product return rate has stayed within a range of 2.2% to
4.2%
of gross sales. A hypothetical increase of 0.1% in our estimated return rate as a percentage of gross sales would have decreased our reported sales and operating income for 2016 by approximately
$0.9 million
. Net income would have been reduced by approximately
$0.6 million
.
Lower of Cost or Market for Obsolete and Damaged Inventory
We value our inventory at the lower of cost or market value. Accordingly, we reduce our inventories for the diminution of value resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value. Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and packaging obsolescence.
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. Inventory obsolescence costs charged to operations for 2016, 2015, and 2014 were
$2.6 million
,
$2.9 million
and
$2.5 million
, respectively, or
0.3%
,
0.4%
and
0.1%
, respectively, of net sales.
Allowance for Doubtful Accounts
In the ordinary course of business, we grant non-interest bearing trade credit to our customers on normal credit terms. We maintain an allowance for doubtful accounts receivable, which is based upon our historical collection experience and expected collectability of the accounts receivable. In an effort to reduce our credit risk, we (i) establish credit limits for all of our customer relationships, (ii) perform ongoing credit evaluations of our customers’ financial condition, (iii) monitor the payment history and aging of our customers’ receivables, and (iv) monitor open orders against an individual customer’s outstanding receivable balance.
42
We establish specific reserves for those accounts which file for bankruptcy, have no payment activity for 180 days, or have reported major negative changes to their financial condition. The allowance for bad debts amounted to
0.8%
and
1.3%
of accounts receivable at March 31, 2016 and 2015, respectively. Bad debt expense in each of the years 2016, 2015, and 2014 was less than approximately
$0.3 million
, representing less than
0.1%
of net sales for each of 2016, 2015, and 2014.
While management believes that it is diligent in its evaluation of the adequacy of the allowance for doubtful accounts, an unexpected event, such as the bankruptcy filing of a major customer, could have an adverse effect on our financial results. A hypothetical increase of 0.1% in our bad debt expense as a percentage of net sales in 2016 would have resulted in a decrease of less than $0.1 million in reported operating income and reported net income.
Valuation of Intangible Assets and Goodwill
Goodwill and intangible assets amounted to
$2,682.9 million
and
$2,425.4 million
at March 31, 2016 and 2015, respectively. At March 31, 2016 and 2015, goodwill and intangible assets were apportioned among similar product groups within our three operating segments as follows:
|
March 31, 2016
|
|||||||||||||||
|
(In thousands)
|
North American OTC
Healthcare |
International OTC
Healthcare |
Household
Cleaning |
Consolidated
|
|||||||||||
|
Goodwill
|
$
|
330,615
|
|
$
|
22,776
|
|
$
|
6,800
|
|
$
|
360,191
|
|
|||
|
Intangible assets, net
|
|
||||||||||||||
|
Indefinite-lived:
|
|||||||||||||||
|
Analgesics
|
308,205
|
|
2,071
|
|
—
|
|
310,276
|
|
|||||||
|
Cough & Cold
|
138,946
|
|
19,251
|
|
—
|
|
158,197
|
|
|||||||
|
Women's Health
|
532,300
|
|
1,687
|
|
—
|
|
533,987
|
|
|||||||
|
Gastrointestinal
|
213,639
|
|
60,898
|
|
—
|
|
274,537
|
|
|||||||
|
Eye & Ear Care
|
172,318
|
|
—
|
|
—
|
|
172,318
|
|
|||||||
|
Dermatologicals
|
217,227
|
|
1,994
|
|
—
|
|
219,221
|
|
|||||||
|
Oral Care
|
241,238
|
|
—
|
|
—
|
|
241,238
|
|
|||||||
|
Other OTC
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Household Cleaning
|
—
|
|
—
|
|
110,272
|
|
110,272
|
|
|||||||
|
Total indefinite-lived intangible assets, net
|
1,823,873
|
|
85,901
|
|
110,272
|
|
2,020,046
|
|
|||||||
|
Finite-lived:
|
|||||||||||||||
|
Analgesics
|
42,039
|
|
—
|
|
—
|
|
42,039
|
|
|||||||
|
Cough & Cold
|
73,224
|
|
647
|
|
—
|
|
73,871
|
|
|||||||
|
Women's Health
|
36,019
|
|
278
|
|
—
|
|
36,297
|
|
|||||||
|
Gastrointestinal
|
19,835
|
|
212
|
|
—
|
|
20,047
|
|
|||||||
|
Eye & Ear Care
|
28,514
|
|
—
|
|
—
|
|
28,514
|
|
|||||||
|
Dermatologicals
|
23,362
|
|
—
|
|
—
|
|
23,362
|
|
|||||||
|
Oral Care
|
40,062
|
|
1,100
|
|
—
|
|
41,162
|
|
|||||||
|
Other OTC
|
14,707
|
|
—
|
|
—
|
|
14,707
|
|
|||||||
|
Household Cleaning
|
—
|
|
—
|
|
22,678
|
|
22,678
|
|
|||||||
|
Total finite-lived intangible assets, net
|
277,762
|
|
2,237
|
|
22,678
|
|
302,677
|
|
|||||||
|
Total intangible assets, net
|
2,101,635
|
|
88,138
|
|
132,950
|
|
2,322,723
|
|
|||||||
|
Total goodwill and intangible assets, net
|
$
|
2,432,250
|
|
$
|
110,914
|
|
$
|
139,750
|
|
$
|
2,682,914
|
|
|||
43
|
March 31, 2015
|
|||||||||||||||
|
(In thousands)
|
North American OTC
Healthcare |
International OTC
Healthcare |
Household
Cleaning |
Consolidated
|
|||||||||||
|
Goodwill
|
$
|
263,411
|
|
$
|
20,440
|
|
$
|
6,800
|
|
$
|
290,651
|
|
|||
|
Intangible assets, net
|
|
||||||||||||||
|
Indefinite-lived:
|
|||||||||||||||
|
Analgesics
|
341,122
|
|
2,077
|
|
—
|
|
343,199
|
|
|||||||
|
Cough & Cold
|
138,946
|
|
19,305
|
|
—
|
|
158,251
|
|
|||||||
|
Women's Health
|
532,300
|
|
1,692
|
|
—
|
|
533,992
|
|
|||||||
|
Gastrointestinal
|
213,639
|
|
61,068
|
|
—
|
|
274,707
|
|
|||||||
|
Eye & Ear Care
|
172,319
|
|
—
|
|
—
|
|
172,319
|
|
|||||||
|
Dermatologicals
|
217,227
|
|
1,999
|
|
—
|
|
219,226
|
|
|||||||
|
Oral Care
|
61,438
|
|
—
|
|
—
|
|
61,438
|
|
|||||||
|
Other OTC
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Household Cleaning
|
—
|
|
—
|
|
110,272
|
|
110,272
|
|
|||||||
|
Total indefinite-lived intangible assets, net
|
1,676,991
|
|
86,141
|
|
110,272
|
|
1,873,404
|
|
|||||||
|
Finite-lived:
|
|||||||||||||||
|
Analgesics
|
10,001
|
|
—
|
|
—
|
|
10,001
|
|
|||||||
|
Cough & Cold
|
78,846
|
|
689
|
|
—
|
|
79,535
|
|
|||||||
|
Women's Health
|
38,139
|
|
317
|
|
—
|
|
38,456
|
|
|||||||
|
Gastrointestinal
|
21,039
|
|
225
|
|
—
|
|
21,264
|
|
|||||||
|
Eye & Ear Care
|
30,219
|
|
—
|
|
—
|
|
30,219
|
|
|||||||
|
Dermatologicals
|
25,915
|
|
—
|
|
—
|
|
25,915
|
|
|||||||
|
Oral Care
|
15,845
|
|
—
|
|
—
|
|
15,845
|
|
|||||||
|
Other OTC
|
15,638
|
|
—
|
|
—
|
|
15,638
|
|
|||||||
|
Household Cleaning
|
—
|
|
—
|
|
24,423
|
|
24,423
|
|
|||||||
|
Total finite-lived intangible assets, net
|
235,642
|
|
1,231
|
|
24,423
|
|
261,296
|
|
|||||||
|
Total intangible assets, net
|
1,912,633
|
|
87,372
|
|
134,695
|
|
2,134,700
|
|
|||||||
|
Total goodwill and intangible assets, net
|
$
|
2,176,044
|
|
$
|
107,812
|
|
$
|
141,495
|
|
$
|
2,425,351
|
|
|||
The increase in goodwill of
$69.5 million
for 2016 was primarily due to the acquisition of DenTek, which increased goodwill by
$76.5 million
, partially offset by a decrease of $7.2 million discussed below. On September 3, 2014, we completed the acquisition of Insight and recorded goodwill of
$96.3 million
, reflecting the amount by which the purchase price exceeded the preliminary estimate of fair value of net assets acquired, after giving effect to the following adjustments. During the quarter ended June 30, 2015, we increased goodwill by
$0.3 million
for certain immaterial items. During the quarter ended December 31, 2015, we decreased goodwill by
$7.2 million
, as we received that amount from escrow pursuant to an arbitrator's ruling in December 31, 2015 related to a disputed working capital calculation, as determined under GAAP, associated with the Insight acquisition, which is clearly and directly related to the purchase price. The increase in the indefinite-lived intangible assets of
$146.6 million
for 2016 was due to the acquisition of DenTek, which increased indefinite-lived intangible assets by
$179.8 million
, and was offset by a reclassification of the
Ecotrin
brand to finite-lived of
$32.9 million
and $0.3 million due to the effects of foreign currency exchange rates. The increase in the finite-lived intangible assets of
$41.4 million
for 2016 was primarily due to the acquisition of DenTek, which increased finite-lived brands by
$26.9 million
, the reclassification of the
Ecotrin
brand of
$32.9 million
from indefinite-lived, and was partially offset by amortization of
$18.4 million
.
At March 31, 2016, our highest valued brands were,
Monistat
,
BC/Goody's
,
DenTek
,
Clear Eyes
and
Chloroseptic
, comprising 52.2% of the intangible assets within the OTC Healthcare segments. The
Comet
,
Chore Boy
, and
Spic and Span
brands comprised all of the intangible assets value within the Household Cleaning segment.
44
Goodwill and intangible assets comprise substantially all of our assets. Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination. Intangible assets generally represent our trademarks, brand names and patents. When we acquire a brand, we are required to make judgments regarding the value assigned to the associated intangible assets, as well as their respective useful lives. Management considers many factors both prior to and after the acquisition of an intangible asset in determining the value, as well as the useful life, assigned to each intangible asset that we acquire or continue to own and promote.
The most significant factors are:
|
•
|
Brand History
|
A brand that has been in existence for a long period of time (e.g., 25, 50 or 100 years) generally warrants a higher valuation and longer life (sometimes indefinite) than a brand that has been in existence for a very short period of time. A brand that has been in existence for an extended period of time generally has been the subject of considerable investment by its previous owner(s) to support product innovation and advertising and promotion.
|
•
|
Market Position
|
Consumer products that rank number one or two in their respective market generally have greater name recognition and are known as quality product offerings, which warrant a higher valuation and longer life than products that lag in the marketplace.
|
•
|
Recent and Projected Sales Growth
|
Recent sales results present a snapshot as to how the brand has performed in the most recent time periods and represent another factor in the determination of brand value. In addition, projected sales growth provides information about the strength and potential longevity of the brand. A brand that has both strong current and projected sales generally warrants a higher valuation and a longer life than a brand that has weak or declining sales. Similarly, consideration is given to the potential investment, in the form of advertising and promotion, required to reinvigorate a brand that has fallen from favor.
|
•
|
History of and Potential for Product Extensions
|
Consideration is given to the product innovation that has occurred during the brand’s history and the potential for continued product innovation that will determine the brand’s future. Brands that can be continually enhanced by new product offerings generally warrant a higher valuation and longer life than a brand that has always “followed the leader”.
After consideration of the factors described above, as well as current economic conditions and changing consumer behavior, management prepares a determination of an intangible asset’s value and useful life based on its analysis. Under accounting guidelines, goodwill is not amortized, but must be tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below the carrying amount. In a similar manner, indefinite-lived assets are not amortized. They are also subject to an annual impairment test, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Additionally, at each reporting period an evaluation must be made to determine whether events and circumstances continue to support an indefinite useful life. Intangible assets with finite lives are amortized over their respective estimated useful lives and must also be tested for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable and exceeds its fair value.
On an annual basis, during the fourth fiscal quarter, or more frequently if conditions indicate that the carrying value of the asset may not be recovered, management performs a review of both the values and, if applicable, useful lives assigned to goodwill and intangible assets and tests for impairment.
We report goodwill and indefinite-lived intangible assets in three reportable segments: North American OTC Healthcare, International OTC Healthcare and Household Cleaning. We identify our reporting units in accordance with the FASB ASC Subtopic 280. The carrying value and fair value for intangible assets and goodwill for a reporting unit are calculated based on key assumptions and valuation methodologies previously discussed. As a result, any material changes to these assumptions could require us to record additional impairment in the future.
In the past, we have experienced declines in revenues and profitability of certain brands in the North American OTC Healthcare and Household Cleaning segments. Sustained or significant future declines in revenue, profitability, other adverse changes in expected operating results, and/or unfavorable changes in other economic factors used to estimate fair values of certain brands could indicate that fair value no longer exceeds carrying value, in which case a non-cash impairment charge may be recorded in future periods.
45
Goodwill
As of February 29, our annual impairment review date, and March 31, 2016, we had 15 reporting units with goodwill. As part of our annual test for impairment of goodwill, management estimates the discounted cash flows of each reporting unit to estimate their respective fair values. In performing this analysis, management considers current information and future events, such as competition, technological advances and reductions in advertising support for our trademarks and trade names, that could cause subsequent evaluations to utilize different assumptions. In the event that the carrying amount of the reporting unit exceeds the fair value, management would then be required to allocate the estimated fair value of the assets and liabilities of the reporting unit as if the unit was acquired in a business combination, thereby revaluing the carrying amount of goodwill.
Indefinite-Lived Intangible Assets
At each reporting period, management analyzes current events and circumstances to determine whether the indefinite life classification for a trademark or trade name continues to be valid. If circumstances warrant a change to a finite life, the carrying value of the intangible asset would then be amortized prospectively over the estimated remaining useful life.
Management tests the indefinite-lived intangible assets for impairment by comparing the carrying value of the intangible asset to its estimated fair value. Since quoted market prices are seldom available for trademarks and trade names such as ours, we utilize present value techniques to estimate fair value. Accordingly, management’s projections are utilized to assimilate all of the facts, circumstances and expectations related to the trademark or trade name and estimate the cash flows over its useful life. In a manner similar to goodwill, future events, such as competition, technological advances and reductions in advertising support for our trademarks and trade names, could cause subsequent evaluations to utilize different assumptions. Once that analysis is completed, a discount rate is applied to the cash flows to estimate fair value. In connection with this analysis, management:
|
•
|
Reviews period-to-period sales and profitability by brand;
|
|
•
|
Analyzes industry trends and projects brand growth rates;
|
|
•
|
Prepares annual sales forecasts;
|
|
•
|
Evaluates advertising effectiveness;
|
|
•
|
Analyzes gross margins;
|
|
•
|
Reviews contractual benefits or limitations;
|
|
•
|
Monitors competitors’ advertising spend and product innovation;
|
|
•
|
Prepares projections to measure brand viability over the estimated useful life of the intangible asset; and
|
|
•
|
Considers the regulatory environment, as well as industry litigation.
|
Finite-Lived Intangible Assets
When events or changes in circumstances indicate the carrying value of the assets may not be recoverable, management performs a review similar to indefinite-lived intangible assets to ascertain the impact of events and circumstances on the estimated useful lives and carrying values of our trademarks and trade names.
If the analysis warrants a change in the estimated useful life of the intangible asset, management will reduce the estimated useful life and amortize the carrying value prospectively over the shorter remaining useful life. Management’s projections are utilized to assimilate all of the facts, circumstances and expectations related to the trademark or trade name and estimate the cash flows over its useful life. Future events, such as competition, technological advances and reductions in advertising support for our trademarks and trade names, could cause subsequent evaluations to utilize different assumptions. In the event that the long-term projections indicate that the carrying value is in excess of the undiscounted cash flows expected to result from the use of the intangible assets, management is required to record an impairment charge. Once that analysis is completed, a discount rate is applied to the cash flows to estimate fair value. The impairment charge is measured as the excess of the carrying amount of the intangible asset over fair value, as calculated using the excess earnings method.
46
Impairment Analysis
During the fourth quarter of each fiscal year, we perform our annual impairment analysis. We utilized the discounted cash flow method to estimate the fair value of our reporting units as part of the goodwill impairment test and the excess earnings method to estimate the fair value of our individual indefinite-lived intangible assets. The discount rate utilized in the analyses, as well as future cash flows, may be influenced by such factors as changes in interest rates and rates of inflation. Additionally, should the related fair values of goodwill and intangible assets be adversely affected as a result of declining sales or margins caused by competition, changing consumer preferences, technological advances or reductions in advertising and promotional expenses, we may be required to record impairment charges in the future. In addition, we considered our market capitalization at February 29, 2016, as compared to the aggregate fair values of our reporting units, to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology. As a result of our analysis, we determined that the fair values exceeded the carrying values and as such,
no
impairment charge was recorded in 2016.
Based on our analysis, the aggregate fair value of our reporting units exceeded the carrying value by
76.4%
, with no reporting unit's fair value exceeding the carrying value by less than
10%
. The aggregate fair value of the indefinite-lived intangible assets exceeded the carrying value by
55.8%
. Three of the individual indefinite-lived trade names exceeded their carrying values by less than
10%
. The fair value of
Beano, New Skin
and
Debrox,
exceed their carrying values of
$78.4 million
,
$37.2 million
and
$76.3 million
, by
9.0%
,
8.2%
and
5.1%
, respectively.
Given the competitive landscape, including private label,
Beano
has experienced declines in revenues in recent periods. However, we continue to believe that the fair value exceeds the carrying value of
Beano.
The significant assumptions supporting the fair value of
Beano
include a discount rate of
9.5%
, and returning to revenue growth, coupled with advertising and promotion investments that are in line with historical performance. A decrease in the annual cash flow of approximately
21.6%
compared to the projected cash flow utilized in our analysis, or an increase in the discount rate of approximately
82
basis points could result in the carrying value of our trade name exceeding its fair value, which would result in an impairment charge.
The significant assumptions supporting the fair value of
New Skin
and
Debrox
include a discount rate of
9.5%
, coupled with modest revenue growth, and advertising and promotion investments that are in line with historical performance. Revenue declines in each of the brands or changes in assumptions utilized in our quantitative indefinite lived asset impairment analysis may result in the fair value no longer exceeding their respective carrying values. For example, a decrease in the annual cash flow of approximately 19.6% and 12.6% for
New Skin
and
Debrox
, respectively, compared to the projected cash flow utilized in our analysis, or an increase in the discount rate of approximately
73
and
45
basis points, respectively, could result in the carrying value of our trade name exceeding its fair value, which would result in an impairment charge. We will continue to review our results against forecasts and assess our assumptions to ensure they continue to be appropriate.
Based on recent declines in the business and a strategic review of our brands during the fourth quarter ended March 31, 2016 and our annual impairment review, we have reassessed the useful life of the
Ecotrin
brand as of February 29, 2016 and determined it to be
20 years
. As such, we have reclassified
$32.9 million
from an indefinite-lived to a finite lived intangible asset. At the time of this change in useful life, the fair value exceeded its carrying value.
Although we experienced revenue declines in
Pediacare
and in certain other brands in the past, we continue to believe that the fair value of our brands exceed their carrying values. However, sustained or significant future declines in revenue, profitability, lost distribution, other adverse changes in expected operating results, and / or unfavorable changes in economic factors used to estimate fair value of certain brands could indicate that the fair value no longer exceeds the carrying in which case a non-cash impairment charge may be recorded in future periods.
Additionally, certain of our North American OTC Healthcare and Household Cleaning brands, have experienced recent declines in revenues and profitability. While the fair value of these reporting units exceeds the carrying value by more than 10%, if we experience future declines in revenue or performance not in line with our expectations, the carrying value may no longer be recoverable, in which case a non-cash impairment charge may be recorded in future periods.
Stock-Based Compensation
The Compensation and Equity topic of the FASB ASC 718 requires us to measure the cost of services to be rendered based on the grant-date fair value of the equity award. Compensation expense is to be recognized over the period during which an employee is required to provide service in exchange for the award, generally referred to as the requisite service period. Information utilized in the determination of fair value includes the following:
|
•
|
Type of instrument (i.e., restricted shares, stock options, warrants or performance shares);
|
|
•
|
Strike price of the instrument;
|
|
•
|
Market price of our common stock on the date of grant;
|
47
|
•
|
Discount rates;
|
|
•
|
Duration of the instrument; and
|
|
•
|
Volatility of our common stock in the public market.
|
Additionally, management must estimate the expected attrition rate of the recipients to enable it to estimate the amount of non-cash compensation expense to be recorded in our financial statements. While management prepares various analyses to estimate the respective variables, a change in assumptions or market conditions, as well as changes in the anticipated attrition rates, could have a significant impact on the future amounts recorded as non-cash compensation expense. We recorded net non-cash compensation expense of
$10.0 million
,
$6.9 million
and
$5.1 million
during 2016, 2015, and 2014, respectively. Assuming no changes in assumptions and no new awards authorized by the Compensation Committee of the Board of Directors, we expect to record non-cash compensation expense of approximately $5.9 million during 2017.
Loss Contingencies
Loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of such loss is reasonably estimable. Contingent losses are often resolved over longer periods of time and involve many factors, including:
|
•
|
Rules and regulations promulgated by regulatory agencies;
|
|
•
|
Sufficiency of the evidence in support of our position;
|
|
•
|
Anticipated costs to support our position; and
|
|
•
|
Likelihood of a positive outcome.
|
Recent Accounting Pronouncements
In April 2016, the FASB issued Accounting Standards Update ("ASU") 2016-10,
Revenue from Contracts with Customers
. The amendments in this update clarify the implementation guidance on identifying performance obligations and licensing in FASB ASC 606. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of ASU 2014-09 described below.
We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
. The amendments in this update involve several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards, and classification on the statement of cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers
. The amendments in this update clarify the implementation guidance on principals versus agent considerations in FASB ASC 606. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of ASU 2014-09 described below.
We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02,
Leases.
The amendments in this update include a new FASB ASC Topic 842, which supersedes Topic 840. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases.
For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all entities as of the beginning of interim or annual reporting periods. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
. For public business entities, the amendments in this update include the elimination of the requirement to disclose the method(s) and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, the requirement to use the exit price notion when measuring fair value of financial instruments for disclosure purposes, the requirement to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, the requirement for separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or accompanying notes to the financial statements, and the amendments clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
Early adoption of the amendments in this update is not permitted, except that early application by public business entities to financial statements of fiscal years or interim
48
periods that have not yet been issued or, by all other entities, that have not yet been made available for issuance are permitted as of the beginning of the fiscal year of adoption for the following amendment: An entity should present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. An entity should apply the amendments to this update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The adoption of ASU 2016-01 is not expected to have a material impact on our Consolidated Financial Statements.
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. For public business entities, the amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted for all entities as of the beginning of interim or annual reporting periods. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In September 2015, the FASB issued ASU 2015-16,
Simplifying the Accounting for Measurement-Period Adjustments
. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the amendments in this update eliminate the requirement to retrospectively account for those adjustments. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The adoption of ASU 2015-16 is not expected to have a material impact on our Consolidated Financial Statements.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards, under which an entity should measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.
The adoption of ASU 2015-11 is not expected to have a material impact on our Consolidated Financial Statements.
In April 2015, the FASB issued ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs
. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. As permitted by the guidance, we have early adopted these provisions, as of the beginning of our first quarter of 2016. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, in August 2015, the FASB issued ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
, stating that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement
.
As a result, we reclassified
$27.4 million
of deferred financing costs as of March 31, 2015 from other long-term assets, and such costs are now presented as a direct deduction from the long-term debt liability.
In February 2015, the FASB issued ASU 2015-02,
Amendments to the Consolidation Analysis
. Update 2015-02 amended the process that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material impact on our Consolidated Financial Statements.
In January 2015, the FASB issued ASU 2015-01,
Income Statement - Extraordinary and Unusual Items
. The amendments in this update eliminate the concept of extraordinary items in Subtopic 225-20, which required entities to consider whether an underlying event or transaction is extraordinary. However, the amendments retain the presentation and disclosure guidance for items that are unusual in nature or occur infrequently. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The adoption of ASU 2015-01 is not expected to have a material impact on our Consolidated Financial Statements.
49
In August 2014, the FASB issued ASU 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.
This amendment states that in connection with preparing financial statements for each annual and interim reporting period, an entity's management should evaluate whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued, when applicable). The amendments in this update are effective for the annual reporting period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on our Consolidated Financial Statements.
In June 2014, the FASB issued ASU 2014-12,
Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could Be Achieved after the Requisite Service Period,
which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the new guidance does not allow for a performance target that affects vesting to be reflected in estimating the fair value of the award at the grant date. The amendments to this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this update either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. We currently do not have any outstanding share-based payments with a performance target.
The adoption of ASU 2014-12 is not expected to have a material impact on our Consolidated Financial Statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers - Topic 606
, which supersedes the revenue recognition requirements in FASB ASC 605. The new guidance primarily states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 from annual and interim periods beginning after December 15, 2016 to annual and interim periods beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In April 2014, the FASB issued ASU 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The amendments in this update must be applied prospectively to all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The adoption of ASU 2014-08 did not have a material impact on our Consolidated Financial Statements.
50
Results of Operations
2016 compared to 2015
Total Segment Revenues
The following table represents total revenue by segment, including product groups, for each of the fiscal years ended March 31, 2016 and 2015.
|
Increase (Decrease)
|
|||||||||||||
|
(In thousands)
|
2016
|
%
|
2015
|
%
|
Amount
|
%
|
|||||||
|
North American OTC Healthcare
|
|||||||||||||
|
Analgesics
|
$
|
117,337
|
|
14.6
|
$
|
111,954
|
|
15.7
|
$
|
5,383
|
|
4.8
|
|
|
Cough & Cold
|
100,148
|
|
12.4
|
103,686
|
|
14.5
|
(3,538
|
)
|
(3.4
|
)
|
|||
|
Women's Health
|
132,184
|
|
16.4
|
71,506
|
|
10.0
|
60,678
|
|
(*)
|
|
|||
|
Gastrointestinal
|
74,568
|
|
9.2
|
77,596
|
|
10.9
|
(3,028
|
)
|
(3.9
|
)
|
|||
|
Eye & Ear Care
|
95,515
|
|
11.8
|
85,236
|
|
11.9
|
10,279
|
|
12.1
|
|
|||
|
Dermatologicals
|
82,941
|
|
10.3
|
64,806
|
|
9.1
|
18,135
|
|
28.0
|
|
|||
|
Oral Care
|
49,099
|
|
6.1
|
45,916
|
|
6.4
|
3,183
|
|
6.9
|
|
|||
|
Other OTC
|
6,079
|
|
0.8
|
6,193
|
|
0.8
|
(114
|
)
|
(1.8
|
)
|
|||
|
Total North American OTC Healthcare
|
657,871
|
|
81.6
|
566,893
|
|
79.3
|
90,978
|
|
16.0
|
|
|||
|
International OTC Healthcare
|
|||||||||||||
|
Analgesics
|
2,128
|
|
0.3
|
2,597
|
|
0.4
|
(469
|
)
|
(18.1
|
)
|
|||
|
Cough & Cold
|
16,422
|
|
2.0
|
18,080
|
|
2.5
|
(1,658
|
)
|
(9.2
|
)
|
|||
|
Women's Health
|
2,982
|
|
0.4
|
2,261
|
|
0.3
|
721
|
|
31.9
|
|
|||
|
Gastrointestinal
|
20,019
|
|
2.4
|
19,372
|
|
2.7
|
647
|
|
3.3
|
|
|||
|
Eye & Ear Care
|
11,983
|
|
1.5
|
12,689
|
|
1.8
|
(706
|
)
|
(5.6
|
)
|
|||
|
Dermatologicals
|
2,133
|
|
0.3
|
2,289
|
|
0.3
|
(156
|
)
|
(6.8
|
)
|
|||
|
Oral Care
|
2,026
|
|
0.3
|
483
|
|
0.1
|
1,543
|
|
319.5
|
|
|||
|
Other OTC
|
20
|
|
0.0
|
22
|
|
0.0
|
(2
|
)
|
(9.1
|
)
|
|||
|
Total International OTC Healthcare
|
57,713
|
|
7.2
|
57,793
|
|
8.1
|
(80
|
)
|
(0.1
|
)
|
|||
|
Total OTC Healthcare
|
715,584
|
|
88.8
|
624,686
|
|
87.4
|
90,898
|
|
14.6
|
|
|||
|
Household Cleaning
|
90,663
|
|
11.2
|
89,937
|
|
12.6
|
726
|
|
0.8
|
|
|||
|
Total Consolidated
|
$
|
806,247
|
|
100.0
|
$
|
714,623
|
|
100.0
|
$
|
91,624
|
|
12.8
|
|
|
(*) % not meaningful
|
|||||||||||||
Revenues for 2016 were
$806.2 million
, an increase of
$91.6 million
, or
12.8%
, versus 2015. This increase was primarily related to an increase in the North American OTC Healthcare segment, largely due to the acquisitions of Insight and DenTek. The Insight and DenTek brands accounted for $74.1 million and $9.3 million, respectively, of revenues in the North American OTC Healthcare segment that were not included in the comparable period in the prior year.
North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment increased
$91.0 million
, or
16.0%
, during 2016 versus 2015. This increase was primarily due to the acquisition of Insight, which contributed $74.1 million of revenues not included in the comparable period in the prior year, and included increases of $55.3 million, $11.3 million, $2.5 million, $2.4 million and $1.7 million to the women’s health, dermatologicals, eye & ear care, cough & cold, and analgesics product groups, respectively. The increase was also due to the acquisition of DenTek, which contributed $9.3 million to the segment overall.
In addition to the revenue increases contributed by Insight and DenTek, there was an increase of $7.6 million in revenue included in the comparable period in prior year, primarily consisting of increases in the eye & ear care, dermatologicals, women's health and analgesics product groups, which was partially offset by decreases in the gastrointestinal and cough & cold product groups.
51
The decrease in the cough & cold product group and the gastrointestinal product group was partially due to
Pediacare
and
Beano
, respectively, which continue to experience declines in revenues and market share due to increasing competition. Although we experienced declines in revenues in
Pediacare
and
Beano
, we continue to believe that the carrying value of each of these brands is recoverable. However, if we experience future declines in revenue or performance not in line with our expectations, the carrying value may no longer be recoverable, in which case a non-cash impairment charge may be recorded in future periods.
In the past, in our women's health and analgesics product groups, a third-party manufacturer had failed to keep up with demand, leading to product being temporarily out of stock. However, in the third quarter of calendar 2015, those out of stock issues were resolved as a result of increased manufacturing. If these types of supply issues resurface in these or in other product groups that are not resolved timely, we may not have enough product to meet demand, which could adversely impact our business, result in a significant reduction of net sales and have an adverse impact on our results of operations and financial condition.
International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment decreased
$0.1 million
, or
0.1%
, during 2016 versus 2015. This decrease was primarily due to a decrease in the cough & cold product group and the negative impact of foreign currency exchange rates during 2016 versus 2015. These decreases were partially offset by an increase in the gastrointestinal product group, which was largely attributable to the acquisition of Hydralyte.
Household Cleaning Segment
Revenues for the Household Cleaning segment increased by
$0.7 million
, or
0.8%
, during 2016 versus 2015. The increase was primarily due to increased sales in certain distribution channels.
Cost of Sales
The following table represents our cost of sales and cost of sales as a percentage of total segment revenues, by segment for each of the fiscal years ended March 31, 2016 and 2015.
|
(In thousands)
|
Increase (Decrease)
|
|||||||||||||||||
|
Cost of Sales
|
2016
|
%
|
2015
|
%
|
Amount
|
%
|
||||||||||||
|
North American OTC Healthcare
|
$
|
250,018
|
|
38.0
|
$
|
216,781
|
|
38.2
|
$
|
33,237
|
|
15.3
|
|
|||||
|
International OTC Healthcare
|
21,676
|
|
37.6
|
22,820
|
|
39.5
|
(1,144
|
)
|
(5.0
|
)
|
||||||||
|
Household Cleaning
|
67,342
|
|
74.3
|
68,799
|
|
76.5
|
(1,457
|
)
|
(2.1
|
)
|
||||||||
|
$
|
339,036
|
|
42.1
|
$
|
308,400
|
|
43.2
|
$
|
30,636
|
|
9.9
|
|
||||||
Cost of sales increased
$30.6 million
, or
9.9%
, during 2016 versus 2015. This increase was largely due to increased sales volume associated with the acquisitions of DenTek, Insight, and
Hydralyte
. As a percentage of total revenues, cost of sales decreased to
42.1%
in 2016 from
43.2%
in 2015. This decrease in cost of sales as a percentage of revenues was the result of decreases in cost of sales as a percentage of revenue in the International and Household Cleaning segments.
North American OTC Healthcare Segment
Cost of sales for the North American OTC Healthcare segment increased
$33.2 million
, or
15.3%
, during 2016 versus 2015. This increase was due to higher overall sales volume primarily from the acquisitions of DenTek and Insight and to higher manufacturing costs for certain of our products. As a percentage of North American OTC Healthcare revenues, cost of sales in the North American OTC Healthcare segment remained relatively consistent in 2016 versus 2015.
International OTC Healthcare Segment
Cost of sales for the International OTC Healthcare segment decreased
$1.1 million
, or
5.0%
, during 2016 versus 2015. This decrease was primarily due to decreases in cost of sales in the eye & ear care, gastrointestinal and cough & cold product groups, driven by foreign currency exchange rate fluctuations year over year. As a percentage of the International OTC Healthcare revenues, cost of sales in the International OTC Healthcare segment decreased to
37.6%
in 2016 from
39.5%
during 2015. The decrease in cost of sales as a percentage of revenues was primarily attributable to the product groups discussed above.
Household Cleaning Segment
Cost of sales for the Household Cleaning segment decreased
$1.5 million
, or
2.1%
, during 2016 versus 2015. As a percentage of Household Cleaning revenues, cost of sales decreased to
74.3%
during 2016 from
76.5%
during 2015. This decrease in cost of sales as a percentage of revenues was primarily attributable to a favorable product mix.
52
Gross Profit
The following table represents our gross profit and gross profit as a percentage of total segment revenues, by segment for each of the fiscal years ended March 31, 2016 and 2015.
|
(In thousands)
|
Increase (Decrease)
|
||||||||||||||||
|
Gross Profit
|
2016
|
%
|
2015
|
%
|
Amount
|
%
|
|||||||||||
|
North American OTC Healthcare
|
$
|
407,853
|
|
62.0
|
$
|
350,112
|
|
61.8
|
$
|
57,741
|
|
16.5
|
|||||
|
International OTC Healthcare
|
36,037
|
|
62.4
|
34,973
|
|
60.5
|
1,064
|
|
3.0
|
||||||||
|
Household Cleaning
|
23,321
|
|
25.7
|
21,138
|
|
23.5
|
2,183
|
|
10.3
|
||||||||
|
|
$
|
467,211
|
|
57.9
|
$
|
406,223
|
|
56.8
|
$
|
60,988
|
|
15.0
|
|||||
Gross profit for 2016 increased
$61.0 million
, or
15.0%
, versus 2015. As a percentage of total revenues, gross profit increased to
57.9%
in 2016 from
56.8%
in 2015. The increase in gross profit as a percentage of revenues was primarily the result of higher gross margins associated with the acquired DenTek and Insight brands.
North American OTC Healthcare Segment
Gross profit for the North American OTC Healthcare segment increased
$57.7 million
, or
16.5%
, during 2016 versus 2015. This increase was due to higher overall sales volume, primarily from the acquisitions of DenTek and Insight, slightly offset by higher manufacturing costs for certain of our products. As a percentage of North American OTC Healthcare revenues, gross profit remained relatively consistent in 2016 versus 2015.
International OTC Healthcare Segment
Gross profit for the International OTC Healthcare segment increased
$1.1 million
, or
3.0%
, during the 2016 versus 2015. As a percentage of International OTC Healthcare revenues, gross profit increased to
62.4%
during 2016 from
60.5%
during 2015. The increase in gross profit as a percentage of revenues was primarily attributable to an increase in gross margin in the eye & ear care and gastrointestinal product groups.
Household Cleaning Segment
Gross profit for the Household Cleaning segment increased
$2.2 million
, or
10.3%
, during 2016 versus 2015. As a percentage of Household Cleaning revenue, gross profit increased to
25.7%
during 2016 from
23.5%
during 2015. The increase in gross profit as a percentage of revenues was primarily attributable to a favorable product mix.
Contribution Margin
The following table represents our contribution margin and contribution margin as a percentage of total segment revenues, by segment for each of the fiscal years ended March 31, 2016 and 2015.
|
(In thousands)
|
Increase (Decrease)
|
||||||||||||||||
|
Contribution Margin
|
2016
|
%
|
2015
|
%
|
Amount
|
%
|
|||||||||||
|
North American OTC Healthcare
|
$
|
310,460
|
|
47.2
|
$
|
263,215
|
|
46.4
|
$
|
47,245
|
|
17.9
|
|||||
|
International OTC Healthcare
|
24,923
|
|
43.2
|
24,051
|
|
41.6
|
872
|
|
3.6
|
||||||||
|
Household Cleaning
|
21,026
|
|
23.2
|
19,306
|
|
21.5
|
1,720
|
|
8.9
|
||||||||
|
|
$
|
356,409
|
|
44.2
|
$
|
306,572
|
|
42.9
|
$
|
49,837
|
|
16.3
|
|||||
Contribution margin is a non-GAAP financial measure that we use as a primary measure for evaluating segment performance. It is defined as gross profit less advertising and promotional expenses. Contribution margin increased
$49.8 million
, or
16.3%
, during 2016 versus 2015. The contribution margin increase was primarily related to the increase in gross profit in the North American OTC Healthcare segment.
53
North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment increased
$47.2 million
, or
17.9%
, during 2016 versus 2015. The contribution margin increase was primarily the result of higher sales volumes and gross profit attributable to the DenTek and Insight acquisitions, partially offset by an increase in advertising and promotional expenses. As a percentage of North American OTC Healthcare revenues, contribution margin for the North American OTC Healthcare segment increased to
47.2%
during 2016 versus
46.4%
during 2015.
International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment increased
$0.9 million
, or
3.6%
, during 2016 versus 2015. As a percentage of International OTC Healthcare revenues, contribution margin from the International OTC Healthcare segment increased to
43.2%
during 2016 from
41.6%
during 2015. This contribution margin increase was primarily related to the increase in gross profit in the International OTC Healthcare segment discussed above.
Household Cleaning Segment
Contribution margin for the Household Cleaning segment increased
$1.7 million
, or
8.9%
, during 2016 versus 2015. As a percentage of Household Cleaning revenues, contribution margin from the Household Cleaning segment increased to
23.2%
during 2016 from
21.5%
during 2015. This increase was primarily attributable to a favorable product mix in certain distribution channels.
General and Administrative
General and administrative expenses were
$72.4 million
for 2016 versus $81.3 million for 2015. The decrease in general and administrative expenses was primarily due to the decrease in acquisition costs of $13.2 million associated with the acquisition and integration of Insight in the prior year. This decrease was also attributable to a lease termination charge of $0.8 million related to the remaining lease payments from the Insight office incurred during the third quarter of fiscal 2015. These decreases were partially offset by an increase in 2016 in compensation, stock based compensation and information technology costs of $3.5 million, $3.0 million and $1.4 million, respectively.
Depreciation and Amortization
Depreciation and amortization expense was
$23.7 million
for 2016 versus
$17.7 million
for 2015. The increase in depreciation and amortization expense was primarily due to higher intangible asset amortization during 2016 related to the intangible assets acquired as a result of the DenTek and Insight acquisitions. Additionally, the increase in depreciation and amortization is partially due to higher intangible asset amortization during 2016 related to
Pediacare,
as this trade name was reclassified to a finite-lived intangible asset as part of our annual impairment analysis conducted during the fourth fiscal quarter of 2015.
Interest Expense
Net interest expense was $85.2 million during 2016 versus $81.2 million during 2015. The increase in net interest expense was primarily the result of a higher level of indebtedness, primarily related to the acquisitions of DenTek and Insight. The average indebtedness outstanding increased from
$1.4 billion
during 2015 to
$1.5 billion
during 2016. The increase in average indebtedness outstanding is the result of additional borrowings under our term loan facility and revolving credit facility to fund our acquisition of Insight and the 2016 Senior Notes to fund the acquisition of DenTek. The average cost of borrowing decreased to
5.4%
during 2016, from 5.9% during 2015. The decrease in the average costs of borrowing is partially attributable to the issuance of the 2016 Senior Notes and the redemption of the 2012 Senior Notes during 2016; as the interest rate for the 2016 Senior Notes is 6.375% versus the interest rate of 8.125% for the 2012 Senior Notes, including the accelerated portion of debt origination costs incurred in 2016.
Income Taxes
The provision for income taxes during 2016 was
$57.3 million
versus
$49.2 million
in 2015. The effective tax rate on income before income taxes was
36.4%
during 2016 versus
38.6%
during 2015. The decrease in the effective tax rate during 2016 versus 2015 was primarily due to the impact of certain non-deductible items related to acquisitions in the prior year and to the favorable tax deductions related to stock options, equity awards and certain foreign tax credits realized in the current year period.
54
Results of Operations
2015 compared to 2014
Total Segment Revenues
The following table represents total revenue by segment, including product groups, for each of the fiscal years ended March 31, 2015 and 2014.
|
Increase (Decrease)
|
|||||||||||||
|
(In thousands)
|
2015
|
%
|
2014
|
%
|
Amount
|
%
|
|||||||
|
North American OTC Healthcare
|
|||||||||||||
|
Analgesics
|
$
|
111,954
|
|
15.7
|
$
|
108,101
|
|
18.1
|
$
|
3,853
|
|
3.6
|
|
|
Cough & Cold
|
103,686
|
|
14.5
|
100,060
|
|
16.7
|
3,626
|
|
3.6
|
|
|||
|
Women's Health
|
71,506
|
|
10.0
|
1,960
|
|
0.3
|
69,546
|
|
(*)
|
|
|||
|
Gastrointestinal
|
77,596
|
|
10.9
|
81,469
|
|
13.6
|
(3,873
|
)
|
(4.8
|
)
|
|||
|
Eye & Ear Care
|
85,236
|
|
11.9
|
78,753
|
|
13.2
|
6,483
|
|
8.2
|
|
|||
|
Dermatologicals
|
64,806
|
|
9.1
|
56,436
|
|
9.4
|
8,370
|
|
14.8
|
|
|||
|
Oral Care
|
45,916
|
|
6.4
|
47,900
|
|
8.0
|
(1,984
|
)
|
(4.1
|
)
|
|||
|
Other OTC
|
6,193
|
|
0.8
|
8,208
|
|
1.5
|
(2,015
|
)
|
(24.5
|
)
|
|||
|
Total North American OTC Healthcare
|
566,893
|
|
79.3
|
482,887
|
|
80.8
|
84,006
|
|
17.4
|
|
|||
|
International OTC Healthcare
|
|||||||||||||
|
Analgesics
|
2,597
|
|
0.4
|
1,883
|
|
0.3
|
714
|
|
37.9
|
|
|||
|
Cough & Cold
|
18,080
|
|
2.5
|
13,365
|
|
2.2
|
4,715
|
|
35.3
|
|
|||
|
Women's Health
|
2,261
|
|
0.3
|
1,835
|
|
0.3
|
426
|
|
23.2
|
|
|||
|
Gastrointestinal
|
19,372
|
|
2.7
|
838
|
|
0.1
|
18,534
|
|
(*)
|
|
|||
|
Eye & Ear Care
|
12,689
|
|
1.8
|
6,738
|
|
1.2
|
5,951
|
|
88.3
|
|
|||
|
Dermatologicals
|
2,289
|
|
0.3
|
1,655
|
|
0.3
|
634
|
|
38.3
|
|
|||
|
Oral Care
|
483
|
|
0.1
|
413
|
|
0.1
|
70
|
|
16.9
|
|
|||
|
Other OTC
|
22
|
|
0.0
|
2
|
|
0.0
|
20
|
|
(*)
|
|
|||
|
Total International OTC Healthcare
|
57,793
|
|
8.1
|
26,729
|
|
4.5
|
31,064
|
|
116.2
|
|
|||
|
Total OTC Healthcare
|
624,686
|
|
87.4
|
509,616
|
|
85.3
|
115,070
|
|
22.6
|
|
|||
|
Household Cleaning
|
89,937
|
|
12.6
|
87,765
|
|
14.7
|
2,172
|
|
2.5
|
|
|||
|
Total Consolidated
|
$
|
714,623
|
|
100.0
|
$
|
597,381
|
|
100.0
|
$
|
117,242
|
|
19.6
|
|
(*) size of % not meaningful
Revenues for 2015 were
$714.6 million
, an increase of
$117.2 million
, or
19.6%
, versus 2014. This increase was primarily related to an increase in the North American OTC Healthcare segment due to the acquisition of Insight and an increase in the International OTC Healthcare segment due to the acquisition of the
Hydralyte
brand. The increase was partially offset by a decline in some of the product groups within the North American OTC Healthcare segment.
North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment increased
$84.0 million
, or
17.4%
, during 2015 versus 2014. This increase was primarily due to the acquisition of Insight, which contributed $96.9 million to the segment overall, and included increases of $69.9 million, $15.4 million, and $5.0 million to the women’s health, dermatologicals, and cough & cold product groups, respectively. These increases were partially offset by declines of $7.1 million and $5.1 million in the dermatologicals and gastrointestinal product groups (exclusive of Insight), respectively, due to lower revenues for certain of our products in those product groups.
Additionally, in our women's health product group, a third-party manufacturer had failed to keep up with demand, leading to product being temporarily out of stock. However, in the third quarter of calendar 2015, those out of stock issues were resolved as a result of increased manufacturing If these types of supply issues resurface in this or in other product groups and are not
55
resolved timely, we may not have enough product to meet demand, which could adversely impact our business, result in a significant reduction of net sales and have an adverse impact on our results of operations and financial condition.
International OTC Healthcare segment
Revenues for the International OTC Healthcare segment increased
$31.1 million
, or
116.2%
, during 2015 versus 2014. The increase was primarily due to the acquisition of the
Hydralyte
brand, which contributed $17.9 million to the gastrointestinal product group. The increase was also attributable to increases of $6.0 million and $4.7 million in the eye & ear care and cough & cold product groups (exclusive of
Hydralyte
), respectively.
Household Cleaning Segment
Revenues for the Household Cleaning segment increased
$2.2 million
, or
2.5%
, during 2015 versus 2014. The increase was primarily due to increased sales in certain distribution channels.
Cost of Sales
The following table represents our cost of sales and cost of sales as a percentage of total segment revenues, by segment for each of the fiscal years ended March 31, 2015 and 2014.
|
(In thousands)
|
Increase (Decrease)
|
||||||||||||||||
|
Cost of Sales
|
2015
|
%
|
2014
|
%
|
Amount
|
%
|
|||||||||||
|
North American OTC Healthcare
|
$
|
216,781
|
|
38.2
|
$
|
184,796
|
|
38.3
|
$
|
31,985
|
|
17.3
|
|||||
|
International OTC Healthcare
|
22,820
|
|
39.5
|
12,646
|
|
47.3
|
10,174
|
|
80.5
|
||||||||
|
Household Cleaning
|
68,799
|
|
76.5
|
64,388
|
|
73.4
|
4,411
|
|
6.9
|
||||||||
|
$
|
308,400
|
|
43.2
|
$
|
261,830
|
|
43.8
|
$
|
46,570
|
|
17.8
|
||||||
Cost of sales increased
$46.6 million
, or
17.8%
, during 2015 versus 2014. This increase was largely due to increased sales volume associated with the acquisitions of Insight,
Hydralyte
and Care Pharma
within the North American and International OTC Healthcare segments. As a percentage of total revenues, cost of sales decreased to
43.2%
in 2015 from
43.8%
in 2014 primarily due to the favorable impact from lower cost of sales as a percentage of revenue in the International OTC Healthcare segment.
North American OTC Healthcare Segment
Cost of sales for the North American OTC Healthcare segment increased
$32.0 million
, or
17.3%
, during 2015 versus 2014. This increase was due to higher overall sales volume from the acquisition of Insight, partially offset by lower manufacturing product costs for certain of our products. As a percentage of North American OTC Healthcare revenues, cost of sales in the North American OTC Healthcare segment remained consistent in 2015 versus 2014.
International OTC Healthcare Segment
Cost of sales for the International OTC Healthcare segment increased
$10.2 million
, or
80.5%
, during the 2015 versus 2014. This increase was due to higher sales volumes in the products acquired from the acquisitions of
Hydralyte
and
Care Pharma. As a percentage of International OTC Healthcare revenues, cost of sales in the International OTC Healthcare segment decreased to
39.5%
in 2015 from
47.3%
in 2014. This decrease in cost of sales as a percentage of revenues was primarily due to lower costs associated with the
Hydralyte
and Care Pharma acquisitions.
Household Cleaning Segment
Cost of sales for the Household Cleaning segment increased
$4.4 million
, or
6.9%
, during 2015 versus 2014. As a percentage of Household Cleaning revenues, cost of sales increased to
76.5%
during 2015 from
73.4%
during 2014. This increase in cost of sales as a percentage of revenues was primarily related to an unfavorable product mix resulting from higher sales volumes at lower prices in certain distribution channels.
56
Gross Profit
The following table represents our gross profit and gross profit as a percentage of total segment revenues, by segment for each of the fiscal years ended March 31, 2015 and 2014.
|
(In thousands)
|
Increase (Decrease)
|
|||||||||||||||||
|
Gross Profit
|
2015
|
%
|
2014
|
%
|
Amount
|
%
|
||||||||||||
|
North American OTC Healthcare
|
$
|
350,112
|
|
61.8
|
$
|
298,091
|
|
61.7
|
$
|
52,021
|
|
17.5
|
|
|||||
|
International OTC Healthcare
|
34,973
|
|
60.5
|
14,083
|
|
52.7
|
20,890
|
|
148.3
|
|
||||||||
|
Household Cleaning
|
21,138
|
|
23.5
|
23,377
|
|
26.6
|
(2,239
|
)
|
(9.6
|
)
|
||||||||
|
|
$
|
406,223
|
|
56.8
|
$
|
335,551
|
|
56.2
|
$
|
70,672
|
|
21.1
|
|
|||||
Gross profit for 2015 increased
$70.7 million
, or
21.1%
, versus 2014. As a percentage of total revenues, gross profit increased to
56.8%
in 2015 from
56.2%
in 2014. The increase in gross profit as a percentage of revenues was primarily the result of higher gross margins recognized in the International OTC Healthcare segment due to the acquisition of
Hydralyte
.
North American OTC Healthcare Segment
Gross profit for the North American OTC Healthcare segment increased
$52.0 million
, or
17.5%
, during 2015 versus 2014. This increase was due to higher overall sales volume, primarily from the acquisition of Insight, partially offset by higher manufacturing costs for certain of our products. As a percentage of North American OTC Healthcare revenues, gross profit remained consistent in 2015 versus 2014.
International OTC Healthcare Segment
Gross profit for the International OTC Healthcare segment increased
$20.9 million
, or
148.3%
, during 2015 versus 2014. This increase was due primarily to the acquisition of
Hydralyte
and Care Pharma. As a percentage of International OTC Healthcare revenues, gross profit increased to
60.5%
during 2015 from
52.7%
during 2014. The increase was due to the higher gross profit percentage from the acquisition of
Hydralyte
and Care Pharma.
Household Cleaning Segment
Gross profit for the Household Cleaning segment decreased
$2.2 million
, or
9.6%
, during 2015 versus 2014. As a percentage of Household Cleaning revenue, gross profit decreased to
23.5%
during 2015 from
26.6%
during 2014. The decrease in gross profit as a percentage of revenues was primarily related to higher sales through certain distribution channels that have lower gross margins.
Contribution Margin
The following table represents our contribution margin and contribution margin as a percentage of total segment revenues, by segment for each of the fiscal years ended March 31, 2015 and 2014.
|
(In thousands)
|
Increase (Decrease)
|
|||||||||||||||||
|
Contribution Margin
|
2015
|
%
|
2014
|
%
|
Amount
|
%
|
||||||||||||
|
North American OTC Healthcare
|
$
|
263,215
|
|
46.4
|
$
|
221,008
|
|
45.8
|
$
|
42,207
|
|
19.1
|
|
|||||
|
International OTC Healthcare
|
24,051
|
|
41.6
|
8,819
|
|
33.0
|
15,232
|
|
172.7
|
|
||||||||
|
Household Cleaning
|
19,306
|
|
21.5
|
20,756
|
|
23.6
|
(1,450
|
)
|
(7.0
|
)
|
||||||||
|
|
$
|
306,572
|
|
42.9
|
$
|
250,583
|
|
41.9
|
$
|
55,989
|
|
22.3
|
|
|||||
Contribution margin is a non-GAAP financial measure that we use as a primary measure for evaluating segment performance. It is defined as gross profit less advertising and promotional expenses. Contribution margin increased
$56.0 million
, or
22.3%
, during 2015 versus 2014. The contribution margin increase was primarily the result of the increased gross profit in the North American and International OTC Healthcare segments discussed above.
57
North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment increased
$42.2 million
, or
19.1%
, during 2015 versus 2014. The contribution margin increase was primarily the result of increased gross profit discussed above, partially offset by higher advertising and promotional expenses. As a percentage of North American OTC Healthcare revenues, contribution margin for the North American OTC Healthcare segment increased to
46.4%
during 2015 versus
45.8%
during 2014. Advertising and promotional spending increased during 2015 versus 2014 due primarily to the Insight acquisition, partially offset by reduced spending on
Pediacare
,
Beano
, and
Gaviscon
.
International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment increased
$15.2 million
, or
172.7%
, during 2015 versus 2014. The contribution margin increase was primarily the result of increased gross profit discussed above, partially offset by higher advertising and promotional expenses. As a percentage of International OTC Healthcare revenues, contribution margin from the International OTC Healthcare segment increased to
41.6%
during 2015 from
33.0%
during 2014. This increase was primarily related to the increased gross profit from the
Hydralyte
and Care Pharma acquisitions discussed above.
Household Cleaning Segment
Contribution margin for the Household Cleaning segment decreased
$1.5 million
, or
7.0%
, during 2015 versus 2014. As a percentage of Household Cleaning revenues, contribution margin from the Household Cleaning segment decreased to
21.5%
during 2015 from
23.6%
during 2014. The contribution margin decrease was the result of gross profit changes discussed above, partially offset by lower advertising and promotional spending.
General and Administrative
General and administrative expenses were
$81.3 million
for 2015 versus
$48.5 million
for 2014. The increase in general and administrative expenses was primarily related to an increase in compensation costs of $13.8 million due to increased headcount associated with the Insight and
Hydralyte
acquisitions, an increase of $12.8 million in acquisition costs related to the purchases of Insight and
Hydralyte
, and an increase in legal and other professional costs of $1.7 million.
Depreciation and Amortization
Depreciation and amortization expense was
$17.7 million
for 2015 versus
$13.5 million
for 2014. The increase in depreciation and amortization expense was due to slightly higher intangible asset amortization in the current period, primarily related to intangible assets associated with the Insight acquisition.
Interest Expense
Net interest expense was $81.2 million during 2015 versus
$68.6 million
during 2014. The increase in interest expense was primarily the result of a higher level of indebtedness, primarily related to the acquisition of Insight. The average indebtedness outstanding increased from $976.7 million during 2014 to $1.4 billion during 2015. The increase in average indebtedness outstanding was the result of additional borrowings under our 2012 Term B-2 Loans and 2012 ABL Revolver to fund our acquisitions of the
Hydralyte
brand and Insight. The average cost of borrowing decreased to 5.9% for 2015, from 7.0% for 2014, which is attributed to the refinancing of debt in September 2014.
Income Taxes
The provision for income taxes during 2015 was
$49.2 million
versus
$29.1 million
in 2014. The effective tax rate on pretax income was
38.6%
during 2015 versus
28.6%
during 2014. The increase in the effective tax rate for 2015 was primarily due to the impact of certain non-deductible items related to acquisitions of $2.9 million, and a higher gain for tax purposes associated with the sale of the right to use of the
Comet
brand in certain Eastern European countries in the third quarter of fiscal 2015 and a one-time benefit of $9.1 million due primarily to lower state income taxes enacted in the prior year period. This benefit was primarily related to a law change in the state where we have our major distribution center to tax earnings attributed to in-state revenues only.
58
Liquidity and Capital Resources
Liquidity
Our primary source of cash comes from our cash flow from operations. In the past, we have supplemented this source of cash with various debt facilities, primarily in connection with acquisitions. We have financed, and expect to continue to finance our operations over the next twelve months, with a combination of borrowings and funds generated from operations. Our principal uses of cash are for operating expenses, debt service, acquisitions, working capital and capital expenditures. Based on our current levels of operations and anticipated growth, excluding acquisitions, we believe that our cash generated from operations, and our existing credit facilities, will be adequate to finance our working capital and capital expenditures through the next twelve months, although no assurance can be given in this regard.
|
|
Year Ended March 31,
|
||||||||||
|
(In thousands)
|
2016
|
2015
|
2014
|
||||||||
|
Net cash provided by (used in):
|
|
|
|
||||||||
|
Operating activities
|
$
|
174,350
|
|
$
|
156,255
|
|
$
|
111,582
|
|
||
|
Investing activities
|
(222,971
|
)
|
(805,258
|
)
|
(57,976
|
)
|
|||||
|
Financing activities
|
54,036
|
|
643,265
|
|
(41,153
|
)
|
|||||
2016 compared to 2015
Operating Activities
Net cash provided by operating activities was
$174.4 million
for 2016 compared to
$156.3 million
for 2015. The
$18.1 million
increase in net cash provided by operating activities was primarily due to an increase in non-cash charges of
$31.6 million
and an increase in net income of
$21.6 million
, partially offset by an increase in working capital of
$35.1 million
.
Working capital is defined as current assets (excluding cash and cash equivalents) minus current liabilities. Working capital increased in 2016 compared to 2015 due to increases in the year-over-year change in inventory and prepaid expenses and other current assets of $18.4 million and $12.6 million, respectively, and a decrease in the year-over-year change in accrued liabilities of $10.7 million. This increase was partially offset by an increase in the year-over-year change in accounts payable of $6.3 million. The year-over-year increase of $18.4 million in inventory is primarily the result of an inventory build of $3.0 million in the current year period primarily related to certain brands in anticipation of short-term requirements and a $15.4 million inventory usage in the prior year period primarily associated with certain brands selling through and holding less stock.
Non-cash charges increased $31.6 million year-over-year, primarily due to an increase in deferred income taxes of $17.2 million, a loss on extinguishment of debt of $18.0 million in the current period, and an increase in depreciation and amortization of $5.9 million. The increase in non-cash charges was partially offset by a premium payment on the 2012 Senior Notes of $10.2 million in 2016 and a decrease in long term income taxes payable of $2.6 million.
Investing Activities
Net cash used in investing activities was
$223.0 million
for 2016 compared to
$805.3 million
for 2015. The decrease in net cash used in investing activities was primarily due to the cash for the acquisition of Insight in September 2014 of $749.7 million, the acquisition of the
Hydralyte
brand in April 2014 of $78.0 million, and the proceeds received from the escrow following the arbitrator’s ruling related to the working capital dispute of the Insight acquisition of $7.2 million in the current year. This change was partially offset by the cash used for the acquisition of DenTek in February 2016 of $227.0 million. Additionally, the decrease in net cash used in investing activities in 2016 compared to 2015, was partially attributable to $18.5 million of proceeds from the sale of one brand we acquired from the Insight acquisition, and $10.0 million received as proceeds from the sale of certain rights to sell our Comet brand in certain Eastern European countries to a third-party licensee, both in the prior year.
Financing Activities
Net cash provided by financing activities was
$54.0 million
for 2016 compared to net cash provided by financing activities of
$643.3 million
for 2015. This change was primarily due to net borrowings under our credit facilities of $656.1 million in the prior year primarily to acquire Insight, repayment in the current year of $250.0 million in 2016 for the 2012 Senior Notes, and net repayments under our existing credit facilities of $41.1 million in the current year. This change was partially offset by proceeds from the issuance in 2016 of the 2016 Senior Notes of $350.0 million.
59
2015 compared to 2014
Operating Activities
Net cash provided by operating activities was $156.3 million for 2015 compared to $111.6 million for 2014. The $44.7 million increase in net cash provided by operating activities was primarily due to a decrease in working capital of $25.3 million, an increase in non-cash charges of $13.8 million, and an increase in net income of $5.6 million.
Working capital is defined as current assets (excluding cash and cash equivalents) minus current liabilities. The working capital decrease in 2015 compared to 2014 is due to decreases in inventories and prepaid expenses and other current assets of $18.2 million and $6.8 million, respectively, and an increase in accrued liabilities of $21.4 million. This decrease was partially offset by a decrease in accounts payable of $13.0 million and an increase in accounts receivable of $8.1 million.
Non-cash charges increased $13.8 million primarily due to a premium payment on the 2010 Senior Notes tendered in fiscal 2014 of $15.5 million, and increases in deferred income taxes, depreciation and amortization, and long term income taxes payable of $9.9 million, $4.2 million and $2.3 million, respectively. The increase in non-cash charges was partially offset by a $18.3 million loss on the extinguishment of debt incurred in fiscal 2014.
Investing Activities
Net cash used in investing activities was $805.3 million for 2015 compared to $58.0 million for 2014. This was primarily due to the use of cash for the acquisition of Insight in September 2014 of $749.7 million and for the acquisition of the
Hydralyte
brand in April 2014 of $78.0 million, compared to $55.2 million for the acquisition of Care in July 2014. This was slightly offset by proceeds from the sale of one of the brands we acquired from the Insight acquisition of $18.5 million and $10.0 million received as proceeds from the sale of certain rights to use our
Comet
brand in certain Eastern European countries to a third-party licensee.
Financing Activities
Net cash provided by financing activities was $643.3 million for 2015 compared to net cash used in financing activities of $41.2 million for 2014. The increase in cash provided by financing activities was primarily due to the additional borrowings of $590.0 million under our term loan facility and $66.1 million under our revolving credit facility in 2015, while 2014 resulted in net repayment under the 2012 ABL Revolver of $33.0 million. We utilized $65.0 million of borrowings under the ABL Revolver for the acquisition of the
Hydralyte
brand and repaid $58.5 million during 2015. Due to the net borrowing under the 2012 ABL Revolver and 2012 Term Loan, our outstanding indebtedness increased to $1,593.6 million at March 31, 2015 from $937.5 million at March 31, 2014.
60
Capital Resources
2012 Senior Notes:
On January 31, 2012, Prestige Brands, Inc. (the "Borrower") issued
$250.0 million
of the 2012 Senior Notes at par value, with an interest rate of
8.125%
and a maturity date of February 1, 2020. The Borrower could earlier redeem some or all of the 2012 Senior Notes at redemption prices set forth in the indenture governing the 2012 Senior Notes. The 2012 Senior Notes were guaranteed by Prestige Brands Holdings, Inc. and certain of its domestic
100%
owned subsidiaries, other than the Borrower. Each of these guarantees was joint and several. There were no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company. In connection with the 2012 Senior Notes offering, we incurred
$12.6 million
of costs, which were capitalized as deferred financing costs and were being amortized over the term of the 2012 Senior Notes. As of March 31, 2016, there were no outstanding balances, as the Company used the net proceeds from the 2016 Senior Notes issuance (discussed below) to repay all of the balances associated with the 2012 Senior Notes.
2012 Term Loan and 2012 ABL Revolver:
On January 31, 2012, the Borrower also entered into a new senior secured credit facility, which consists of (i) the 2012 Term Loan, a
$660.0 million
term loan facility with a
7
-year maturity and (ii) the 2012 ABL Revolver, a
$50.0 million
asset-based revolving credit facility with a
5
-year maturity. In subsequent years, we have utilized portions of our accordion feature to increase the amount of our borrowing capacity under the 2012 ABL Revolver by
$85.0 million
to
$135.0 million
and reduced our borrowing rate on the 2012 ABL Revolver by
0.25%
. The 2012 Term Loan was issued with an original issue discount of
1.5%
of the principal amount thereof, resulting in net proceeds to the Borrower of
$650.1 million
. In connection with these loan facilities, we incurred
$20.6 million
of costs, which were capitalized as deferred financing costs and are being amortized over the terms of the facilities. The 2012 Term Loan is unconditionally guaranteed by Prestige Brands Holdings, Inc. and certain of its domestic
100%
owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company.
On February 21, 2013, the Borrower entered into Term Loan Amendment No. 1. Term Loan Amendment No. 1 provided for the refinancing of all of the Borrower's existing Term B Loans with new Term B-1 Loans. The interest rate on the Term B-1 Loans under the Term Loan Amendment No. 1 was based, at the Borrower's option, on a LIBOR rate plus a margin of
2.75%
per annum, with a LIBOR floor of
1.00%
, or an alternate base rate, with a floor of
2.00%
, plus a margin. The new Term B-1 Loans would have matured on the same date as the Term B Loans' original maturity date. In addition, Term Loan Amendment No. 1 provided the Borrower with certain additional capacity to prepay subordinated debt, the 2012 Senior Notes and certain other unsecured indebtedness permitted to be incurred under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver. In connection with Term Loan Amendment No. 1, during the fourth quarter ended March 31, 2013, we recognized a
$1.4 million
loss on the extinguishment of debt.
On September 3, 2014, the Borrower entered into Term Loan Amendment No. 2. Term Loan Amendment No. 2 provides for (i) the creation of a new class of Term B-2 Loans under the 2012 Term Loan in an aggregate principal amount of
$720.0 million
, (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility and financial maintenance covenant relief, and (iii) an interest rate on (x) the Term B-1 Loans that was based, at the Borrower’s option, on a LIBOR rate plus a margin of
3.125%
per annum, with a LIBOR floor of
1.00%
, or an alternate base rate, with a floor of
2.00%
, plus a margin, and (y) the Term B-2 Loans that was based, at the Borrower’s option, on a LIBOR rate plus a margin of
3.50%
per annum, with a LIBOR floor of
1.00%
, or an alternate base rate, with a floor of
2.00%
, plus a margin (with a margin step-down to
3.25%
per annum, based upon achievement of a specified secured net leverage ratio).
Also, on September 3, 2014, the Borrower entered into ABL Amendment No. 3. ABL Amendment No. 3 provides for (i) a $40.0 million increase in revolving commitments under the 2012 ABL Revolver and (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility. Borrowings under the 2012 ABL Revolver, as amended, bear interest at a rate per annum equal to an applicable margin, plus, at the Borrower's option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus 1.00% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs. The initial applicable margin for borrowings under the 2012 ABL Revolver is 1.75% with respect to LIBOR borrowings and 0.75% with respect to base-rate borrowings. The applicable margin for borrowings under the 2012 ABL Revolver may be increased to 2.00% or 2.25% for LIBOR borrowings and 1.00% or 1.25% for base-rate borrowings, depending on average excess availability under the 2012 ABL Revolver during the prior fiscal quarter. In addition to paying interest on outstanding principal under the 2012 ABL Revolver, we are required to pay a commitment fee to the lenders under the 2012 ABL Revolver in respect of the unutilized commitments thereunder. The initial commitment fee rate is 0.50% per annum. The commitment fee rate will be
61
reduced to 0.375% per annum at any time when the average daily unused commitments for the prior quarter is less than a percentage of total commitments by an amount set forth in the credit agreement covering the 2012 ABL Revolver. We may voluntarily repay outstanding loans under the 2012 ABL Revolver at any time without a premium or penalty.
On May 8, 2015, the Borrower entered into Amendment No. 3 (the "Term Loan Amendment No. 3") to the 2012 Term Loan. Term Loan Amendment No. 3 provides for (i) the creation of a new class of Term B-3 Loans under the 2012 Term Loan (the "Term B-3 Loans") in an aggregate principal amount of $852.5 million, which combined the outstanding balances of the Term B-1 Loans of $207.5 million and the Term B-2 Loans of $645.0 million, (ii) increased flexibility under the credit agreement governing the 2012 Term Loan, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant relief, and (iii) an interest rate on the Term B-3 Loans that is based, at the Borrower’s option, on a LIBOR rate plus a margin of 2.75% per annum, with a LIBOR floor of 0.75%, or an alternate base rate, with a floor of 1.75%, plus a margin. The maturity date of the Term B-3 Loans remains the same as the Term B-2 Loans' original maturity date of September 3, 2021.
The 2012 Term Loan, as amended, bears interest at a rate per annum equal to an applicable margin plus, at the Borrower's option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus
0.50%
, (b) the prime rate of Citibank, N.A., (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus
1.00%
and (d) a floor of
1.75%
or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, with a floor of
0.75%
. For the year ended
March 31, 2016
, the average interest rate on the 2012 Term Loan was
4.4%
.
Under the 2012 Term Loan, we were originally required to make quarterly payments each equal to
0.25%
of the original principal amount of the 2012 Term Loan, with the balance expected to be due on the seventh anniversary of the closing date. However, since we have previously made significant optional payments that exceeded all of our required quarterly payments, we will not be required to make another payment until the maturity date of March 31, 2019.
On June 9, 2015, the Borrower entered into ABL Amendment No. 4. ABL Amendment No. 4 provides for (i) a
$35.0 million
increase in the accordion feature under the 2012 ABL Revolver and (ii) increased flexibility under the credit agreement governing the 2012 ABL Revolver, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant relief and (iii) extended the maturity date of the 2012 ABL Revolver to June 9, 2020, which is five years from the effective date. We may voluntarily repay outstanding loans under the 2012 ABL Revolver at any time without a premium or penalty. For the year ended March 31, 2016, the average interest rate on the amounts borrowed under the 2012 ABL Revolver was 2.1%.
On February 4, 2016, in connection with the Bridge Credit Agreement (discussed below) and DenTek acquisition, the Company and the Borrower entered into ABL Amendment No. 5. ABL Amendment No. 5 temporarily suspends certain financial and related reporting covenants in the 2012 ABL Revolver until the earliest of (i) the date that is
60
calendar days following February 4, 2016, (ii) the date upon which certain of DenTek’s assets are included in the Company’s borrowing base under the 2012 ABL Revolver and (iii) the date upon which the Company receives net proceeds from an offering of debt securities of the Borrower or the Company.
2013 Senior Notes:
On December 17, 2013, the Borrower issued
$400.0 million
of 2013 Senior Notes, with an interest rate of
5.375%
and a maturity date of December 15, 2021. The Borrower may redeem some or all of the 2013 Senior Notes at redemption prices set forth in the indenture governing the 2013 Senior Notes. The 2013 Senior Notes are guaranteed by Prestige Brands Holdings, Inc. and certain of its
100%
domestic owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company. In connection with the 2013 Senior Notes offering, we incurred
$7.2 million
of costs, which were capitalized as deferred financing costs and are being amortized over the term of the 2013 Senior Notes.
2016 Bridge Term Loans:
On February 4, 2016, Prestige Brands Holdings, Inc. and the Borrower, entered into a bridge credit agreement. The Bridge Credit Agreement provides for the Bridge Term Loans in an aggregate principal amount of
$80.0 million
, at an applicable interest rate margin equal to (i) for the period beginning on the closing date and ending on the 179th day following the closing date,
4.75%
for Eurocurrency rate loans and
3.75%
for base rate loans, (ii) for the period from and including the 180th day following the closing date and ending on the 269th day following the closing date,
5.00%
for Eurocurrency rate loans and
4.00%
for base rate loans, and (iii) for the period from and after the 270th day following the closing date,
5.25%
for Eurocurrency rate loans and
4.25%
for base rate loans. The Bridge Term Loans would have matured on February 2, 2017. The proceeds were used to partially fund the acquisition of DenTek. However, as of March 31, 2016, there are no outstanding balances as the Company used the net proceeds from the 2016 Senior Notes issuance (discussed below) to repay all of these Bridge Term Loans on February 19, 2016.
62
In connection with the repayment of the Bridge Loan on February 19, 2016, we expensed
$1.9 million
of unamortized debt issuance costs which were classified as interest expense.
2016 Senior Notes:
On February 19, 2016, the Borrower completed the sale of
$350.0 million
aggregate principal amount of
6.375%
senior notes due 2024 (the “2016 Senior Notes”), pursuant to a purchase agreement, dated February 16, 2016, among the Borrower, the guarantors party thereto (the “Guarantors”) and the initial purchasers party thereto. The 2016 Senior Notes are guaranteed by Prestige Brands Holdings, Inc. and certain of its domestic
100%
owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the Guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company. In connection with the 2016 Senior Notes offering, we incurred
$5.5 million
of costs, which were capitalized as deferred financing costs and are being amortized over the term of the 2016 Senior Notes. The proceeds were used to primarily redeem the 2012 Senior Notes and repay the Bridge Term Loans that were utilized to partially fund the acquisition DenTek.
The 2016 Senior Notes were issued pursuant to an indenture, dated February 19, 2016 (the “Indenture”). The Indenture provides, among other things, that interest will be payable on the 2016 Senior Notes on March 1 and September 1 of each year, beginning on September 1, 2016, until their maturity date of March 1, 2024. The 2016 Senior Notes are senior unsecured obligations of the Borrower.
The Borrower has the option to redeem all or a portion of the 2016 Senior Notes at any time on or after March 1, 2019 at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any. The Borrower may also redeem all or any portion of the 2016 Senior Notes at any time prior to March 1, 2019, at a price equal to
100%
of the aggregate principal amount thereof, plus a make-whole premium and accrued and unpaid interest, if any. In addition, before March 1, 2019, the Borrower may redeem up to
40%
of the aggregate principal amount of the 2016 Senior Notes with the net proceeds of certain equity offerings at the redemption price set forth in the Indenture, provided that certain conditions are met. Subject to certain limitations, in the event of a change of control (as defined in the Indenture), The Borrower will be required to make an offer to purchase the 2016 Senior Notes at a price equal to
101%
of the aggregate principal amount of the notes repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.
Redemptions and Restrictions:
On February 19, 2016, the Company used the net proceeds from the 2016 Senior Notes issuance to redeem all of the 2012 Senior Notes at a redemption price equal to
104.063%
, plus accrued and unpaid interest, and repay all of the Bridge Term Loans.
At any time prior to December 15, 2016, we have the option to redeem the 2013 Senior Notes in whole or in part at a redemption price equal to
100%
of the principal amount of notes redeemed, plus an applicable "make-whole premium" calculated as set forth in the indenture governing the 2013 Senior Notes, together with accrued and unpaid interest, if any, to the date of redemption. On or after December 15, 2016, we have the option to redeem some or all of the 2013 Senior Notes at redemption prices set forth in the indenture governing the 2013 Senior Notes. In addition, at any time prior to December 15, 2016, we have the option to redeem up to
35%
of the aggregate principal amount of the 2013 Senior Notes at a redemption price equal to
105.375%
of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of certain equity offerings, provided that certain conditions are met. Subject to certain limitations, in the event of a change of control, as defined in the indenture governing the 2013 Senior Notes, the Borrower will be required to make an offer to purchase the 2013 Senior Notes at a price equal to
101%
of the aggregate principal amount of the 2013 Senior Notes repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.
The indentures governing the 2013 Senior Notes and the 2016 Senior Notes contain provisions that restrict us from undertaking specified corporate actions, such as asset dispositions, acquisitions, dividend payments, repurchases of common shares outstanding, changes of control, incurrences of indebtedness, issuance of equity, creation of liens, making of loans and transactions with affiliates. Additionally, the credit agreement with respect to the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2013 Senior Notes and the 2016 Senior Notes contain cross-default provisions, whereby a default pursuant to the terms and conditions of certain indebtedness will cause a default on the remaining indebtedness under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2013 Senior Notes and the 2016 Senior Notes. At March 31, 2016, we were in compliance with the covenants under our long-term indebtedness.
63
As of March 31, 2016, we had an aggregate of
$1,652.5 million
of outstanding indebtedness, which consisted of the following:
|
•
|
$400.0 million
of 5.375% 2013 Senior Notes due 2021;
|
|
•
|
$350.0 million
of 6.375% 2016 Senior Notes due 2024;
|
|
•
|
$817.5 million
of borrowings under the 2012 Term B-3 Loans; and
|
|
•
|
$85.0 million
of borrowings under the 2012 ABL Revolver.
|
As of March 31, 2016, we had
$37.9 million
of borrowing capacity under
the 2012 ABL Revolver.
As we deem appropriate, we may from time to time utilize derivative financial instruments to mitigate the impact of changing interest rates associated with our long-term debt obligations or other derivative financial instruments. While we have utilized derivative financial instruments in the past, we did not have any significant derivative financial instruments outstanding at either March 31, 2016 or March 31, 2015 or during any of the periods presented. We have not entered into derivative financial instruments for trading purposes; all of our derivatives were over-the-counter instruments with liquid markets.
Our debt facilities contain various financial covenants, including provisions that require us to maintain certain leverage, interest coverage and fixed charge ratios. The credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2013 and 2016 Senior Notes contain provisions that accelerate our indebtedness on certain changes in control and restrict us from undertaking specified corporate actions, including asset dispositions, acquisitions, payment of dividends and other specified payments, repurchasing our equity securities in the public markets, incurrence of indebtedness, creation of liens, making loans and investments and transaction with affiliates. Specifically, we must:
|
•
|
Have a leverage ratio of less than 7.00 to 1.0 for the quarter ended March 31, 2016 (defined as, with certain adjustments, the ratio of our consolidated total net debt as of the last day of the fiscal quarter to our trailing twelve month consolidated net income before interest, taxes, depreciation, amortization, non-cash charges and certain other items (“EBITDA”)). Our leverage ratio requirement decreases over time to 3.75 to 1.0 for the quarter ending March 31, 2019 and remains level thereafter;
|
|
•
|
Have an interest coverage ratio of greater than 2.50 to 1.0 for the quarter ended March 31, 2016 (defined as, with certain adjustments, the ratio of our consolidated EBITDA to our trailing twelve month consolidated cash interest expense). Our interest coverage requirement increases over time to 3.50 to 1.0 for the quarter ending March 31, 2018 and remains level thereafter; and
|
|
•
|
Have a fixed charge ratio of greater than 1.0 to 1.0 for the quarter ended March 31, 2016 (defined as, with certain adjustments, the ratio of our consolidated EBITDA minus capital expenditures to our trailing twelve month consolidated interest paid, taxes paid and other specified payments). Our fixed charge requirement remains level throughout the term of the agreement.
|
At March 31, 2016, we were in compliance with the applicable financial and restrictive covenants under the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2013 Senior Notes and the 2016 Senior Notes. Additionally, management anticipates that in the normal course of operations, we will be in compliance with the financial and restrictive covenants during 2017. During the years ended March 31, 2016, 2015 and 2014, we made voluntary principal payments against outstanding indebtedness of $60.0 million, $130.0 million and $157.5 million, respectively, under the 2012 Term Loan. Under the Term Loan Amendment No. 2, we were required to make quarterly payments each equal to 0.25% of the original principal amount of the Term B-2 Loans, with the balance expected to be due on the seventh anniversary of the closing date. However, since we entered into Term Loan Amendment No. 3, we are required to make quarterly payment each equal to 0.25% of the aggregate amount of $852.5 million. Since we have previously made a significant optional payment that exceeded a significant portion of our required quarterly payments, we will not be required to make another payment until the fiscal year ending March 31, 2019.
Effective April 1, 2015, the Company elected to change its method of presentation relating to debt issuance costs in accordance with ASU 2015-03. Prior to 2016, the Company's policy was to present these costs in other-long term assets on the balance sheet, net of accumulated amortization. Beginning in 2016, the Company has presented these fees as a direct deduction to the related long-term debt. As a result, we reclassified
$27.4 million
of deferred financing costs as of March 31, 2015 from other long-term assets, and such costs are now presented as a direct deduction from the long-term debt liability.
64
Commitments
As of March 31, 2016, we had ongoing commitments under various contractual and commercial obligations as follows:
|
|
Payments Due by Period
|
||||||||||||||||||
|
(In millions)
|
|
Less than
|
1 to 3
|
4 to 5
|
After 5
|
||||||||||||||
|
Contractual Obligations
|
Total
|
1 Year
|
Years
|
Years
|
Years
|
||||||||||||||
|
Long-term debt
|
$
|
1,652.5
|
|
$
|
—
|
|
$
|
—
|
|
$
|
99.0
|
|
$
|
1,553.5
|
|
||||
|
Interest on long-term debt
(1)
|
771.4
|
|
82.7
|
|
314.2
|
|
209.5
|
|
165.0
|
|
|||||||||
|
Purchase obligations:
|
|
||||||||||||||||||
|
Inventory costs
(2)
|
119.6
|
|
117.0
|
|
2.6
|
|
—
|
|
—
|
|
|||||||||
|
Other costs
(3)
|
16.2
|
|
16.2
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Operating leases
(4)
|
8.4
|
|
2.0
|
|
5.6
|
|
0.8
|
|
—
|
|
|||||||||
|
Total contractual cash obligations
(5)
|
$
|
2,568.1
|
|
$
|
217.9
|
|
$
|
322.4
|
|
$
|
309.3
|
|
$
|
1,718.5
|
|
||||
|
(1)
|
Represents the estimated interest obligations on the outstanding balances at March 31, 2016 of the 2013 Senior Notes, 2016 Senior Notes, 2012 Term B-3 Loans, and 2012 ABL Revolver, assuming scheduled principal payments (based on the terms of the loan agreements) are made and assuming a weighted average interest rate of
5.4%
. Estimated interest obligations would be different under different assumptions regarding interest rates or timing of principal payments.
|
|
(2)
|
Purchase obligations for inventory costs are legally binding commitments for projected inventory requirements to be utilized during the normal course of our operations.
|
|
(3)
|
Purchase obligations for other costs are legally binding commitments for marketing, advertising and capital expenditures. Activity costs for molds and equipment to be paid, based solely on a per unit basis without any deadlines for final payment, have been excluded from the table because we are unable to determine the time period over which such activity costs will be paid.
|
|
(4)
|
We have excluded minimum sublease rentals of $
1.2 million
due in the future under non-cancelable subleases. Refer to Note 16 for further details.
|
|
(5)
|
We have excluded obligations related to uncertain tax positions because we cannot reasonably estimate when they will occur.
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or financing activities with special-purpose entities.
Inflation
Inflationary factors such as increases in the costs of raw materials, packaging materials, purchased product and overhead may adversely affect our operating results and financial condition. Although we do not believe that inflation has had a material impact on our financial condition or results from operations for the three most recent fiscal years, a high rate of inflation in the future could have a material adverse effect on our financial condition or results from operations. More volatility in crude oil prices may have an adverse impact on transportation costs, as well as certain petroleum based raw materials and packaging material. Although we make efforts to minimize the impact of inflationary factors, including raising prices to our customers, a high rate of pricing volatility associated with crude oil supplies or other raw materials used in our products may have an adverse effect on our operating results.
65
Interest Rate Risk
We are exposed to changes in interest rates because our 2012 Term Loan and 2012 ABL Revolver are variable rate debt. Interest rate changes generally do not significantly affect the market value of the 2012 Term Loan and the 2012 ABL Revolver but do affect the amount of our interest payments and, therefore, our future earnings and cash flows, assuming other factors are held constant. At March 31, 2016, we had variable rate debt of approximately
$902.5 million
.
Holding other variables constant, including levels of indebtedness, a one percentage point increase in interest rates on our variable rate debt would have an adverse impact on pre-tax earnings and cash flows for the year ended March 31, 2016 of approximately
$8.8 million
.
Foreign Currency Exchange Rate Risk
During the year ended March 31, 2016 and 2015, approximately 11.5% and 13.1%, respectively, of our revenues were denominated in currencies other than the U.S. Dollar. As such, we are exposed to transactions that are sensitive to foreign currency exchange rates, including insignificant foreign currency forward exchange agreements. These transactions are primarily with respect to the Canadian and Australian Dollar.
We performed a sensitivity analysis with respect to exchange rates for the year ended March 31, 2016 and 2015. Holding all other variables constant, and assuming a hypothetical 10.0% adverse change in foreign currency exchange rates, this analysis resulted in a less than 5.0% impact on pre-tax income of approximately $3.9 million and $3.3 million for the year ended March 31, 2016 and 2015, respectively.
66
The supplementary data required by this Item are described in Part IV, Item 15 of this Annual Report on Form 10-K and are presented beginning on page 120.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Prestige Brands Holdings, Inc.
Audited Financial Statements
March 31, 2016
|
Report of Independent Registered Public Accounting Firm,
PricewaterhouseCoopers LLP
|
|
|
Consolidated Statements of Income and Comprehensive Income for each of the three years in
the period ended March 31, 2016
|
|
|
Consolidated Balance Sheets at March 31, 2016 and 2015
|
|
|
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for
each of the three years in the period ended March 31, 2016
|
|
|
Consolidated Statements of Cash Flows for each of the three years
in the period ended March 31, 2016
|
|
|
Notes to Consolidated Financial Statements
|
|
|
Schedule II—Valuation and Qualifying Accounts
|
|
Management's Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of the Chief Executive Officer and Chief Financial Officer and effected by the Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable, not absolute, assurance that the control objectives will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate over time.
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's internal control over financial reporting as of March 31, 2016. In making its evaluation, management has used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control - Integrated Framework
(2013 Framework).
Based on management's assessment utilizing the 2013 Framework, management concluded that the Company's internal control over financial reporting was effective as of March 31, 2016.
On February 5, 2016, the Company acquired DenTek Holdings, Inc. ("DenTek"). The Company has excluded DenTek's internal controls over financial reporting as of March 31, 2016 from its assessment of and conclusion on the effectiveness of its internal controls over financial reporting. DenTek is a wholly-owned subsidiary whose total assets and total revenues represent 1% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended March 31, 2016.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has issued a report on the effectiveness of our internal control over financial reporting as of March 31, 2016, which appears below.
Prestige Brands Holdings, Inc.
May 17, 2016
67
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Prestige Brands Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and comprehensive income, of changes in stockholders’ equity and comprehensive income and of cash flows present fairly, in all material respects, the financial position of Prestige Brands Holdings, Inc. and its subsidiaries at March 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed under Item 15(a)(2)
presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016, based on criteria established in
Internal Control - Integrated Framework
(2013 Framework), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for the classification of debt issuance costs in fiscal year 2016.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded DenTek Holdings, Inc. (“DenTek”) from its assessment of internal control over financial reporting as of March 31, 2016 because it was acquired by the Company in a purchase business combination during fiscal year 2016. We have also excluded DenTek from our audit of internal control over financial reporting. DenTek is a wholly-owned subsidiary whose total assets and total revenues represent 1% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended March 31, 2016.
/s/ PricewaterhouseCoopers LLP
New York, New York
May 17, 2016
68
Prestige Brands Holdings, Inc.
|
|
Year Ended March 31,
|
||||||||||
|
(In thousands, except per share data)
|
2016
|
2015
|
2014
|
||||||||
|
Revenues
|
|
|
|
||||||||
|
Net sales
|
$
|
803,088
|
|
$
|
710,070
|
|
$
|
592,454
|
|
||
|
Other revenues
|
3,159
|
|
4,553
|
|
4,927
|
|
|||||
|
Total revenues
|
806,247
|
|
714,623
|
|
597,381
|
|
|||||
|
Cost of Sales
|
|
|
|
||||||||
|
Cost of sales (exclusive of depreciation shown below)
|
339,036
|
|
308,400
|
|
261,830
|
|
|||||
|
Gross profit
|
467,211
|
|
406,223
|
|
335,551
|
|
|||||
|
Operating Expenses
|
|
|
|
||||||||
|
Advertising and promotion
|
110,802
|
|
99,651
|
|
84,968
|
|
|||||
|
General and administrative
|
72,418
|
|
81,273
|
|
48,481
|
|
|||||
|
Depreciation and amortization
|
23,676
|
|
17,740
|
|
13,486
|
|
|||||
|
Total operating expenses
|
206,896
|
|
198,664
|
|
146,935
|
|
|||||
|
Operating income
|
260,315
|
|
207,559
|
|
188,616
|
|
|||||
|
Other (income) expense
|
|
|
|
||||||||
|
Interest income
|
(162
|
)
|
(92
|
)
|
(60
|
)
|
|||||
|
Interest expense
|
85,322
|
|
81,326
|
|
68,642
|
|
|||||
|
Gain on sale of asset
|
—
|
|
(1,133
|
)
|
—
|
|
|||||
|
Loss on extinguishment of debt
|
17,970
|
|
—
|
|
18,286
|
|
|||||
|
Total other expense
|
103,130
|
|
80,101
|
|
86,868
|
|
|||||
|
Income before income taxes
|
157,185
|
|
127,458
|
|
101,748
|
|
|||||
|
Provision for income taxes
|
57,278
|
|
49,198
|
|
29,133
|
|
|||||
|
Net income
|
$
|
99,907
|
|
$
|
78,260
|
|
$
|
72,615
|
|
||
|
Earnings per share:
|
|
|
|
||||||||
|
Basic
|
$
|
1.89
|
|
$
|
1.50
|
|
$
|
1.41
|
|
||
|
Diluted
|
$
|
1.88
|
|
$
|
1.49
|
|
$
|
1.39
|
|
||
|
Weighted average shares outstanding:
|
|
|
|
||||||||
|
Basic
|
52,754
|
|
52,170
|
|
51,641
|
|
|||||
|
Diluted
|
53,143
|
|
52,670
|
|
52,349
|
|
|||||
|
Comprehensive income, net of tax:
|
|||||||||||
|
Currency translation adjustments
|
(113
|
)
|
(24,151
|
)
|
843
|
|
|||||
|
Total other comprehensive income (loss)
|
(113
|
)
|
(24,151
|
)
|
843
|
|
|||||
|
Comprehensive income
|
$
|
99,794
|
|
$
|
54,109
|
|
$
|
73,458
|
|
||
See accompanying notes.
69
Prestige Brands Holdings, Inc.
|
(In thousands)
|
March 31,
|
||||||
|
Assets
|
2016
|
2015
|
|||||
|
Current assets
|
|
|
|||||
|
Cash and cash equivalents
|
$
|
27,230
|
|
$
|
21,318
|
|
|
|
Accounts receivable, net
|
95,247
|
|
87,858
|
|
|||
|
Inventories
|
91,263
|
|
74,000
|
|
|||
|
Deferred income tax assets
|
10,108
|
|
8,097
|
|
|||
|
Prepaid expenses and other current assets
|
25,165
|
|
10,434
|
|
|||
|
Total current assets
|
249,013
|
|
201,707
|
|
|||
|
Property and equipment, net
|
15,540
|
|
13,744
|
|
|||
|
Goodwill
|
360,191
|
|
290,651
|
|
|||
|
Intangible assets, net
|
2,322,723
|
|
2,134,700
|
|
|||
|
Other long-term assets
|
1,324
|
|
1,165
|
|
|||
|
Total Assets
|
$
|
2,948,791
|
|
$
|
2,641,967
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
||||
|
Current liabilities
|
|
|
|
||||
|
Accounts payable
|
$
|
38,296
|
|
$
|
46,115
|
|
|
|
Accrued interest payable
|
8,664
|
|
11,974
|
|
|||
|
Other accrued liabilities
|
59,724
|
|
40,948
|
|
|||
|
Total current liabilities
|
106,684
|
|
99,037
|
|
|||
|
Long-term debt
|
|
|
|||||
|
Principal amount
|
1,652,500
|
|
1,593,600
|
|
|||
|
Less unamortized debt costs
|
(27,191
|
)
|
(32,327
|
)
|
|||
|
Long-term debt, net
|
1,625,309
|
|
1,561,273
|
|
|||
|
Deferred income tax liabilities
|
469,622
|
|
351,569
|
|
|||
|
Other long-term liabilities
|
2,840
|
|
2,464
|
|
|||
|
Total Liabilities
|
2,204,455
|
|
2,014,343
|
|
|||
|
Commitments and Contingencies – Note 16
|
|
|
|
||||
|
Stockholders’ Equity
|
|
|
|
||||
|
Preferred stock – $0.01 par value
|
|
|
|
||||
|
Authorized – 5,000 shares
|
|
|
|
||||
|
Issued and outstanding – None
|
—
|
|
—
|
|
|||
|
Common stock – $0.01 par value
|
|
|
|
||||
|
Authorized – 250,000 shares
|
|
|
|
||||
|
Issued – 53,066 shares at March 31, 2016 and 52,562 shares at March 31, 2015
|
530
|
|
525
|
|
|||
|
Additional paid-in capital
|
445,182
|
|
426,584
|
|
|||
|
Treasury stock, at cost – 306 shares at March 31, 2016 and 266 shares at March 31, 2015
|
(5,163
|
)
|
(3,478
|
)
|
|||
|
Accumulated other comprehensive income (loss), net of tax
|
(23,525
|
)
|
(23,412
|
)
|
|||
|
Retained earnings
|
327,312
|
|
227,405
|
|
|||
|
Total Stockholders’ Equity
|
744,336
|
|
627,624
|
|
|||
|
Total Liabilities and Stockholders’ Equity
|
$
|
2,948,791
|
|
$
|
2,641,967
|
|
|
See accompanying notes.
70
Prestige Brands Holdings, Inc.
Consolidated Statements of Changes in Stockholders’
Equity and Comprehensive Income
|
Common Stock
|
Additional Paid-in Capital
|
Treasury Stock
|
Accumulated
Other
Comprehensive
(Loss) Income
|
Preferred Share Rights
|
Retained
Earnings (Accumulated Deficit)
|
Totals
|
|||||||||||||||||||||||||||
|
(In thousands)
|
Shares
|
Par
Value
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||
|
Balances at March 31, 2013
|
51,311
|
|
$
|
513
|
|
$
|
401,691
|
|
181
|
|
$
|
(687
|
)
|
$
|
(104
|
)
|
$
|
283
|
|
$
|
76,247
|
|
$
|
477,943
|
|
||||||||
|
Stock-based compensation
|
—
|
|
—
|
|
5,146
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,146
|
|
|||||||||||||||
|
Exercise of stock options
|
605
|
|
6
|
|
5,901
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,907
|
|
|||||||||||||||
|
Preferred share rights
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(283
|
)
|
283
|
|
—
|
|
|||||||||||||||
|
Issuance of shares related to restricted stock
|
105
|
|
1
|
|
(1
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Treasury share repurchases
|
—
|
|
—
|
|
—
|
|
25
|
|
(744
|
)
|
—
|
|
—
|
|
—
|
|
(744
|
)
|
|||||||||||||||
|
Excess tax benefits from share-based awards
|
—
|
|
—
|
|
1,650
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,650
|
|
|||||||||||||||
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
72,615
|
|
72,615
|
|
|||||||||||||||
|
Translation adjustments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
843
|
|
—
|
|
—
|
|
843
|
|
|||||||||||||||
|
Total comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
73,458
|
|
|||||||||||||||
|
Balances at March 31, 2014
|
52,021
|
|
$
|
520
|
|
$
|
414,387
|
|
206
|
|
$
|
(1,431
|
)
|
$
|
739
|
|
$
|
—
|
|
$
|
149,145
|
|
$
|
563,360
|
|
||||||||
|
Stock-based compensation
|
—
|
|
—
|
|
6,918
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,918
|
|
|||||||||||||||
|
Exercise of stock options
|
387
|
|
4
|
|
3,950
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,954
|
|
|||||||||||||||
|
Issuance of shares related to restricted stock
|
154
|
|
1
|
|
(1
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Treasury share repurchases
|
—
|
|
—
|
|
—
|
|
60
|
|
(2,047
|
)
|
—
|
|
—
|
|
—
|
|
(2,047
|
)
|
|||||||||||||||
|
Excess tax benefits from share-based awards
|
—
|
|
—
|
|
1,330
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,330
|
|
|||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
78,260
|
|
78,260
|
|
|||||||||||||||
|
Translation adjustments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(24,151
|
)
|
—
|
|
—
|
|
(24,151
|
)
|
|||||||||||||||
|
Total comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
54,109
|
|
|||||||||||||||
|
Balances at March 31, 2015
|
52,562
|
|
$
|
525
|
|
$
|
426,584
|
|
266
|
|
$
|
(3,478
|
)
|
$
|
(23,412
|
)
|
$
|
—
|
|
$
|
227,405
|
|
$
|
627,624
|
|
||||||||
See accompanying notes.
71
Prestige Brands Holdings, Inc.
Consolidated Statements of Changes in Stockholders’
Equity and Comprehensive Income
|
Common Stock
|
Additional
Paid-in
Capital
|
Treasury Stock
|
Accumulated
Other
Comprehensive
(Loss) Income
|
Preferred Share Rights
|
Retained
Earnings
|
Totals
|
|||||||||||||||||||||||||||
|
|
Shares
|
Par
Value
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||
|
Balances at March 31, 2015
|
52,562
|
|
$
|
525
|
|
$
|
426,584
|
|
266
|
|
$
|
(3,478
|
)
|
$
|
(23,412
|
)
|
$
|
—
|
|
$
|
227,405
|
|
$
|
627,624
|
|
||||||||
|
Stock-based compensation
|
—
|
|
—
|
|
9,954
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
9,954
|
|
|||||||||||||||
|
Exercise of stock options
|
348
|
|
3
|
|
6,685
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,688
|
|
|||||||||||||||
|
Issuance of shares related to restricted stock
|
156
|
|
2
|
|
(1
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
|||||||||||||||
|
Treasury share repurchases
|
—
|
|
—
|
|
—
|
|
40
|
|
(1,685
|
)
|
—
|
|
—
|
|
—
|
|
(1,685
|
)
|
|||||||||||||||
|
Excess tax benefits from share-based awards
|
—
|
|
—
|
|
1,960
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,960
|
|
|||||||||||||||
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
99,907
|
|
99,907
|
|
|||||||||||||||
|
Translation adjustments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(113
|
)
|
—
|
|
—
|
|
(113
|
)
|
|||||||||||||||
|
Total comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
99,794
|
|
|||||||||||||||
|
Balances at March 31, 2016
|
53,066
|
|
$
|
530
|
|
$
|
445,182
|
|
306
|
|
$
|
(5,163
|
)
|
$
|
(23,525
|
)
|
$
|
—
|
|
$
|
327,312
|
|
$
|
744,336
|
|
||||||||
See accompanying notes.
72
Prestige Brands Holdings, Inc.
|
|
Year Ended March 31,
|
||||||||||
|
(In thousands)
|
2016
|
2015
|
2014
|
||||||||
|
Operating Activities
|
|
|
|
||||||||
|
Net income
|
$
|
99,907
|
|
$
|
78,260
|
|
$
|
72,615
|
|
||
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
||||||
|
Depreciation and amortization
|
23,676
|
|
17,740
|
|
13,486
|
|
|||||
|
Gain on sale of asset
|
—
|
|
(1,133
|
)
|
—
|
|
|||||
|
Deferred income taxes
|
46,152
|
|
28,922
|
|
19,012
|
|
|||||
|
Long term income taxes payable
|
(332
|
)
|
2,294
|
|
—
|
|
|||||
|
Amortization of debt origination costs
|
8,994
|
|
8,821
|
|
10,512
|
|
|||||
|
Stock-based compensation costs
|
9,954
|
|
6,918
|
|
5,146
|
|
|||||
|
Loss on extinguishment of debt
|
17,970
|
|
—
|
|
18,286
|
|
|||||
|
Premium payment on 2012 Senior Notes
|
(10,158
|
)
|
—
|
|
—
|
|
|||||
|
Premium payment on 2010 Senior Notes
|
—
|
|
—
|
|
(15,527
|
)
|
|||||
|
Lease termination costs
|
—
|
|
785
|
|
—
|
|
|||||
|
(Gain) loss on sale or disposal of property and equipment
|
(35
|
)
|
321
|
|
(3
|
)
|
|||||
|
Changes in operating assets and liabilities, net of effects from acquisitions
|
|
|
|
|
|
||||||
|
Accounts receivable
|
1,824
|
|
1,608
|
|
9,735
|
|
|||||
|
Inventories
|
(3,005
|
)
|
15,360
|
|
(2,850
|
)
|
|||||
|
Prepaid expenses and other current assets
|
(7,921
|
)
|
4,664
|
|
(2,130
|
)
|
|||||
|
Accounts payable
|
(11,348
|
)
|
(17,637
|
)
|
(4,641
|
)
|
|||||
|
Accrued liabilities
|
(1,328
|
)
|
9,332
|
|
(12,059
|
)
|
|||||
|
Net cash provided by operating activities
|
174,350
|
|
156,255
|
|
111,582
|
|
|||||
|
Investing Activities
|
|
|
|
|
|
||||||
|
Purchases of property and equipment
|
(3,568
|
)
|
(6,101
|
)
|
(2,764
|
)
|
|||||
|
Proceeds from the sale of property and equipment
|
344
|
|
—
|
|
3
|
|
|||||
|
Proceeds from sale of business
|
—
|
|
18,500
|
|
—
|
|
|||||
|
Proceeds from sale of asset
|
—
|
|
10,000
|
|
—
|
|
|||||
|
Proceeds from Insight Pharmaceuticals working capital arbitration settlement
|
7,237
|
|
—
|
|
—
|
|
|||||
|
Acquisition of DenTek, less cash acquired
|
(226,984
|
)
|
—
|
|
—
|
|
|||||
|
Acquisition of Insight Pharmaceuticals, less cash acquired
|
—
|
|
(749,666
|
)
|
—
|
|
|||||
|
Acquisition of the Hydralyte brand
|
—
|
|
(77,991
|
)
|
—
|
|
|||||
|
Acquisition of Care Pharmaceuticals, less cash acquired
|
—
|
|
—
|
|
(55,215
|
)
|
|||||
|
Net cash used in investing activities
|
(222,971
|
)
|
(805,258
|
)
|
(57,976
|
)
|
|||||
|
Financing Activities
|
|
|
|
|
|
||||||
|
Proceeds from issuance of 2016 Senior Notes
|
350,000
|
|
—
|
|
—
|
|
|||||
|
Repayment of 2012 Senior Notes
|
(250,000
|
)
|
—
|
|
—
|
|
|||||
|
Proceeds from issuance of 2013 Senior Notes
|
—
|
|
—
|
|
400,000
|
|
|||||
|
Borrowings under Bridge term loans
|
80,000
|
|
—
|
|
—
|
|
|||||
|
Repayments under Bridge term loans
|
(80,000
|
)
|
—
|
|
—
|
|
|||||
|
Repayment of 2010 Senior Notes
|
—
|
|
—
|
|
(250,000
|
)
|
|||||
|
Term loan borrowings
|
—
|
|
720,000
|
|
—
|
|
|||||
|
Term loan repayments
|
(60,000
|
)
|
(130,000
|
)
|
(157,500
|
)
|
|||||
|
Borrowings under revolving credit agreement
|
115,000
|
|
124,600
|
|
50,000
|
|
|||||
|
Repayments under revolving credit agreement
|
(96,100
|
)
|
(58,500
|
)
|
(83,000
|
)
|
|||||
|
Payments of debt origination costs
|
(11,828
|
)
|
(16,072
|
)
|
(7,466
|
)
|
|||||
|
Proceeds from exercise of stock options
|
6,689
|
|
3,954
|
|
5,907
|
|
|||||
|
Proceeds from restricted stock exercises
|
544
|
|
57
|
|
—
|
|
|||||
|
Excess tax benefits from share-based awards
|
1,960
|
|
1,330
|
|
1,650
|
|
|||||
|
Fair value of shares surrendered as payment of tax withholding
|
(2,229
|
)
|
(2,104
|
)
|
(744
|
)
|
|||||
|
Net cash (used in) provided by financing activities
|
54,036
|
|
643,265
|
|
(41,153
|
)
|
|||||
|
Effects of exchange rate changes on cash and cash equivalents
|
497
|
|
(1,275
|
)
|
208
|
|
|||||
|
Increase (decrease) in cash and cash equivalents
|
5,912
|
|
(7,013
|
)
|
12,661
|
|
|||||
|
Cash and cash equivalents - beginning of year
|
21,318
|
|
28,331
|
|
15,670
|
|
|||||
|
Cash and cash equivalents - end of year
|
$
|
27,230
|
|
$
|
21,318
|
|
$
|
28,331
|
|
||
|
Interest paid
|
$
|
79,132
|
|
$
|
70,155
|
|
$
|
62,357
|
|
||
|
Income taxes paid
|
$
|
15,352
|
|
$
|
11,939
|
|
$
|
11,020
|
|
||
See accompanying notes.
73
Prestige Brands Holdings, Inc.
Notes to Consolidated Financial Statements
1. Business and Basis of Presentation
Nature of Business
Prestige Brands Holdings, Inc. (referred to herein as the “Company” or “we”, which reference shall, unless the context requires otherwise, be deemed to refer to Prestige Brands Holdings, Inc. and all of its direct and indirect
100%
owned subsidiaries on a consolidated basis) is engaged in the marketing, sales and distribution of over-the-counter (“OTC”) healthcare and household cleaning products to mass merchandisers, drug stores, supermarkets, and club, convenience, and dollar stores in North America (the United States and Canada) and in Australia and certain other international markets. Prestige Brands Holdings, Inc. is a holding company with no operations and is also the parent guarantor of the senior credit facility and the senior notes described in Note 9 to these Consolidated Financial Statements.
Basis of Presentation
Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All significant intercompany transactions and balances have been eliminated in consolidation. Our fiscal year ends on March 31st of each year. References in these Consolidated Financial Statements or notes to a year (e.g., “2016”) mean our fiscal year ended on March 31st of that year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on our knowledge of current events and actions that we may undertake in the future, actual results could differ from those estimates. As discussed below, our most significant estimates include those made in connection with the valuation of intangible assets, stock-based compensation, fair value of debt, sales returns and allowances, trade promotional allowances and inventory obsolescence, and the recognition of income taxes using an estimated annual effective tax rate.
Cash and Cash Equivalents
We consider all short-term deposits and investments with original maturities of
three months
or less to be cash equivalents. Substantially all of our cash is held by a large regional bank with headquarters in California. We do not believe that, as a result of this concentration, we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. The Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation (“SIPC”) insure these balances, up to $250,000 and $500,000, with a $250,000 limit for cash, respectively. Substantially all of the Company's cash balances at March 31, 2016 are uninsured.
Accounts Receivable
We extend non-interest-bearing trade credit to our customers in the ordinary course of business. We maintain an allowance for doubtful accounts receivable based upon historical collection experience and expected collectability of the accounts receivable. In an effort to reduce credit risk, we (i) have established credit limits for all of our customer relationships, (ii) perform ongoing credit evaluations of customers’ financial condition, (iii) monitor the payment history and aging of customers’ receivables, and (iv) monitor open orders against an individual customer’s outstanding receivable balance.
Inventories
Inventories are stated at the lower of cost or market value, where cost is determined by using the first-in, first-out method. We reduce inventories for the diminution of value resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value. Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and packaging obsolescence.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method based on the following estimated useful lives:
74
|
|
Years
|
|
Machinery
|
5
|
|
Computer equipment and software
|
3
|
|
Furniture and fixtures
|
7
|
|
Leasehold improvements
|
*
|
*Leasehold improvements are amortized over the lesser of the lease term or the estimated useful life of the related asset.
Expenditures for maintenance and repairs are charged to expense as incurred. When an asset is sold or otherwise disposed of, we remove the cost and associated accumulated depreciation from the accounts and recognize the resulting gain or loss in the Consolidated Statements of Income and Comprehensive Income.
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. An impairment loss is recognized if the carrying amount of the asset exceeds its fair value.
Goodwill
The excess of the purchase price over the fair market value of assets acquired and liabilities assumed in purchase business combinations is classified as goodwill. Goodwill is not amortized, although the carrying value is tested for impairment at least annually in the fourth fiscal quarter of each year, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill is tested for impairment at the product group level, which is one level below the operating segment level.
Intangible Assets
Intangible assets, which are comprised primarily of trademarks, are stated at cost less accumulated amortization. For intangible assets with finite lives, amortization is computed using the straight-line method over estimated useful lives, typically ranging from
10
to
30
years.
Indefinite-lived intangible assets are tested for impairment at least annually in the fourth fiscal quarter of each year, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts exceed their fair values and may not be recoverable. An impairment loss is recognized if the carrying amount of the asset exceeds its fair value.
Debt Origination Costs
We have incurred debt origination costs in connection with the issuance of long-term debt. Certain of these costs were recorded as deferred financing costs within long-term assets and others were recorded as a reduction to our long-term debt. These costs are amortized over the term of the related debt, using the effective interest method for our term loan facility and the straight-line method for our revolving credit facility. Effective April 1, 2015, in accordance with new accounting standards discussed below, we began reporting the costs related to our senior notes and the term loan facility as a reduction of debt. We continue to report the costs associated with our revolving credit facility as a long-term asset.
Revenue Recognition
We recognize revenue when the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the selling price is fixed or determinable; (iii) the product has been shipped and the customer takes ownership and assumes the risk of loss, and (iv) collection of the resulting receivable is reasonably assured. We have determined that these criteria are met and the transfer of the risk of loss generally occurs when product is received by the customer and, accordingly, we recognize revenue at that time. Provisions are made for estimated discounts related to customer payment terms and estimated product returns at the time of sale based on our historical experience.
As is customary in the consumer products industry, we participate in the promotional programs of our customers to enhance the sale of our products. The cost of these promotional programs varies based on the actual number of units sold during a finite period of time. These promotional programs consist of direct-to-consumer incentives, such as coupons and temporary price reductions, as well as incentives to our customers, such as allowances for new distribution, including slotting fees, and cooperative advertising. Estimates of the costs of these promotional programs are based on (i) historical sales experience, (ii) the current promotional offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel. We recognize the cost of such sales incentives by recording an estimate of such cost as a reduction of revenue, at the later of (a) the date the related revenue is recognized, or (b) the date when a particular sales incentive is offered. At the completion of the promotional program, the estimated amounts are adjusted to actual results.
75
Due to the nature of the consumer products industry, we are required to estimate future product returns. Accordingly, we record an estimate of product returns concurrent with recording sales, which is made after analyzing (i) historical return rates, (ii) current economic trends, (iii) changes in customer demand, (iv) product acceptance, (v) seasonality of our product offerings, and (vi) the impact of changes in product formulation, packaging and advertising.
Cost of Sales
Cost of sales includes product costs, warehousing costs, inbound and outbound shipping costs, and handling and storage costs. Warehousing, shipping and handling and storage costs were
$39.2 million
for 2016,
$37.7 million
for 2015 and
$32.0 million
for 2014.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred. Allowances for new distribution costs associated with products, including slotting fees, are recognized as a reduction of sales. Under these new distribution arrangements, the retailers allow our products to be placed on the stores’ shelves in exchange for such fees.
Stock-based Compensation
We recognize stock-based compensation by measuring the cost of services to be rendered based on the grant-date fair value of the equity award. Compensation expense is to be recognized over the period an employee is required to provide service in exchange for the award, generally referred to as the requisite service period.
Income Taxes
Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Income Taxes topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the various taxing authorities. As a result, we have applied a more-likely-than-not recognition threshold for all tax uncertainties.
We are subject to taxation in the United States and various state and foreign jurisdictions.
We classify penalties and interest related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Income and Comprehensive Income.
Earnings Per Share
Basic earnings per share is calculated based on income available to common stockholders and the weighted-average number of shares outstanding during the reporting period. Diluted earnings per share is calculated based on income available to common stockholders and the weighted-average number of common and potential common shares outstanding during the reporting period. Potential common shares, composed of the incremental common shares issuable upon the exercise of outstanding stock options and unvested restricted stock units, are included in the earnings per share calculation to the extent that they are dilutive.
Recently Issued Accounting Standards
In April 2016, the FASB issued Accounting Standards Update ("ASU") 2016-10,
Revenue from Contracts with Customers
. The amendments in this update clarify the implementation guidance on identifying performance obligations and licensing in FASB ASC 606. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of ASU 2014-09 described below.
We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
. The amendments in this update involve several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards, and classification on the statement of cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers
. The amendments in this update clarify the implementation guidance on principals versus agent considerations in FASB ASC 606. The effective date and transition
76
requirements for the amendments in this update are the same as the effective date and transition requirements of ASU 2014-09 described below.
We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02,
Leases.
The amendments in this update include a new FASB ASC Topic 842, which supersedes Topic 840. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases.
For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all entities as of the beginning of interim or annual reporting periods. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
. For public business entities, the amendments in this update include the elimination of the requirement to disclose the method(s) and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, the requirement to use the exit price notion when measuring fair value of financial instruments for disclosure purposes, the requirement to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, the requirement for separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or accompanying notes to the financial statements, and the amendments clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
Early adoption of the amendments in this update is not permitted, except that early application by public business entities to financial statements of fiscal years or interim periods that have not yet been issued or, by all other entities, that have not yet been made available for issuance are permitted as of the beginning of the fiscal year of adoption for the following amendment: An entity should present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. An entity should apply the amendments to this update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The adoption of ASU 2016-01 is not expected to have a material impact on our Consolidated Financial Statements.
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. For public business entities, the amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted for all entities as of the beginning of interim or annual reporting periods. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In September 2015, the FASB issued ASU 2015-16,
Simplifying the Accounting for Measurement-Period Adjustments
. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the amendments in this update eliminate the requirement to retrospectively account for those adjustments. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The adoption of ASU 2015-16 is not expected to have a material impact on our Consolidated Financial Statements.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards, under which an entity should measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.
The adoption of ASU 2015-11 is not expected to have a material impact on our Consolidated Financial Statements.
In April 2015, the FASB issued ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs
. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. As
77
permitted by the guidance, we have early adopted these provisions, as of the beginning of our first quarter of 2016. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, in August 2015, the FASB issued ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
, stating that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement
.
As a result, we reclassified
$27.4 million
of deferred financing costs as of March 31, 2015 from other long-term assets, and such costs are now presented as a direct deduction from the long-term debt liability.
In February 2015, the FASB issued ASU 2015-02,
Amendments to the Consolidation Analysis
. Update 2015-02 amended the process that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material impact on our Consolidated Financial Statements.
In January 2015, the FASB issued ASU 2015-01,
Income Statement - Extraordinary and Unusual Items
. The amendments in this update eliminate the concept of extraordinary items in Subtopic 225-20, which required entities to consider whether an underlying event or transaction is extraordinary. However, the amendments retain the presentation and disclosure guidance for items that are unusual in nature or occur infrequently. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The adoption of ASU 2015-01 is not expected to have a material impact on our Consolidated Financial Statements.
In August 2014, the FASB issued ASU 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.
This amendment states that in connection with preparing financial statements for each annual and interim reporting period, an entity's management should evaluate whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued, when applicable). The amendments in this update are effective for the annual reporting period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on our Consolidated Financial Statements.
In June 2014, the FASB issued ASU 2014-12,
Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could Be Achieved after the Requisite Service Period,
which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the new guidance does not allow for a performance target that affects vesting to be reflected in estimating the fair value of the award at the grant date. The amendments to this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this update either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. We currently do not have any outstanding share-based payments with a performance target.
The adoption of ASU 2014-12 is not expected to have a material impact on our Consolidated Financial Statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers - Topic 606
, which supersedes the revenue recognition requirements in FASB ASC 605. The new guidance primarily states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 from annual and interim periods beginning after December 15, 2016 to annual and interim periods beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In April 2014, the FASB issued ASU 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The amendments in this update must be applied prospectively to all disposals (or classifications as held for sale) of
78
components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The adoption of ASU 2014-08 did not have a material impact on our Consolidated Financial Statements.
2. Acquisitions
Acquisition of DenTek
On February 5, 2016, the Company completed the acquisition of DenTek Holdings, Inc. ("DenTek"), a privately-held marketer and distributor of specialty oral care products. The closing was finalized pursuant to the terms of the merger agreement, announced November 23, 2015, under which Prestige agreed to acquire DenTek from its stockholders, including TSG Consumer Partners, for a purchase price of
$228.3 million
. The acquisition expands Prestige's portfolio of brands, strengthens its existing oral care platform and increases its geographic reach in parts of Europe. The Company financed the transaction with a combination of available cash on hand, available cash from its Asset Based Loan ("ABL") revolver, and financing of an additional unsecured bridge loan. The DenTek brands are primarily included in the Company's North American and International OTC Healthcare segments.
The DenTek acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our preliminary allocation of the assets acquired and liabilities assumed as of the February 5, 2016 acquisition date.
|
(In thousands)
|
February 5, 2016
|
||
|
Cash acquired
|
$
|
1,359
|
|
|
Accounts receivable
|
9,187
|
|
|
|
Inventories
|
14,304
|
|
|
|
Deferred income taxes
|
3,303
|
|
|
|
Prepaids and other current assets
|
6,728
|
|
|
|
Property, plant and equipment, net
|
3,555
|
|
|
|
Goodwill
|
76,529
|
|
|
|
Intangible assets, net
|
206,700
|
|
|
|
Total assets acquired
|
321,665
|
|
|
|
Accounts payable
|
3,261
|
|
|
|
Accrued expenses
|
16,488
|
|
|
|
Deferred income tax liabilities - long term
|
73,573
|
|
|
|
Total liabilities assumed
|
93,322
|
|
|
|
Total purchase price
|
$
|
228,343
|
|
Based on this preliminary analysis, we allocated
$179.8 million
to non-amortizable intangible assets and
$26.9 million
to amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of
18.5
years. The weighted average remaining life for amortizable intangible assets at March 31, 2016 was
18.4
years.
We also recorded goodwill of
$76.5 million
based on the amount by which the purchase price exceeded the fair value of the net assets acquired. Goodwill is not deductible for income tax purposes.
79
The pro forma effect of this acquisition on revenues and earnings was not material. However, revenues recorded during the period ended March 31, 2016 were
$10.7 million
since the date of the acquisition.
Acquisition of Insight Pharmaceuticals
On September 3, 2014, the Company completed the acquisition of Insight Pharmaceuticals Corporation ("Insight"), a marketer and distributor of feminine care and other OTC healthcare products, for
$745.9 million
in cash after receiving a return of approximately
$7.2 million
from escrow related to an arbitrator's ruling. The closing followed the Federal Trade Commission’s (“FTC”) approval of the acquisition and was finalized pursuant to the terms of the purchase agreement announced on April 25, 2014. Pursuant to the Insight purchase agreement, the Company acquired
27
OTC brands sold in North America (including related trademarks, contracts and inventory), which extended the Company's portfolio of OTC brands to include a leading feminine care platform in the United States and Canada anchored by
Monistat
, the leading North American brand in OTC yeast infection treatment. The acquisition also added brands to the Company's cough & cold, pain relief, ear care and dermatological platforms. In connection with the FTC's approval of the Insight acquisition, the Company sold
one
of the competing brands that it acquired from Insight on the same day as the Insight closing. Insight is primarily included in the Company's North American OTC Healthcare segment.
The Insight acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. During the quarter ended June 30, 2015, we adjusted the fair values of the assets acquired and liabilities assumed by increasing goodwill for certain immaterial items that came to our attention subsequent to the date of acquisition. Additionally, during the quarter ended December 31, 2015, we reduced goodwill, as we received
$7.2 million
as a result of a finalized arbitration ruling relating to the disputed working capital calculation, as determined under GAAP, as of the date of the Insight acquisition, which is clearly and directly related to the purchase price. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the September 3, 2014 acquisition date, after giving effect of the adjustments noted above.
|
(In thousands)
|
September 3, 2014
|
||
|
Cash acquired
|
$
|
3,507
|
|
|
Accounts receivable
|
26,012
|
|
|
|
Inventories
|
23,456
|
|
|
|
Deferred income tax assets - current
|
1,032
|
|
|
|
Prepaids and other current assets
|
1,341
|
|
|
|
Property, plant and equipment
|
2,308
|
|
|
|
Goodwill
|
96,323
|
|
|
|
Intangible assets
|
724,374
|
|
|
|
Total assets acquired
|
878,353
|
|
|
|
Accounts payable
|
16,079
|
|
|
|
Accrued expenses
|
8,539
|
|
|
|
Deferred income tax liabilities - long term
|
107,799
|
|
|
|
Total liabilities assumed
|
132,417
|
|
|
|
Total purchase price
|
$
|
745,936
|
|
Based on this analysis, we allocated
$599.6 million
to indefinite-lived intangible assets and
$124.8 million
to amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of
16.2
years. The weighted average remaining life for amortizable intangible assets at March 31, 2016 was
14.6
years.
We also recorded goodwill of
$96.3 million
based on the amount by which the purchase price exceeded the fair value of the net assets acquired after of the adjustments described above. Goodwill is not deductible for income tax purposes.
80
The operating results of Insight have been included in our Consolidated Financial Statements beginning September 3, 2014. On September 3, 2014, we sold one of the brands we acquired from the Insight acquisition for
$18.5 million
, for which we had allocated
$17.7 million
,
$0.6 million
and
$0.2 million
to intangible assets, inventory and property, plant and equipment, respectively.
The following table provides our unaudited pro forma revenues, net income and net income per basic and diluted common share had the results of Insight's operations been included in our operations commencing on April 1, 2013, based upon available information related to Insight's operations. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized by us had the Insight acquisition been consummated at the beginning of the period for which the pro forma information is presented, or of future results.
|
Year Ended March 31,
|
|||||||
|
2015
|
2014
|
||||||
|
(In thousands, except per share data)
|
(Unaudited)
|
||||||
|
Revenues
|
$
|
783,217
|
|
$
|
767,897
|
|
|
|
Net income
|
$
|
86,844
|
|
$
|
82,762
|
|
|
|
Earnings per share:
|
|||||||
|
Basic
|
$
|
1.66
|
|
$
|
1.60
|
|
|
|
Diluted
|
$
|
1.65
|
|
$
|
1.58
|
|
|
Acquisition of the Hydralyte brand
On April 30, 2014, we completed the acquisition of the
Hydralyte
brand in Australia and New Zealand from The Hydration Pharmaceuticals Trust of Victoria, Australia, which was funded through a combination of cash on hand and our existing senior secured credit facility.
Hydralyte
is the leading OTC brand in oral rehydration in Australia and is marketed and sold through our Care Pharmaceuticals Pty Ltd. subsidiary ("Care Pharma").
Hydralyte
is available in pharmacies in multiple forms and is indicated for oral rehydration following diarrhea, vomiting, fever, heat and other ailments.
Hydralyte
is included in our International OTC Healthcare segment.
The
Hydralyte
acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the April 30, 2014 acquisition date.
|
(In thousands)
|
April 30, 2014
|
||
|
Inventories
|
$
|
1,970
|
|
|
Property, plant and equipment, net
|
1,267
|
|
|
|
Goodwill
|
1,224
|
|
|
|
Intangible assets, net
|
73,580
|
|
|
|
Total assets acquired
|
78,041
|
|
|
|
Accrued expenses
|
38
|
|
|
|
Other long term liabilities
|
12
|
|
|
|
Total liabilities assumed
|
50
|
|
|
|
Net assets acquired
|
$
|
77,991
|
|
Based on this analysis, we allocated
$73.6 million
to non-amortizable intangible assets and no allocation was made to amortizable intangible assets.
81
We also recorded goodwill of
$1.2 million
based on the amount by which the purchase price exceeded the fair value of the net assets acquired. Goodwill is not deductible for income tax purposes.
The pro forma effect of this acquisition on revenues and earnings was not material.
Acquisition of Care Pharmaceuticals Pty Ltd.
On July 1, 2013, we completed the acquisition of Care Pharma, which was funded through a combination of our existing senior secured credit facility and cash on hand.
The Care Pharma brands include the
Fess
line of cold/allergy and saline nasal health products, which is the leading saline spray for both adults and children in Australia. Other key brands include
Painstop
analgesic,
Rectogesic
for rectal discomfort, and the
Fab
line of nutritional supplements. Care Pharma also carries a line of brands for children including
Little Allergies
,
Little Eyes
,
and
Little Coughs
. The brands acquired are complementary to our OTC Healthcare portfolio.
This acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the July 1, 2013 acquisition date.
|
(In thousands)
|
July 1, 2013
|
|
|
|
Cash acquired
|
$
|
1,546
|
|
|
Accounts receivable
|
1,658
|
|
|
|
Inventories
|
2,465
|
|
|
|
Deferred income tax assets
|
283
|
|
|
|
Prepaids and other current assets
|
647
|
|
|
|
Property, plant and equipment
|
163
|
|
|
|
Goodwill
|
23,122
|
|
|
|
Intangible assets
|
31,502
|
|
|
|
Total assets acquired
|
61,386
|
|
|
|
Accounts payable
|
1,537
|
|
|
|
Accrued expenses
|
2,788
|
|
|
|
Other long term liabilities
|
300
|
|
|
|
Total liabilities assumed
|
4,625
|
|
|
|
Net assets acquired
|
$
|
56,761
|
|
Based on this analysis, we allocated
$29.8 million
to non-amortizable intangible assets and
$1.7 million
to amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of
15.1
years. The weighted average remaining life for amortizable intangible assets at March 31, 2016 was
12.5
years.
We also recorded goodwill of
$23.1 million
based on the amount by which the purchase price exceeded the fair value of the net assets acquired. The full amount of goodwill is deductible for income tax purposes.
The pro forma effect of this acquisition on revenues and earnings was not material.
82
3. Accounts Receivable
Accounts receivable consist of the following:
|
March 31,
|
|||||||
|
(In thousands)
|
2016
|
2015
|
|||||
|
Components of Accounts Receivable
|
|||||||
|
Trade accounts receivable
|
$
|
105,592
|
|
$
|
95,411
|
|
|
|
Other receivables
|
1,261
|
|
2,353
|
|
|||
|
|
106,853
|
|
97,764
|
|
|||
|
Less allowances for discounts, returns and uncollectible accounts
|
(11,606
|
)
|
(9,906
|
)
|
|||
|
Accounts receivable, net
|
$
|
95,247
|
|
$
|
87,858
|
|
|
4. Inventories
Inventories consist of the following:
|
March 31,
|
|||||||
|
(In thousands)
|
2016
|
2015
|
|||||
|
Components of Inventories
|
|||||||
|
Packaging and raw materials
|
$
|
7,563
|
|
$
|
7,588
|
|
|
|
Finished goods
|
83,700
|
|
66,412
|
|
|||
|
Inventories
|
$
|
91,263
|
|
$
|
74,000
|
|
|
Inventories are carried and depicted above at the lower of cost or market, which includes a reduction in inventory values of
$4.8 million
and
$4.1 million
at March 31, 2016 and 2015, respectively, related to obsolete and slow-moving inventory.
5. Property and Equipment
Property and equipment consist of the following:
|
March 31,
|
|||||||
|
(In thousands)
|
2016
|
2015
|
|||||
|
Components of Property and Equipment
|
|||||||
|
Machinery
|
$
|
7,734
|
|
$
|
4,743
|
|
|
|
Computer equipment
|
12,793
|
|
11,339
|
|
|||
|
Furniture and fixtures
|
2,445
|
|
2,484
|
|
|||
|
Leasehold improvements
|
7,389
|
|
7,134
|
|
|||
|
|
30,361
|
|
25,700
|
|
|||
|
Accumulated depreciation
|
(14,821
|
)
|
(11,956
|
)
|
|||
|
Property and equipment, net
|
$
|
15,540
|
|
$
|
13,744
|
|
|
We recorded depreciation expense of
$5.2 million
,
$3.8 million
, and
$3.2 million
for 2016, 2015, and 2014, respectively.
83
6. Goodwill
The following table summarizes the changes in the carrying value of goodwill by operating segment for each of 2014, 2015, and 2016:
|
(In thousands)
|
North American OTC Healthcare
|
|
International OTC Healthcare
|
Household Cleaning
|
|
Consolidated
|
|||||||||
|
Balance – March 31, 2013
|
|||||||||||||||
|
Goodwill
|
$
|
290,327
|
|
$
|
—
|
|
$
|
72,549
|
|
$
|
362,876
|
|
|||
|
Accumulated impairment losses
|
(130,170
|
)
|
—
|
|
(65,160
|
)
|
(195,330
|
)
|
|||||||
|
Balance – March 31, 2013
|
160,157
|
|
—
|
|
7,389
|
|
167,546
|
|
|||||||
|
2014 additions
|
—
|
|
23,122
|
|
—
|
|
23,122
|
|
|||||||
|
Effects of foreign currency exchange rates
|
—
|
|
243
|
|
—
|
|
243
|
|
|||||||
|
Balance – March 31, 2014
|
|
|
|
|
|||||||||||
|
Goodwill
|
290,327
|
|
23,365
|
|
72,549
|
|
386,241
|
|
|||||||
|
Accumulated impairment losses
|
(130,170
|
)
|
—
|
|
(65,160
|
)
|
(195,330
|
)
|
|||||||
|
Balance – March 31, 2014
|
160,157
|
|
23,365
|
|
7,389
|
|
190,911
|
|
|||||||
|
2015 additions
|
103,254
|
|
1,224
|
|
—
|
|
104,478
|
|
|||||||
|
2015 reductions
|
—
|
|
—
|
|
(589
|
)
|
(589
|
)
|
|||||||
|
Effects of foreign currency exchange rates
|
—
|
|
(4,149
|
)
|
—
|
|
(4,149
|
)
|
|||||||
|
Balance – March 31, 2015
|
|
|
|
|
|||||||||||
|
Goodwill
|
393,581
|
|
20,440
|
|
71,960
|
|
485,981
|
|
|||||||
|
Accumulated impairment losses
|
(130,170
|
)
|
—
|
|
(65,160
|
)
|
(195,330
|
)
|
|||||||
|
Balance - March 31, 2015
|
263,411
|
|
20,440
|
|
6,800
|
|
290,651
|
|
|||||||
|
2016 additions
|
74,441
|
|
2,393
|
|
—
|
|
76,834
|
|
|||||||
|
2016 reductions
|
(7,237
|
)
|
—
|
|
—
|
|
(7,237
|
)
|
|||||||
|
Effects of foreign currency exchange rates
|
—
|
|
(57
|
)
|
—
|
|
(57
|
)
|
|||||||
|
Balance – March 31, 2016
|
|
|
|
|
|||||||||||
|
Goodwill
|
460,785
|
|
22,776
|
|
71,960
|
|
555,521
|
|
|||||||
|
Accumulated impairment losses
|
(130,170
|
)
|
—
|
|
(65,160
|
)
|
(195,330
|
)
|
|||||||
|
Balance - March 31, 2016
|
$
|
330,615
|
|
$
|
22,776
|
|
$
|
6,800
|
|
$
|
360,191
|
|
|||
As discussed in Note 2, on July 1, 2013, we completed the acquisition of Care Pharma. In connection with this acquisition, we recorded goodwill of
$23.1 million
based on the amount by which the purchase price exceeded the fair value of the net assets acquired.
As discussed in Note 2, we completed
two
acquisitions during the year ended March 31, 2015. On September 3, 2014, we completed the acquisition of Insight and recorded goodwill of
$96.3 million
, reflecting the amount by which the purchase price exceeded the preliminary estimate of fair value of net assets acquired, after giving affect to the following adjustments. During the quarter ended June 30, 2015, we increased goodwill by
$0.3 million
for certain immaterial items. During the quarter ending December 31, 2015, we decreased goodwill by
$7.2 million
, as we received that amount from escrow pursuant to an arbitrator's ruling in December 31, 2015 related to a disputed working capital calculation, as determined under GAAP, associated with the Insight acquisition, which is clearly and directly related to the purchase price. Additionally, on April 30, 2014, we completed the acquisition of the
Hydralyte
brand and recorded goodwill of
$1.2 million
, reflecting the amount by which the purchase price exceeded the preliminary estimate of fair value of the net assets acquired.
As further discussed in Note 7, in December 2014, we completed a transaction to sell rights to use of the
Comet
brand in certain Eastern European countries to a third-party licensee. As a result, we recorded a gain on the sale of
$1.3 million
and reduced the carrying value of our intangible assets and goodwill.
84
As discussed in Note 2, on February 5, 2016, we completed the acquisition of DenTek. In connection with this acquisition, we recorded goodwill of
$76.5 million
based on the amount by which the purchase price exceeded the fair value of net assets acquired.
Under accounting guidelines, goodwill is not amortized, but must be tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below the carrying amount. At February 29, 2016 and February 28, 2015, in conjunction with the annual test for goodwill impairment, there were no indicators of impairment under the analysis. Accordingly,
no
impairment charge was recorded in 2016 or 2015.
We identify our reporting units in accordance with the FASB ASC Subtopic 280. The carrying value and fair value for intangible assets and goodwill for a reporting unit are calculated based on key assumptions and valuation methodologies previously discussed. The discounted cash flow methodology is a widely-accepted valuation technique utilized by market participants in the transaction evaluation process and has been applied consistently. We also considered our market capitalization at February 29, 2016, February 28, 2015 and March 31, 2014, as compared to the aggregate fair values of our reporting units, to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology. The estimates and assumptions made in assessing the fair value of our reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. Consequently, changing rates of interest and inflation, declining sales or margins, increases in competition, changing consumer preferences, technical advances, or reductions in advertising and promotion may require an impairment charge to be recorded in the future.
The aggregate fair value of our reporting units exceeded the carrying value by
76.4%
with
no
reporting unit's fair value exceeding the carrying value by less than
10%
.
85
7. Intangible Assets
A reconciliation of the activity affecting intangible assets for each of 2014, 2015, and 2016 is as follows:
|
Year Ended March 31, 2014
|
|||||||||||||||
|
(In thousands)
|
Indefinite
Lived Trademarks |
Finite Lived
Trademarks and Customer Relationships |
Non
Compete Agreement |
Totals
|
|||||||||||
|
Gross Amount
|
|||||||||||||||
|
Balance – March 31, 2013
|
$
|
1,243,718
|
|
$
|
203,066
|
|
$
|
158
|
|
$
|
1,446,942
|
|
|||
|
Additions
|
29,845
|
|
1,657
|
|
—
|
|
31,502
|
|
|||||||
|
Reductions
|
—
|
|
—
|
|
(158
|
)
|
(158
|
)
|
|||||||
|
Effects of foreign currency exchange rates
|
315
|
|
17
|
|
—
|
|
332
|
|
|||||||
|
Balance – March 31, 2014
|
$
|
1,273,878
|
|
$
|
204,740
|
|
$
|
—
|
|
$
|
1,478,618
|
|
|||
|
Accumulated Amortization
|
|||||||||||||||
|
Balance – March 31, 2013
|
$
|
—
|
|
$
|
73,544
|
|
$
|
158
|
|
$
|
73,702
|
|
|||
|
Additions
|
—
|
|
10,256
|
|
—
|
|
10,256
|
|
|||||||
|
Reductions
|
—
|
|
—
|
|
(158
|
)
|
(158
|
)
|
|||||||
|
Effects of foreign currency exchange rates
|
—
|
|
1
|
|
—
|
|
1
|
|
|||||||
|
Balance – March 31, 2014
|
—
|
|
83,801
|
|
—
|
|
83,801
|
|
|||||||
|
Intangibles, net – March 31, 2014
|
$
|
1,273,878
|
|
$
|
120,939
|
|
$
|
—
|
|
$
|
1,394,817
|
|
|||
|
Intangible Assets, net by Reportable Segment:
|
|||||||||||||||
|
North American OTC Healthcare
|
$
|
1,123,897
|
|
$
|
93,242
|
|
$
|
—
|
|
$
|
1,217,139
|
|
|||
|
International OTC Healthcare
|
30,161
|
|
1,530
|
|
—
|
|
31,691
|
|
|||||||
|
Household Cleaning
|
119,820
|
|
26,167
|
|
—
|
|
145,987
|
|
|||||||
|
Intangible assets, net – March 31, 2014
|
$
|
1,273,878
|
|
$
|
120,939
|
|
$
|
—
|
|
$
|
1,394,817
|
|
|||
86
|
Year Ended March 31, 2015
|
|||||||||||||||
|
(In thousands)
|
Indefinite
Lived Trademarks |
Finite Lived
Trademarks and Customer Relationships |
Non
Compete Agreement |
Totals
|
|||||||||||
|
Gross Amount
|
|
|
|
|
|||||||||||
|
Balance – March 31, 2014
|
$
|
1,273,878
|
|
$
|
204,740
|
|
$
|
—
|
|
$
|
1,478,618
|
|
|||
|
Additions
|
673,180
|
|
124,774
|
|
—
|
|
797,954
|
|
|||||||
|
Reclassifications
|
(46,506
|
)
|
46,506
|
|
—
|
|
—
|
|
|||||||
|
Reductions
|
(9,548
|
)
|
(17,674
|
)
|
—
|
|
(27,222
|
)
|
|||||||
|
Effects of foreign currency exchange rates
|
(17,600
|
)
|
(280
|
)
|
—
|
|
(17,880
|
)
|
|||||||
|
Balance – March 31, 2015
|
$
|
1,873,404
|
|
$
|
358,066
|
|
$
|
—
|
|
$
|
2,231,470
|
|
|||
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|||||||
|
Balance – March 31, 2014
|
$
|
—
|
|
$
|
83,801
|
|
$
|
—
|
|
$
|
83,801
|
|
|||
|
Additions
|
—
|
|
12,995
|
|
—
|
|
12,995
|
|
|||||||
|
Effects of foreign currency exchange rates
|
—
|
|
(26
|
)
|
—
|
|
(26
|
)
|
|||||||
|
Balance – March 31, 2015
|
$
|
—
|
|
$
|
96,770
|
|
$
|
—
|
|
$
|
96,770
|
|
|||
|
Intangibles, net – March 31, 2015
|
$
|
1,873,404
|
|
$
|
261,296
|
|
$
|
—
|
|
$
|
2,134,700
|
|
|||
|
Intangible Assets, net by Reportable Segment:
|
|||||||||||||||
|
North American OTC Healthcare
|
$
|
1,676,991
|
|
$
|
235,642
|
|
$
|
—
|
|
$
|
1,912,633
|
|
|||
|
International OTC Healthcare
|
86,141
|
|
1,231
|
|
—
|
|
87,372
|
|
|||||||
|
Household Cleaning
|
110,272
|
|
24,423
|
|
—
|
|
134,695
|
|
|||||||
|
Intangible assets, net – March 31, 2015
|
$
|
1,873,404
|
|
$
|
261,296
|
|
$
|
—
|
|
$
|
2,134,700
|
|
|||
87
|
Year Ended March 31, 2016
|
|||||||||||||||
|
(In thousands)
|
Indefinite
Lived Trademarks |
Finite Lived
Trademarks and Customer Relationships |
Non
Compete Agreement |
Totals
|
|||||||||||
|
Gross Amount
|
|
|
|
|
|||||||||||
|
Balance – March 31, 2015
|
$
|
1,873,404
|
|
$
|
358,066
|
|
$
|
—
|
|
$
|
2,231,470
|
|
|||
|
Additions
|
179,800
|
|
26,900
|
|
—
|
|
206,700
|
|
|||||||
|
Reclassifications
|
(32,918
|
)
|
32,918
|
|
—
|
|
—
|
|
|||||||
|
Reductions
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Effects of foreign currency exchange rates
|
(240
|
)
|
(4
|
)
|
—
|
|
(244
|
)
|
|||||||
|
Balance – March 31, 2016
|
$
|
2,020,046
|
|
$
|
417,880
|
|
$
|
—
|
|
$
|
2,437,926
|
|
|||
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|||||||
|
Balance – March 31, 2015
|
$
|
—
|
|
$
|
96,770
|
|
$
|
—
|
|
$
|
96,770
|
|
|||
|
Additions
|
—
|
|
18,430
|
|
—
|
|
18,430
|
|
|||||||
|
Effects of foreign currency exchange rates
|
—
|
|
3
|
|
—
|
|
3
|
|
|||||||
|
Balance – March 31, 2016
|
$
|
—
|
|
$
|
115,203
|
|
$
|
—
|
|
$
|
115,203
|
|
|||
|
Intangibles, net – March 31, 2016
|
$
|
2,020,046
|
|
$
|
302,677
|
|
$
|
—
|
|
$
|
2,322,723
|
|
|||
|
Intangible Assets, net by Reportable Segment:
|
|||||||||||||||
|
North American OTC Healthcare
|
$
|
1,823,873
|
|
$
|
277,762
|
|
$
|
—
|
|
$
|
2,101,635
|
|
|||
|
International OTC Healthcare
|
85,901
|
|
2,237
|
|
—
|
|
88,138
|
|
|||||||
|
Household Cleaning
|
110,272
|
|
22,678
|
|
—
|
|
132,950
|
|
|||||||
|
Intangible assets, net – March 31, 2016
|
$
|
2,020,046
|
|
$
|
302,677
|
|
$
|
—
|
|
$
|
2,322,723
|
|
|||
As discussed in Note 2, on July 1, 2013, we completed the acquisition of Care Pharma. In connection with this acquisition, we allocated
$31.5 million
to intangible assets based on our analysis.
As discussed in Note 2, we completed
two
acquisitions during the year ended March 31, 2015. On September 3, 2014, we completed the acquisition of Insight and allocated
$724.4 million
to intangible assets based on our analysis. Additionally, on April 30, 2014, we completed the acquisition of the
Hydralyte
brand and allocated
$73.6 million
to intangible assets based on our preliminary analysis. Furthermore, on September 3, 2014, we sold
one
of the brands that we acquired from Insight, for which we had allocated
$17.7 million
to intangible assets.
As discussed in Note 2, on February 5, 2016, we completed the acquisition of DenTek. In connection with this acquisition, we allocated
$206.7 million
to intangible assets based on our analysis.
Under accounting guidelines, indefinite-lived assets are not amortized, but must be tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below the carrying amount. Additionally, at each reporting period, an evaluation must be made to determine whether events and circumstances continue to support an indefinite useful life. Intangible assets with finite lives are amortized over their respective estimated useful lives and are also tested for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable and exceeds its fair value.
88
We utilized the discounted cash flow method to estimate the fair value of our reporting units as part of the goodwill impairment test and the excess earnings method to estimate the fair value of our individual indefinite-lived intangible assets. The discount rate utilized in the analyses, as well as future cash flows, may be influenced by such factors as changes in interest rates and rates of inflation. Additionally, should the related fair values of goodwill and intangible assets be adversely affected as a result of declining sales or margins caused by competition, changing consumer preferences, technological advances or reductions in advertising and promotional expenses, we may be required to record impairment charges in the future. In addition, we considered our market capitalization at February 29, 2016, which was the date of our annual review, as compared to the aggregate fair values of our reporting units, to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology. As a result of our analysis, we determined that the fair values exceeded the carrying values and as such,
no
impairment charge was recorded in 2016.
Based on our analysis, the aggregate fair value of our reporting units exceeded the carrying value by
76.4%
, with
no
reporting unit's fair value exceeding the carrying value by less than
10%
. The aggregate fair value of the indefinite-lived intangible assets exceeded the carrying value by
55.8%
.
Three
of the individual indefinite-lived trade names exceeded their carrying values by less than
10%
. The fair value of
Beano, New Skin
and
Debrox,
exceed their carrying values of
$78.4 million
,
$37.2 million
and
$76.3 million
, by
9.0%
,
8.2%
and
5.1%
, respectively.
Given the competitive landscape, including private label,
Beano
has experienced declines in revenues in recent periods. However, we continue to believe that the fair value exceeds the carrying value of
Beano.
The significant assumptions supporting the fair value of
Beano
include a discount rate of
9.5%
, and returning to revenue growth, coupled with advertising and promotion investments that are in line with historical performance. A decrease in the annual cash flow of approximately
21.6%
compared to the projected cash flow utilized in our analysis, or an increase in the discount rate of approximately
82
basis points could result in the carrying value of our trade name exceeding its fair value, which would result in an impairment charge.
The significant assumptions supporting the fair value of
New Skin
and
Debrox
include a discount rate of
9.5%
, coupled with modest revenue growth, and advertising and promotion investments that are in line with historical performance. Revenue declines in each of the brands or changes in assumptions utilized in our quantitative indefinite lived asset impairment analysis may result in the fair value no longer exceeding their respective carrying values. For example, a decrease in the annual cash flow of approximately
19.6%
and
12.6%
for
New Skin
and
Debrox
, respectively, compared to the projected cash flow utilized in our analysis, or an increase in the discount rate of approximately
73
and
45
basis points, respectively, could result in the carrying value of our trade name exceeding its fair value, which would result in an impairment charge. We will continue to review our results against forecasts and assess our assumptions to ensure they continue to be appropriate.
Based on recent declines in the business and a strategic review of our brands during the fourth quarter ended March 31, 2016 and our annual impairment review, we have reassessed the useful life of the
Ecotrin
brand as of February 29, 2016 and determined it to be
20 years
. As such, we have reclassified
$32.9 million
from an indefinite-lived to a finite lived intangible asset. At the time of this change in useful life, the fair value exceeded its carrying value.
Although we experienced revenue declines in
Pediacare
and in certain other brands in the past, we continue to believe that the fair value of our brands exceed their carrying values. However, sustained or significant future declines in revenue, profitability, lost distribution, other adverse changes in expected operating results, and / or unfavorable changes in economic factors used to estimate fair value of certain brands could indicate that the fair value no longer exceeds the carrying in which case a non-cash impairment charge may be recorded in future periods.
The weighted average remaining life for finite-lived intangible assets at March 31, 2016 was approximately
14.4
years, and the amortization expense for the year ended March 31, 2016 was $
18.4
million. At March 31, 2016, finite-lived intangible assets are expected to be amortized over their estimated useful life, which ranges from a period of
10
to
30 years
, and the estimated amortization expense for each of the five succeeding years and periods thereafter is as follows (in thousands):
89
|
Year Ending March 31,
|
|
||
|
2017
|
21,236
|
|
|
|
2018
|
21,072
|
|
|
|
2019
|
21,072
|
|
|
|
2020
|
21,072
|
|
|
|
2021
|
20,650
|
|
|
|
Thereafter
|
197,575
|
|
|
|
|
$
|
302,677
|
|
Sale of asset
Historically, we received royalty income from the licensing of the name of certain of our brands in geographic areas or markets in which we do not directly compete. We have had a royalty agreement for our
Comet
brand for several years, which included an option on behalf of the licensee to purchase the rights in certain geographic areas and markets in perpetuity. In December 2014, we amended the agreement to allow the licensee to buy out a portion of the agreement early, but retaining the remaining stream of royalty payments. In December 2014, in connection with this amendment, we sold rights to use of the
Comet
brand in certain Eastern European countries to a third-party licensee and received
$10.0 million
as a partial early buyout. As a result, we recorded a gain on sale of
$1.3 million
, and reduced the carrying value of our intangible assets and goodwill. The licensee will continue to make quarterly payments at least through June 30, 2016 of approximately
$1.0 million
. The licensee has the option to purchase (which we expect the licensee will elect to exercise such option) the remaining territories and markets, as defined in the agreement, at any time after July 1, 2016.
8. Other Accrued Liabilities
Other accrued liabilities consist of the following:
|
March 31,
|
|||||||
|
(In thousands)
|
2016
|
2015
|
|||||
|
Accrued marketing costs
|
$
|
26,373
|
|
$
|
16,903
|
|
|
|
Accrued compensation costs
|
9,574
|
|
8,840
|
|
|||
|
Accrued broker commissions
|
1,497
|
|
1,134
|
|
|||
|
Income taxes payable
|
3,675
|
|
2,642
|
|
|||
|
Accrued professional fees
|
1,787
|
|
2,769
|
|
|||
|
Deferred rent
|
836
|
|
1,021
|
|
|||
|
Accrued production costs
|
3,324
|
|
5,610
|
|
|||
|
Accrued lease termination costs
|
448
|
|
669
|
|
|||
|
Income tax related payable
|
6,354
|
|
—
|
|
|||
|
Other accrued liabilities
|
5,856
|
|
1,360
|
|
|||
|
|
$
|
59,724
|
|
$
|
40,948
|
|
|
2012 Senior Notes:
On January 31, 2012, Prestige Brands, Inc. (the "Borrower") issued
$250.0 million
of senior unsecured notes at par value, with an interest rate of
8.125%
and a maturity date of February 1, 2020 (the "2012 Senior Notes"). The Borrower could earlier redeem some or all of the 2012 Senior Notes at redemption prices set forth in the indenture governing the 2012 Senior Notes. The 2012 Senior Notes were guaranteed by Prestige Brands Holdings, Inc. and certain of its domestic
100%
owned subsidiaries, other than the Borrower. Each of these guarantees were joint and several. There were no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company. In connection with the 2012 Senior Notes offering, we incurred
$12.6 million
of costs, which were capitalized as deferred financing costs and were being amortized over the term of the 2012 Senior Notes. As of March 31, 2016, there were
no
outstanding balances as the Company
90
used the net proceeds from the 2016 Senior Notes issuance (discussed below) to repay all of the balances associated with the 2012 Senior Notes.
2012 Term Loan and 2012 ABL Revolver:
On January 31, 2012, the Borrower also entered into a new senior secured credit facility, which consists of (i) a
$660.0 million
term loan facility (the “2012 Term Loan”) with a
7
-year maturity and (ii) a
$50.0 million
asset-based revolving credit facility (the “2012 ABL Revolver”) with a
5
-year maturity. In subsequent years, we have utilized portions of our accordion feature to increase the amount of our borrowing capacity under the 2012 ABL Revolver by
$85.0 million
to
$135.0 million
and reduced our borrowing rate on the 2012 ABL Revolver by
0.25%
(discussed below). The 2012 Term Loan was issued with an original issue discount of
1.5%
of the principal amount thereof, resulting in net proceeds to the Borrower of
$650.1 million
. In connection with these loan facilities, we incurred
$20.6 million
of costs, which were capitalized as deferred financing costs and are being amortized over the terms of the facilities. The 2012 Term Loan is unconditionally guaranteed by Prestige Brands Holdings, Inc. and certain of its domestic
100%
owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company.
On February 21, 2013, we entered into Amendment No. 1 (the "Term Loan Amendment No. 1") to the 2012 Term Loan. Term Loan Amendment No. 1 provided for the refinancing of all of the Borrower's existing Term B Loans with new Term B-1 Loans (the "Term B-1 Loans"). The interest rate on the Term B-1 Loans under the Term Loan Amendment No. 1 was based, at the Borrower's option, on a LIBOR rate plus a margin of
2.75%
per annum, with a LIBOR floor of
1.00%
, or an alternate base rate, with a floor of
2.00%
, plus a margin. The new Term B-1 Loans would have matured on the same date as the Term B Loans' original maturity date. In addition, Term Loan Amendment No. 1 provided the Borrower with certain additional capacity to prepay subordinated debt, the 2012 Senior Notes and certain other unsecured indebtedness permitted to be incurred under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver. In connection with Term Loan Amendment No. 1, during the fourth quarter ended March 31, 2013, we recognized a
$1.4 million
loss on the extinguishment of debt.
On September 3, 2014, we entered into Amendment No. 2 ("Term Loan Amendment No. 2") to the 2012 Term Loan. Term Loan Amendment No. 2 provides for (i) the creation of a new class of Term B-2 Loans under the 2012 Term Loan (the "Term B-2 Loans") in an aggregate principal amount of
$720.0 million
, (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility and financial maintenance covenant relief, and (iii) an interest rate on (x) the Term B-1 Loans that was based, at our option, on a LIBOR rate plus a margin of
3.125%
per annum, with a LIBOR floor of
1.00%
, or an alternate base rate, with a floor of
2.00%
, plus a margin, and (y) the Term B-2 Loans that was based, at our option, on a LIBOR rate plus a margin of
3.50%
per annum, with a LIBOR floor of
1.00%
, or an alternate base rate, with a floor of
2.00%
, plus a margin (with a margin step-down to
3.25%
per annum, based upon achievement of a specified secured net leverage ratio).
Also, on September 3, 2014, the Borrower entered into ABL Amendment No. 3. ABL Amendment No. 3 provides for (i) a
$40.0
million increase in revolving commitments under the 2012 ABL Revolver and (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility. Borrowings under the 2012 ABL Revolver, as amended, bear interest at a rate per annum equal to an applicable margin, plus, at the Borrower's option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus
0.50%
, (b) the prime rate of Citibank, N.A., and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus
1.00%
or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs. The initial applicable margin for borrowings under the 2012 ABL Revolver is
1.75%
with respect to LIBOR borrowings and
0.75%
with respect to base-rate borrowings. The applicable margin for borrowings under the 2012 ABL Revolver may be increased to
2.00%
or
2.25%
for LIBOR borrowings and
1.00%
or
1.25%
for base-rate borrowings, depending on average excess availability under the 2012 ABL Revolver during the prior fiscal quarter. In addition to paying interest on outstanding principal under the 2012 ABL Revolver, we are required to pay a commitment fee to the lenders under the 2012 ABL Revolver in respect of the unutilized commitments thereunder. The initial commitment fee rate is
0.50%
per annum. The commitment fee rate will be reduced to
0.375%
per annum at any time when the average daily unused commitments for the prior quarter is less than a percentage of total commitments by an amount set forth in the credit agreement covering the 2012 ABL Revolver. We may voluntarily repay outstanding loans under the 2012 ABL Revolver at any time without a premium or penalty.
On May 8, 2015, we entered into Amendment No. 3 (the "Term Loan Amendment No. 3") to the 2012 Term Loan. Term Loan Amendment No. 3 provides for (i) the creation of a new class of Term B-3 Loans under the 2012 Term Loan (the "Term B-3 Loans") in an aggregate principal amount of
$852.5 million
, which combined the outstanding balances of the Term B-1 Loans of
$207.5 million
and the Term B-2 Loans of
$645.0 million
, (ii) increased flexibility under the credit agreement governing the 2012 Term Loan, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant
91
relief, and (iii) an interest rate on the Term B-3 Loans that is based, at the Borrower’s option, on a LIBOR rate plus a margin of
2.75%
per annum, with a LIBOR floor of
0.75%
, or an alternate base rate, with a floor of
1.75%
, plus a margin. The maturity date of the Term B-3 Loans remains the same as the Term B-2 Loans' original maturity date of September 3, 2021.
The 2012 Term Loan, as amended, bears interest at a rate per annum equal to an applicable margin plus, at our option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus
0.50%
, (b) the prime rate of Citibank, N.A., (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus
1.00%
and (d) a floor of
1.75%
or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, with a floor of
0.75%
. For the year ended
March 31, 2016
, the average interest rate on the 2012 Term Loan was
4.4%
.
Under the 2012 Term Loan, the Borrower was originally required to make quarterly payments each equal to
0.25%
of the original principal amount of the 2012 Term Loan, with the balance expected to be due on the seventh anniversary of the closing date. However, since the Borrower has previously made significant optional payments that exceeded all of our required quarterly payments, the Borrower will not be required to make another payment until the maturity date of March 31, 2019.
On June 9, 2015, we entered into Amendment No. 4 (“ABL Amendment No. 4”) to the 2012 ABL Revolver. ABL Amendment No. 4 provides for (i) a
$35.0 million
increase in the accordion feature under the 2012 ABL Revolver and (ii) increased flexibility under the credit agreement governing the 2012 ABL Revolver, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant relief and (iii) extended the maturity date of the 2012 ABL Revolver to June 9, 2020, which is five years from the effective date. We may voluntarily repay outstanding loans under the 2012 ABL Revolver at any time without a premium or penalty. For the year ended March 31, 2016, the average interest rate on the amounts borrowed under the 2012 ABL Revolver was
2.1%
.
In connection with the Bridge Credit Agreement (discussed below) and DenTek acquisition on February 5, 2016, we entered into Amendment No. 5 (the “ABL Amendment No. 5”) to the 2012 ABL Revolver. ABL Amendment No. 5 temporarily suspends certain financial and related reporting covenants in the 2012 ABL Revolver until the earliest of (i) the date that is
60
calendar days following February 4, 2016, (ii) the date upon which certain of DenTek’s assets are included in the Company’s borrowing base under the 2012 ABL Revolver and (iii) the date upon which the Company receives net proceeds from an offering of debt securities.
2013 Senior Notes:
On December 17, 2013, the Borrower issued
$400.0 million
of senior unsecured notes, with an interest rate of
5.375%
and a maturity date of December 15, 2021 (the "2013 Senior Notes"). The Borrower may redeem some or all of the 2013 Senior Notes at redemption prices set forth in the indenture governing the 2013 Senior Notes. The 2013 Senior Notes are guaranteed by Prestige Brands Holdings, Inc. and certain of its
100%
domestic owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company. In connection with the 2013 Senior Notes offering, we incurred
$7.2 million
of costs, which were capitalized as deferred financing costs and are being amortized over the term of the 2013 Senior Notes.
2016 Bridge Term Loans:
On February 4, 2016, Prestige Brands Holdings, Inc. and the Borrower, entered into a bridge credit agreement. The Bridge Credit Agreement provides for term loans in an aggregate principal amount of
$80.0 million
(the “Bridge Term Loans”), at an applicable interest rate margin equal to (i) for the period beginning on the closing date and ending on the 179th day following the closing date,
4.75%
for Eurocurrency rate loans and
3.75%
for base rate loans, (ii) for the period from and including the 180th day following the closing date and ending on the 269th day following the closing date,
5.00%
for Eurocurrency rate loans and
4.00%
for base rate loans, and (iii) for the period from and after the 270th day following the closing date,
5.25%
for Eurocurrency rate loans and
4.25%
for base rate loans. The Bridge Term Loans would have matured on February 2, 2017. The proceeds were used to partially fund the acquisition of DenTek. However, as of March 31, 2016, there were
no
outstanding balances as the Company used the net proceeds from the 2016 Senior Notes issuance (discussed below) to repay all of these Bridge Term Loans on February 19, 2016. In connection with the repayment of the Bridge Loan on February 19, 2016, we expensed
$1.9 million
of unamortized debt issuance costs which were classified as interest expense.
2016 Senior Notes:
On February 19, 2016, the Borrower completed the sale of
$350.0 million
aggregate principal amount of
6.375%
senior notes due 2024 (the “2016 Senior Notes”), pursuant to a purchase agreement, dated February 16, 2016, among the Borrower, the guarantors party thereto (the “Guarantors”) and the initial purchasers party thereto. The 2016 Senior Notes are guaranteed by Prestige Brands Holdings, Inc. and certain of its domestic
100%
owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the Guarantors to obtain funds from their subsidiaries or
92
to make payments to the Borrower or the Company. In connection with the 2016 Senior Notes offering, we incurred
$5.5 million
of costs, which were capitalized as deferred financing costs and are being amortized over the term of the 2016 Senior Notes. The proceeds were used to redeem the 2012 Senior Notes and repay the Bridge Term Loans that were utilized to partially fund the acquisition of DenTek.
The 2016 Senior Notes were issued pursuant to an indenture, dated February 19, 2016 (the “Indenture”). The Indenture provides, among other things, that interest will be payable on the 2016 Senior Notes on March 1 and September 1 of each year, beginning on September 1, 2016, until their maturity date of March 1, 2024. The 2016 Senior Notes are senior unsecured obligations of the Borrower.
Redemptions and Restrictions:
On February 19, 2016, the Company used the net proceeds from the 2016 Senior Notes issuance to redeem all of the 2012 Senior Notes at a redemption price equal to
104.063%
, plus accrued and unpaid interest, and repay all of the Bridge Term Loans.
At any time prior to December 15, 2016, have the option to redeem the 2013 Senior Notes in whole or in part at a redemption price equal to
100%
of the principal amount of notes redeemed, plus an applicable "make-whole premium" calculated as set forth in the indenture governing the 2013 Senior Notes, together with accrued and unpaid interest, if any, to the date of redemption. On or after December 15, 2016, we have have the option to redeem some or all of the 2013 Senior Notes at redemption prices set forth in the indenture governing the 2013 Senior Notes. In addition, at any time prior to December 15, 2016, we have to the option to redeem up to
35%
of the aggregate principal amount of the 2013 Senior Notes at a redemption price equal to
105.375%
of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of certain equity offerings, provided that certain conditions are met. Subject to certain limitations, in the event of a change of control, as defined in the indenture governing the 2013 Senior Notes, the Borrower will be required to make an offer to purchase the 2013 Senior Notes at a price equal to
101%
of the aggregate principal amount of the 2013 Senior Notes repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.
The Borrower has the option to redeem all or a portion of the 2016 Senior Notes at any time on or after March 1, 2019 at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any. The Borrower may also redeem all or any portion of the 2016 Senior Notes at any time prior to March 1, 2019, at a price equal to
100%
of the aggregate principal amount thereof, plus a make-whole premium and accrued and unpaid interest, if any. In addition, before March 1, 2019, the Borrower may redeem up to
40%
of the aggregate principal amount of the 2016 Senior Notes with the net proceeds of certain equity offerings at the redemption price set forth in the Indenture, provided that certain conditions are met. Subject to certain limitations, in the event of a change of control (as defined in the Indenture), the Borrower will be required to make an offer to purchase the 2016 Senior Notes at a price equal to
101%
of the aggregate principal amount of the notes repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.
The indentures governing the 2013 Senior Notes and the 2016 Senior Notes contain provisions that restrict us from undertaking specified corporate actions, such as asset dispositions, acquisitions, dividend payments, repurchases of common shares outstanding, changes of control, incurrences of indebtedness, issuance of equity, creation of liens, making of loans and transactions with affiliates. Additionally, the credit agreement with respect to the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2013 Senior Notes and the 2016 Senior Notes contain cross-default provisions, whereby a default pursuant to the terms and conditions of certain indebtedness will cause a default on the remaining indebtedness under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2013 Senior Notes and the 2016 Senior Notes. At March 31, 2016, we were in compliance with the covenants under our long-term indebtedness.
Effective April 1, 2015, the Company elected to change its method of presentation relating to debt issuance costs in accordance with ASU 2015-03. Prior to 2016, the Company's policy was to present these costs in other-long term assets on the balance sheet, net of accumulated amortization. Beginning in 2016, the Company has presented these fees as a direct deduction to the related long-term debt. As a result, we reclassified
$27.4 million
of deferred financing costs as of March 31, 2015 from other long-term assets, and such costs are now presented as a direct deduction from the long-term debt liability.
At March 31, 2016, we had an aggregate of
$1.3 million
of unamortized debt costs related to the 2012 ABL Revolver, and
$27.2 million
of unamortized debt costs, the total of which is comprised of
$5.4 million
related to the 2013 Senior Notes,
$5.4 million
related to the 2016 Senior Notes, and
$16.4 million
related to the 2012 Term Loan.
At March 31, 2015 we had an aggregate of
$1.2 million
of unamortized debt costs related to the 2012 ABL Revolver, and
$32.3 million
of unamortized debts costs, the total of which is comprised of
$8.7 million
related to the 2012 Senior Notes,
$6.2 million
related to the 2013 Senior Notes, and
$17.4 million
related to the 2012 Term Loan.
93
At March 31, 2016, we had
$85.0 million
outstanding on the 2012 ABL Revolver and a borrowing capacity of
$37.9 million
.
Long-term debt consists of the following, as of the dates indicated:
|
(In thousands, except percentages)
|
March 31,
2016 |
March 31,
2015 |
||||||
|
2016 Senior Notes bearing interest at 6.375%, with interest payable on March 1 and September 1 of each year. The 2016 Senior Notes mature on March 1, 2024.
|
350,000
|
|
—
|
|
||||
|
2013 Senior Notes bearing interest at 5.375%, with interest payable on June 15 and December 15 of each year. The 2013 Senior Notes mature on December 15, 2021.
|
400,000
|
|
400,000
|
|
||||
|
2012 Senior Notes bearing interest at 8.125%, with interest payable on February 1 and August 1 of each year. The 2012 Senior Notes mature on February 1, 2020.
|
—
|
|
250,000
|
|
||||
|
2012 Term B-3 Loans bearing interest at the Borrower's option at either a base rate with a floor of 1.75% plus applicable margin or LIBOR with a floor of 0.75% plus applicable margin, due on September 3, 2021.
|
817,500
|
|
877,500
|
|
||||
|
2012 ABL Revolver bearing interest at the Borrower's option at either a base rate plus applicable margin or LIBOR plus applicable margin. Any unpaid balance is due on June 9, 2020.
|
85,000
|
|
66,100
|
|
||||
|
Total long-term debt (including current portion)
|
1,652,500
|
|
1,593,600
|
|
||||
|
Current portion of long-term debt
|
—
|
|
—
|
|
||||
|
Long-term debt
|
1,652,500
|
|
1,593,600
|
|
||||
|
Less: unamortized debt costs
|
(27,191
|
)
|
(32,327
|
)
|
||||
|
Long-term debt, net
|
$
|
1,625,309
|
|
$
|
1,561,273
|
|
||
As of March 31, 2016, aggregate future principal payments required in accordance with the terms of the 2012 Term Loan, 2012 ABL Revolver and the indentures governing the 2016 Senior Notes and the 2013 Senior Notes are as follows:
|
(In thousands)
|
||||
|
Year Ending March 31,
|
Amount
|
|||
|
2017
|
$
|
—
|
|
|
|
2018
|
—
|
|
||
|
2019
|
—
|
|
||
|
2020
|
5,494
|
|
||
|
2021
|
93,525
|
|
||
|
Thereafter
|
1,553,481
|
|
||
|
$
|
1,652,500
|
|
||
10. Fair Value Measurements
For certain of our financial instruments, including cash, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their respective fair values due to the relatively short maturity of these amounts.
The Fair Value Measurements and Disclosures topic of the FASB ASC 820 requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market assuming an orderly transaction between market participants. The Fair Value Measurements and Disclosures topic established market (observable inputs) as the preferred source of fair value, to be followed by the Company's assumptions of fair value based on hypothetical transactions (unobservable inputs) in the absence of observable market inputs. Based upon the above, the following fair value hierarchy was created:
Level 1 - Quoted market prices for identical instruments in active markets;
Level 2 - Quoted prices for similar instruments in active markets, as well as quoted prices for identical or similar instruments in markets that are not considered active; and
Level 3 - Unobservable inputs developed by the Company using estimates and assumptions reflective of those that would be utilized by a market participant.
94
The market values have been determined based on market values for similar instruments adjusted for certain factors. As such, the 2016 Senior Notes, the 2013 Senior Notes, the 2012 Senior Notes, the Term B-3 loans, and the 2012 ABL Revolver are measured in Level 2 of the above hierarchy (see summary below detailing the carrying amounts and estimated fair values of these borrowings at March 31, 2016 and 2015).
|
March 31, 2016
|
March 31, 2015
|
|||||||||||||||
|
(In thousands)
|
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
||||||||||||
|
2016 Senior Notes
|
$
|
350,000
|
|
$
|
363,125
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
2013 Senior Notes
|
400,000
|
|
408,000
|
|
400,000
|
|
405,000
|
|
||||||||
|
2012 Senior Notes
|
—
|
|
—
|
|
250,000
|
|
268,100
|
|
||||||||
|
Term B-3 Loans
|
817,500
|
|
818,522
|
|
877,500
|
|
880,500
|
|
||||||||
|
2012 ABL Revolver
|
85,000
|
|
85,000
|
|
66,100
|
|
65,700
|
|
||||||||
At March 31, 2016 and 2015, we did not have any assets or liabilities measured in Level 1 or 3. During 2016, 2015 and 2014, there were no transfers of assets or liabilities between Levels 1, 2 and 3.
11. Stockholders' Equity
The Company is authorized to issue
250.0 million
shares of common stock,
$0.01
par value per share, and
5.0 million
shares of preferred stock,
$0.01
par value per share. The Board of Directors may direct the issuance of the undesignated preferred stock in one or more series and determine preferences, privileges and restrictions thereof.
Each share of common stock has the right to
one
vote on all matters submitted to a vote of stockholders. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to prior rights of holders of all classes of stock outstanding having priority rights as to dividends.
No
dividends have been declared or paid on the Company's common stock through March 31, 2016.
Pursuant to the provisions of various employee restricted stock awards, we repurchased
40,316
shares and
59,933
shares of restricted common stock from our employees during the years ended March 31, 2016 and 2015, respectively. The repurchases during the years ended March 31, 2016 and 2015 were at an average price of
$41.80
and
$34.16
, respectively. All of the repurchased shares have been recorded as treasury stock.
95
12. Earnings Per Share
Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted-average number of shares of common stock outstanding plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method, which includes stock options, and restricted stock units. The following table sets forth the computation of basic and diluted earnings per share:
|
Year Ended March 31,
|
|||||||||||
|
(In thousands, except per share data)
|
2016
|
2015
|
2014
|
||||||||
|
Numerator
|
|
|
|
||||||||
|
Net income
|
$
|
99,907
|
|
$
|
78,260
|
|
$
|
72,615
|
|
||
|
Denominator
|
|
|
|
|
|
||||||
|
Denominator for basic earnings per share- weighted average shares outstanding
|
52,754
|
|
52,170
|
|
51,641
|
|
|||||
|
Dilutive effect of unvested restricted stock units and options issued to employees and directors
|
389
|
|
500
|
|
708
|
|
|||||
|
Denominator for diluted earnings per share
|
53,143
|
|
52,670
|
|
52,349
|
|
|||||
|
Earnings per Common Share:
|
|
|
|
|
|
||||||
|
Basic net earnings per share
|
$
|
1.89
|
|
$
|
1.50
|
|
$
|
1.41
|
|
||
|
Diluted net earnings per share
|
$
|
1.88
|
|
$
|
1.49
|
|
$
|
1.39
|
|
||
For 2016, 2015, and 2014 there were less than
0.1 million
,
0.3 million
, and
0.2 million
shares, respectively, attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
13. Share-Based Compensation
In connection with our initial public offering, the Board of Directors adopted the 2005 Long-Term Equity Incentive Plan (the “Plan”), which provides for grants of up to a maximum of
5.0 million
shares of restricted stock, stock options, restricted stock units and other equity-based awards. In June 2014, the Board of Directors approved, and in July 2014, the stockholders ratified, an increase of an additional
1.8 million
shares of our common stock for issuance under the Plan, increased the maximum number of shares subject to stock options that may be awarded to any one participant under the Plan during any 12-month period from
1.0 million
to
2.5 million
shares and extended the term of the Plan by
ten
years, to February 2025. Directors, officers and other employees of the Company and its subsidiaries, as well as others performing services for the Company, are eligible for grants under the Plan.
During 2016, pre-tax share-based compensation costs charged against income and the related income tax benefit recognized were
$10.0 million
and
$3.5 million
, respectively.
During 2015, pre-tax share-based compensation costs charged against income and the related income tax benefit recognized were
$6.9 million
and
$1.9 million
, respectively.
During 2014, pre-tax share-based compensation costs charged against income and the related income tax benefit recognized were
$5.1 million
and
$1.5 million
, respectively.
On April 22, 2015, we announced that Matthew M. Mannelly, our President and Chief Executive Officer and member of the Board of Directors, would retire effective June 1, 2015. In conjunction with his retirement, the Board of Directors accelerated the vesting of his previously unvested restricted stock units and stock options, and we recorded additional compensation expense of approximately
$0.8 million
associated with this acceleration. Effective June 1, 2015, the Board of Directors appointed Ron M. Lombardi, our then current Chief Financial Officer, to succeed Mr. Mannelly as President and Chief Executive Officer and as a member of the Board of Directors. In connection with his appointment, Mr. Lombardi was granted
57,924
restricted stock units on April 22, 2015.
96
On October 28, 2015, we announced that David S. Marberger has been appointed as Chief Financial Officer of the Company, effective November 10, 2015. In connection with Mr. Marberger’s appointment as Chief Financial Officer, on October 28, 2015, the Company entered into an employment agreement with Mr. Marberger, which sets forth the terms of his compensation as approved by the Compensation Committee of the Board of Directors. In accordance with the terms of his employment agreement, on October 28, 2015, the Company granted to Mr. Marberger
6,612
shares of restricted stock units and stock options to acquire
8,079
shares of our common stock under the Plan. The restricted stock units vest in their entirety on the
three
-year anniversary of the date of grant. Upon vesting, the units will be settled in shares of our common stock. The stock options will vest
33.3%
per year over
three
years and are exercisable for up to
ten
years from the date of grant. These stock options were granted at an exercise price of
$50.42
per share, which is equal to the closing price of our common stock on the date of grant.
On May 11, 2015, the Compensation Committee of our Board of Directors (the "Compensation Committee") granted
185,904
restricted stock units and stock options to acquire
186,302
shares of our common stock to certain executive officers and employees under the Plan. Of those grants,
163,404
restricted stock units vest in their entirety on the
three
-year anniversary of the date of grant and
22,500
restricted stock units vest
33.3%
per year over
three
years. Upon vesting, the units will be settled in shares of our common stock. The stock options vest
33.3%
per year over
three
years and are exercisable for up to
ten
years from the date of grant. These stock options were granted at an exercise price of
$41.44
per share, which is equal to the closing price of our common stock on the date of grant. On July 1, 2015, the Compensation Committee granted
2,841
restricted stock units, which vest on the
three
-year anniversary of the date of grant, and stock options to acquire
13,861
shares of our common stock to certain employees under the Plan. The stock options vest
33.3%
per year over
three
years and are exercisable for up to
ten
years from the date of grant. These stock options were granted at an exercise price of
$46.58
per share, which is equal to the closing price of our common stock on the date of grant.
Restricted Shares
Restricted shares granted to employees under the Plan generally vest in
three
to
five years
, primarily upon the attainment of certain time vesting thresholds, and may also be contingent on the attainment of certain performance goals of the Company, including revenue and earnings before income taxes, depreciation and amortization targets. The restricted share awards provide for accelerated vesting if there is a change of control, as defined in the Plan. The restricted stock units granted to employees generally vest in their entirety on the
three
-year anniversary of the date of the grant. Termination of employment prior to vesting will result in forfeiture of the restricted stock units. The restricted stock units granted to directors will vest in their entirety
one
year after the date of grant so long as the membership on the Board of Directors continues through the vesting date, with the settlement in common stock to occur on the earliest of the director's death, disability or
six
-month anniversary of the date on which the director's Board membership ceases for reasons other than death or disability. Upon vesting, the units will be settled in shares of our common stock.
Each of our
six
independent members of the Board of Directors received a grant of
2,075
restricted stock units on August 4, 2015 under the Plan. Additionally, on May 11, 2015, the Compensation Committee granted
362
restricted stock units to a newly appointed Board member. The restricted stock units vest on the
one
year anniversary of the date of grant and will be settled by delivery to the director of
one
share of common stock of the Company for each vested restricted stock unit promptly following the earliest of the director's (i) death, (ii) disability or (iii) the
six
-month anniversary of the date on which the director's Board membership ceases for reasons other than death or disability.
The fair value of the restricted stock units is determined using the closing price of our common stock on the day of the grant. The weighted-average grant-date fair value during 2016, 2015, and 2014 was
$42.41
,
$33.33
and
$30.19
, respectively.
97
A summary of the Company’s restricted shares granted under the Plan is presented below:
|
Restricted Shares
|
Shares
(in thousands)
|
Weighted-Average
Grant-Date
Fair Value
|
|||||
|
Vested and Nonvested at March 31, 2013
|
421.3
|
|
$
|
11.01
|
|
||
|
Granted
|
126.6
|
|
30.19
|
|
|||
|
Vested and issued
|
(104.8
|
)
|
9.98
|
|
|||
|
Forfeited
|
(5.6
|
)
|
15.11
|
|
|||
|
Vested and nonvested at March 31, 2014
|
437.5
|
|
16.76
|
|
|||
|
Vested at March 31, 2014
|
69.6
|
|
9.34
|
|
|||
|
Granted
|
106.9
|
|
33.33
|
|
|||
|
Vested and issued
|
(154.4
|
)
|
13.37
|
|
|||
|
Forfeited
|
(27.7
|
)
|
21.45
|
|
|||
|
Vested and nonvested at March 31, 2015
|
362.3
|
|
22.74
|
|
|||
|
Vested at March 31, 2015
|
76.6
|
|
11.62
|
|
|||
|
Granted
|
266.1
|
|
42.41
|
|
|||
|
Vested and issued
|
(155.6
|
)
|
18.31
|
|
|||
|
Forfeited
|
(5.0
|
)
|
39.61
|
|
|||
|
Vested and nonvested at March 31, 2016
|
467.8
|
|
35.22
|
|
|||
|
Vested at March 31, 2016
|
69.8
|
|
14.76
|
|
|||
Options
The Plan provides that the exercise price of options granted shall be no less than the fair market value of the Company's common stock on the date the options are granted. Options granted have a term of no greater than
ten years
from the date of grant and vest in accordance with a schedule determined at the time the option is granted, generally
three
to
five years
. The option awards provide for accelerated vesting in the event of a change in control, as defined in the Plan. Termination of employment prior to vesting will result in forfeiture of the unvested stock options. Vested stock options will remain exercisable by the employee after termination of employment, subject to the terms of the Plan.
The fair value of each option award is estimated on the date of grant using the Black-Scholes Option Pricing Model that uses the assumptions noted in the table below. Expected volatilities are based on the historical volatility of our common stock and other factors, including the historical volatilities of comparable companies. We use appropriate historical data, as well as current data, to estimate option exercise and employee termination behaviors. Employees that are expected to exhibit similar exercise or termination behaviors are grouped together for the purposes of valuation. The expected terms of the options granted are derived from our historical experience, management’s estimates, and consideration of information derived from the public filings of companies similar to us, and represent the period of time that options granted are expected to be outstanding. The risk-free rate represents the yield on U.S. Treasury bonds with a maturity equal to the expected term of the granted options.
The weighted-average grant-date fair values of the options granted during 2016, 2015, and 2014 were
$17.24
,
$15.95
, and
$13.94
, respectively.
|
|
Year Ended March 31,
|
|||||||
|
|
2016
|
2015
|
2014
|
|||||
|
Expected volatility
|
40.2
|
%
|
47.3
|
%
|
48.0
|
%
|
||
|
Expected dividends
|
—
|
|
—
|
|
—
|
|
||
|
Expected term in years
|
6.0
|
|
6.0
|
|
6.0
|
|
||
|
Risk-free rate
|
1.7
|
%
|
2.2
|
%
|
1.3
|
%
|
||
98
A summary of option activity under the Plan is as follows:
|
Options
|
Shares
(in thousands)
|
Weighted-Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual Term
|
Aggregate
Intrinsic
Value
(in thousands)
|
|||||||||
|
Outstanding at March 31, 2013
|
1,386.4
|
|
$
|
10.43
|
|
||||||||
|
Granted
|
227.7
|
|
29.94
|
|
|||||||||
|
Exercised
|
(605.0
|
)
|
9.76
|
|
|||||||||
|
Forfeited or expired
|
(14.2
|
)
|
14.56
|
|
|||||||||
|
Outstanding at March 31, 2014
|
994.9
|
|
15.24
|
|
|||||||||
|
Granted
|
317.9
|
|
33.54
|
|
|||||||||
|
Exercised
|
(386.3
|
)
|
10.24
|
|
|||||||||
|
Forfeited or expired
|
(55.3
|
)
|
26.77
|
|
|||||||||
|
Outstanding at March 31, 2015
|
871.2
|
|
23.40
|
|
|||||||||
|
Granted
|
208.2
|
|
42.13
|
|
|||||||||
|
Exercised
|
(348.0
|
)
|
19.22
|
|
|||||||||
|
Forfeited or expired
|
(3.7
|
)
|
35.72
|
|
|||||||||
|
Outstanding at March 31, 2016
|
727.7
|
|
30.70
|
|
7.6
|
$
|
16,512
|
|
|||||
|
Exercisable at March 31, 2016
|
308.4
|
|
21.75
|
|
6.5
|
9,756
|
|
||||||
The aggregate intrinsic value of options exercised during 2016, 2015 and 2014 was
$8.6 million
,
$9.3 million
and
$14.0 million
, respectively.
At March 31, 2016, there were
$10.1 million
of unrecognized compensation costs related to nonvested share-based compensation arrangements under the Plan, based on management’s estimate of the shares that will ultimately vest. We expect to recognize such costs over a weighted-average period of
1.0
years. The total fair value of options and restricted shares vested during 2016, 2015, and 2014 was
$7.0 million
,
$4.7 million
and
$3.4 million
, respectively. Cash received from the exercise of stock options was
$6.7 million
during 2016, and we realized
$2.1 million
in tax benefits for the tax deductions resulting from option exercises in 2016. Cash received from the exercise of stock options was
$4.0 million
during 2015, and we realized
$2.2 million
in tax benefits for the tax deductions resulting from option exercises in 2015. Cash received from the exercise of stock options was
$5.9 million
during 2014, and we realized
$1.7 million
in tax benefits for the tax deductions from option exercises in 2014. At March 31, 2016, there were
2.6 million
shares available for issuance under the Plan.
99
|
14.
|
Accumulated Other Comprehensive Loss
|
The table below presents accumulated other comprehensive loss (“AOCI”), which affects equity and results from recognized transactions and other economic events, other than transactions with owners in their capacity as owners.
AOCI consisted of the following at March 31, 2016 and 2015:
|
March 31,
|
March 31,
|
||||||
|
(In thousands)
|
2016
|
|
2015
|
||||
|
Components of Accumulated Other Comprehensive Loss
|
|
||||||
|
Cumulative translation adjustment
|
$
|
(23,525
|
)
|
|
$
|
(23,412
|
)
|
|
Accumulated other comprehensive loss, net of tax
|
$
|
(23,525
|
)
|
|
$
|
(23,412
|
)
|
15. Income Taxes
Income before income taxes consists of the following:
|
Year Ended March 31,
|
|||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
(In thousands)
|
|
|
|||||||||
|
United States
|
$
|
142,253
|
|
$
|
122,588
|
|
$
|
98,786
|
|
||
|
Foreign
|
14,932
|
|
4,870
|
|
2,962
|
|
|||||
|
$
|
157,185
|
|
$
|
127,458
|
|
$
|
101,748
|
|
|||
The provision for income taxes consists of the following:
|
Year Ended March 31,
|
|||||||||||
|
(In thousands)
|
2016
|
2015
|
2014
|
||||||||
|
Current
|
|
|
|
||||||||
|
Federal
|
$
|
6,080
|
|
$
|
13,066
|
|
$
|
7,801
|
|
||
|
State
|
1,171
|
|
760
|
|
625
|
|
|||||
|
Foreign
|
3,905
|
|
3,228
|
|
1,675
|
|
|||||
|
Deferred
|
|
|
|
|
|
||||||
|
Federal
|
44,787
|
|
31,012
|
|
27,045
|
|
|||||
|
State
|
1,678
|
|
1,162
|
|
(7,879
|
)
|
|||||
|
Foreign
|
(343
|
)
|
(30
|
)
|
(134
|
)
|
|||||
|
Total provision for income taxes
|
$
|
57,278
|
|
$
|
49,198
|
|
$
|
29,133
|
|
||
100
The principal components of our deferred tax balances are as follows:
|
March 31,
|
|||||||
|
(In thousands)
|
2016
|
2015
|
|||||
|
Deferred Tax Assets
|
|
|
|||||
|
Allowance for doubtful accounts and sales returns
|
$
|
5,083
|
|
$
|
4,106
|
|
|
|
Inventory capitalization
|
1,838
|
|
1,550
|
|
|||
|
Inventory reserves
|
1,367
|
|
1,495
|
|
|||
|
Net operating loss carryforwards
|
12,350
|
|
23,800
|
|
|||
|
State income taxes
|
10,293
|
|
7,557
|
|
|||
|
Accrued liabilities
|
2,162
|
|
619
|
|
|||
|
Stock compensation
|
4,411
|
|
3,517
|
|
|||
|
Other
|
300
|
|
834
|
|
|||
|
Total deferred tax assets
|
37,804
|
|
43,478
|
|
|||
|
Deferred Tax Liabilities
|
|
|
|
||||
|
Property and equipment
|
(833
|
)
|
(1,143
|
)
|
|||
|
Intangible assets
|
(496,485
|
)
|
(385,807
|
)
|
|||
|
Total deferred tax liabilities
|
(497,318
|
)
|
(386,950
|
)
|
|||
|
Net deferred tax liability
|
$
|
(459,514
|
)
|
$
|
(343,472
|
)
|
|
At March 31, 2016, a
100%
owned subsidiary of the Company had a net operating loss carryforward of approximately
$32.0 million
(
$11.2 million
, tax effected), which may be used to offset future taxable income of the consolidated group and begins to expire in 2025. The Company expects to fully utilize the loss carryover before it expires. The net operating loss carryforward is subject to an annual limitation as to usage under Internal Revenue Code Section 382 of approximately
$33.0 million
.
A reconciliation of the effective tax rate compared to the statutory U.S. Federal tax rate is as follows:
|
|
Year Ended March 31,
|
|||||||||||||||||||
|
2016
|
2015
|
2014
|
||||||||||||||||||
|
(In thousands)
|
|
%
|
|
|
%
|
|
|
%
|
|
|||||||||||
|
Income tax provision at statutory rate
|
$
|
55,015
|
|
35.0
|
|
$
|
44,610
|
|
35.0
|
|
$
|
35,612
|
|
35.0
|
|
|||||
|
Foreign tax benefit
|
(2,894
|
)
|
(1.8
|
)
|
(2,019
|
)
|
(1.6
|
)
|
(918
|
)
|
(0.9
|
)
|
||||||||
|
State income taxes, net of federal income tax benefit
|
3,284
|
|
2.0
|
|
2,865
|
|
2.3
|
|
2,004
|
|
2.0
|
|
||||||||
|
Decrease in net deferred tax liability resulting from a change in the effective state tax rate
|
—
|
|
—
|
|
—
|
|
—
|
|
(8,892
|
)
|
(8.7
|
)
|
||||||||
|
Goodwill adjustment for sale of asset
|
—
|
|
—
|
|
206
|
|
0.2
|
|
—
|
|
—
|
|
||||||||
|
Nondeductible transaction costs
|
1,071
|
|
0.7
|
|
2,936
|
|
2.3
|
|
—
|
|
—
|
|
||||||||
|
Nondeductible compensation
|
758
|
|
0.5
|
|
566
|
|
0.4
|
|
1,011
|
|
1.0
|
|
||||||||
|
Other
|
44
|
|
—
|
|
34
|
|
—
|
|
316
|
|
0.3
|
|
||||||||
|
Total provision for income taxes
|
$
|
57,278
|
|
36.4
|
|
$
|
49,198
|
|
38.6
|
|
$
|
29,133
|
|
28.7
|
|
|||||
Uncertain tax liability activity is as follows:
101
|
|
2016
|
2015
|
2014
|
||||||||
|
(In thousands)
|
|
|
|||||||||
|
Balance – beginning of year
|
$
|
3,420
|
|
$
|
1,236
|
|
$
|
1,016
|
|
||
|
Additions based on tax positions related to the current year
|
664
|
|
2,229
|
|
360
|
|
|||||
|
Reductions based on lapse of statute of limitations
|
—
|
|
(45
|
)
|
(140
|
)
|
|||||
|
Balance – end of year
|
$
|
4,084
|
|
$
|
3,420
|
|
$
|
1,236
|
|
||
We recognize interest and penalties related to uncertain tax positions as a component of income tax expense. We did not incur any material interest or penalties related to income taxes in 2014, 2015 or 2016. The amount of unrecognized tax benefits at March 31, 2016, 2015, and 2014 was
$4.1 million
,
$3.4 million
, and
$1.2 million
, respectively, which would reduce the effective tax rate by
2.6%
,
2.7%
, and
1.2%
, respectively, if recognized. We do not anticipate any events or circumstances that would cause a significant change to these uncertainties during 2017. We are subject to taxation in the United States and various state and foreign jurisdictions, and we are generally open to examination from the year ended March 31, 2013 forward.
The Company does not provide for United States income taxes on the undistributed earnings of foreign subsidiaries, which are intended to be indefinitely reinvested in operations outside of the United States. As of March 31, 2016, the cumulative amount of earnings upon which United States income taxes have not been provided is approximately
$27.8 million
. As of March 31, 2016, the amount of unrecognized deferred tax liability related to these earnings is estimated to be
$2.2 million
.
16. Commitments and Contingencies
We are involved from time to time in routine legal matters and other claims incidental to our business. We review outstanding claims and proceedings internally and with external counsel as necessary to assess probability and amount of potential loss. These assessments are re-evaluated at each reporting period and as new information becomes available to determine whether a reserve should be established or if any existing reserve should be adjusted. The actual cost of resolving a claim or proceeding ultimately may be substantially different than the amount of the recorded reserve. In addition, because it is not permissible under GAAP to establish a litigation reserve until the loss is both probable and estimable, in some cases there may be insufficient time to establish a reserve prior to the actual incurrence of the loss (upon verdict and judgment at trial, for example, or in the case of a quickly negotiated settlement). We believe the resolution of routine legal matters and other claims incidental to our business, taking our reserves into account, will not have a material adverse effect on our business, financial condition, or results from operations.
Lease Commitments
We have operating leases for office facilities and equipment, including New York, Wyoming, and other locations, which expire at various dates through fiscal 2021. These amounts have been included in the table below.
The following summarizes future minimum lease payments for our operating leases
(a)
:
|
(In thousands)
|
Facilities
|
Equipment
|
Total
|
||||||||
|
Year Ending March 31,
|
|
|
|
||||||||
|
2017
|
$
|
1,923
|
|
$
|
77
|
|
$
|
2,000
|
|
||
|
2018
|
1,934
|
|
—
|
|
1,934
|
|
|||||
|
2019
|
1,926
|
|
—
|
|
1,926
|
|
|||||
|
2020
|
1,757
|
|
—
|
|
1,757
|
|
|||||
|
2021
|
817
|
|
—
|
|
817
|
|
|||||
|
|
$
|
8,357
|
|
$
|
77
|
|
$
|
8,434
|
|
||
(a) Minimum lease payments have not been reduced by minimum sublease rentals of
$1.2 million
due in the future under noncancelable subleases.
102
The following schedule shows the composition of total minimum lease payments that have been reduced by minimum sublease rentals:
|
Year ending March 31,
|
|||||||
|
(In thousands)
|
2016
|
2015
|
|||||
|
Minimum lease payments
|
$
|
8,434
|
|
$
|
9,957
|
|
|
|
Less: Sublease rentals
|
(1,165
|
)
|
(1,401
|
)
|
|||
|
|
$
|
7,269
|
|
$
|
8,556
|
|
|
Rent expense was
$1.8 million
,
$1.6 million
, and
$1.5 million
for 2016, 2015, and 2014, respectively.
Purchase Commitments
Effective November 1, 2009, we entered into a
ten
year supply agreement for the exclusive manufacture of a portion of one of our Household Cleaning products. Although we are committed under the supply agreement to pay the minimum amounts set forth in the table below, the total commitment is less than 10% of the estimated purchases that we expect to make during the course of the agreement.
|
(In thousands)
|
|
||
|
Year Ending March 31,
|
|||
|
2017
|
1,044
|
|
|
|
2018
|
1,013
|
|
|
|
2019
|
982
|
|
|
|
2020
|
560
|
|
|
|
2021
|
—
|
|
|
|
Thereafter
|
—
|
|
|
|
|
$
|
3,599
|
|
17. Concentrations of Risk
Our revenues are concentrated in the areas of OTC Healthcare and Household Cleaning products. We sell our products to mass merchandisers, food and drug stores, and dollar and club stores. During 2016, 2015, and 2014, approximately
41.9%
,
38.2%
, and
38.3%
, respectively, of our gross revenues were derived from our
five
top selling brands.
One
customer, Walmart, accounted for more than
10%
of our gross revenues for each of the periods presented. During 2016, 2015, and 2014, Walmart accounted for approximately
20.2%
,
18.1%
, and
19.5%
, respectively, of our gross revenues. Our next largest customer accounted for approximately
9.6%
of our gross revenues during 2016. At March 31, 2016, approximately
24.7%
and
10.4%
of accounts receivable were owed by Walmart and Walgreens, respectively.
We manage product distribution in the continental United States through a third-party distribution center in St. Louis, Missouri. A serious disruption, such as a flood or fire, to the main distribution center could damage our inventories and could materially impair our ability to distribute our products to customers in a timely manner or at a reasonable cost. We could incur significantly higher costs and experience longer lead times associated with the distribution of our products to our customers during the time that it takes us to reopen or replace our distribution center. As a result, any such disruption could have a material adverse effect on our business, sales and profitability.
At March 31, 2016, we had relationships with
119
third-party manufacturers. Of those, we had long-term contracts with
55
manufacturers that produced items that accounted for approximately
79.9%
of our gross sales for 2016, compared to
44
manufacturers with long-term contracts that accounted for approximately
82.9%
of gross sales in 2015. The fact that we do not have long-term contracts with certain manufacturers means that they could cease manufacturing our products at any time and for any reason or initiate arbitrary and costly price increases, which could have a material adverse effect on our business and results from operations. Although we are in the process of negotiating long-term contracts with certain key manufacturers, we may not be able to reach agreement which could have a material adverse effect on our business.
103
18. Business Segments
Segment information has been prepared in accordance with the Segment Reporting topic of FASB ASC 280. Our current reportable segments consist of (i) North American OTC Healthcare, (ii) International OTC Healthcare and (iii) Household Cleaning. We evaluate the performance of our operating segments and allocate resources to these segments based primarily on contribution margin, which we define as gross profit less advertising and promotional expenses.
The tables below summarize information about our operating and reportable segments.
|
|
Year Ended March 31, 2016
|
||||||||||||||
|
(In thousands)
|
North American OTC
Healthcare |
International OTC
Healthcare |
Household
Cleaning
|
Consolidated
|
|||||||||||
|
Gross segment revenues*
|
$
|
660,518
|
|
$
|
57,670
|
|
$
|
87,561
|
|
$
|
805,749
|
|
|||
|
Elimination of intersegment revenues
|
(2,661
|
)
|
—
|
|
—
|
|
(2,661
|
)
|
|||||||
|
Third-party segment revenues
|
657,857
|
|
57,670
|
|
87,561
|
|
803,088
|
|
|||||||
|
Other revenues*
|
14
|
|
43
|
|
3,102
|
|
3,159
|
|
|||||||
|
Total segment revenues
|
657,871
|
|
57,713
|
|
90,663
|
|
806,247
|
|
|||||||
|
Cost of sales
|
250,018
|
|
21,676
|
|
67,342
|
|
339,036
|
|
|||||||
|
Gross profit
|
407,853
|
|
36,037
|
|
23,321
|
|
467,211
|
|
|||||||
|
Advertising and promotion
|
97,393
|
|
11,114
|
|
2,295
|
|
110,802
|
|
|||||||
|
Contribution margin
|
$
|
310,460
|
|
$
|
24,923
|
|
$
|
21,026
|
|
356,409
|
|
||||
|
Other operating expenses
|
|
|
|
|
96,094
|
|
|||||||||
|
Operating income
|
|
|
|
|
260,315
|
|
|||||||||
|
Other expense
|
|
|
|
|
103,130
|
|
|||||||||
|
Income before income taxes
|
157,185
|
|
|||||||||||||
|
Provision for income taxes
|
|
|
|
|
57,278
|
|
|||||||||
|
Net income
|
$
|
99,907
|
|
||||||||||||
|
|
Year Ended March 31, 2015
|
||||||||||||||
|
(In thousands)
|
North American OTC
Healthcare |
International OTC
Healthcare |
Household
Cleaning |
Consolidated
|
|||||||||||
|
Gross segment revenues*
|
$
|
569,643
|
|
$
|
57,729
|
|
$
|
86,085
|
|
$
|
713,457
|
|
|||
|
Elimination of intersegment revenues
|
(3,387
|
)
|
—
|
|
—
|
|
(3,387
|
)
|
|||||||
|
Third-party segment revenues
|
566,256
|
|
57,729
|
|
86,085
|
|
710,070
|
|
|||||||
|
Other revenues
|
637
|
|
64
|
|
3,852
|
|
4,553
|
|
|||||||
|
Total segment revenues
|
566,893
|
|
57,793
|
|
89,937
|
|
714,623
|
|
|||||||
|
Cost of sales
|
216,781
|
|
22,820
|
|
68,799
|
|
308,400
|
|
|||||||
|
Gross profit
|
350,112
|
|
34,973
|
|
21,138
|
|
406,223
|
|
|||||||
|
Advertising and promotion
|
86,897
|
|
10,922
|
|
1,832
|
|
99,651
|
|
|||||||
|
Contribution margin
|
$
|
263,215
|
|
$
|
24,051
|
|
$
|
19,306
|
|
306,572
|
|
||||
|
Other operating expenses
|
|
|
|
|
99,013
|
|
|||||||||
|
Operating income
|
|
|
|
|
207,559
|
|
|||||||||
|
Other expense
|
|
|
|
|
80,101
|
|
|||||||||
|
Income before income taxes
|
127,458
|
|
|||||||||||||
|
Provision for income taxes
|
|
|
|
|
49,198
|
|
|||||||||
|
Net income
|
$
|
78,260
|
|
||||||||||||
104
|
|
Year Ended March 31, 2014
|
||||||||||||||
|
(In thousands)
|
North American OTC
Healthcare |
International OTC
Healthcare |
Household
Cleaning |
Consolidated
|
|||||||||||
|
Gross segment revenues*
|
$
|
485,323
|
|
$
|
26,687
|
|
$
|
83,629
|
|
$
|
595,639
|
|
|||
|
Elimination of intersegment revenues
|
(3,185
|
)
|
—
|
|
—
|
|
(3,185
|
)
|
|||||||
|
Third-party segment revenues
|
482,138
|
|
26,687
|
|
83,629
|
|
592,454
|
|
|||||||
|
Other revenues
|
749
|
|
42
|
|
4,136
|
|
4,927
|
|
|||||||
|
Total segment revenues
|
482,887
|
|
26,729
|
|
87,765
|
|
597,381
|
|
|||||||
|
Cost of sales
|
184,796
|
|
12,646
|
|
64,388
|
|
261,830
|
|
|||||||
|
Gross profit
|
298,091
|
|
14,083
|
|
23,377
|
|
335,551
|
|
|||||||
|
Advertising and promotion
|
77,083
|
|
5,264
|
|
2,621
|
|
84,968
|
|
|||||||
|
Contribution margin
|
$
|
221,008
|
|
$
|
8,819
|
|
$
|
20,756
|
|
250,583
|
|
||||
|
Other operating expenses
|
|
|
|
|
61,967
|
|
|||||||||
|
Operating income
|
|
|
|
|
188,616
|
|
|||||||||
|
Other expense
|
|
|
|
|
86,868
|
|
|||||||||
|
Income before income taxes
|
101,748
|
|
|||||||||||||
|
Provision for income taxes
|
|
|
|
|
29,133
|
|
|||||||||
|
Net income
|
$
|
72,615
|
|
||||||||||||
*Certain immaterial amounts relating to intersegment revenues and other revenues were reclassified between the International OTC Healthcare segment and the North American OTC Healthcare segment. There were no changes to the consolidated financial statements for any periods presented.
The tables below summarize information about our segment revenues from similar product groups.
|
Year Ended March 31, 2016
|
|||||||||||||||
|
(In thousands)
|
North American OTC
Healthcare |
International OTC
Healthcare |
Household
Cleaning |
Consolidated
|
|||||||||||
|
Analgesics
|
$
|
117,337
|
|
$
|
2,128
|
|
$
|
—
|
|
$
|
119,465
|
|
|||
|
Cough & Cold
|
100,148
|
|
16,422
|
|
—
|
|
116,570
|
|
|||||||
|
Women's Health
|
132,184
|
|
2,982
|
|
—
|
|
135,166
|
|
|||||||
|
Gastrointestinal
|
74,568
|
|
20,019
|
|
—
|
|
94,587
|
|
|||||||
|
Eye & Ear Care
|
95,515
|
|
11,983
|
|
—
|
|
107,498
|
|
|||||||
|
Dermatologicals
|
82,941
|
|
2,133
|
|
—
|
|
85,074
|
|
|||||||
|
Oral Care
|
49,099
|
|
2,026
|
|
—
|
|
51,125
|
|
|||||||
|
Other OTC
|
6,079
|
|
20
|
|
—
|
|
6,099
|
|
|||||||
|
Household Cleaning
|
—
|
|
—
|
|
90,663
|
|
90,663
|
|
|||||||
|
Total segment revenues
|
$
|
657,871
|
|
$
|
57,713
|
|
$
|
90,663
|
|
$
|
806,247
|
|
|||
105
|
Year Ended March 31, 2015
|
|||||||||||||||
|
(In thousands)
|
North American OTC
Healthcare |
International OTC
Healthcare |
Household
Cleaning |
Consolidated
|
|||||||||||
|
Analgesics
|
$
|
111,954
|
|
$
|
2,597
|
|
$
|
—
|
|
$
|
114,551
|
|
|||
|
Cough & Cold
|
103,686
|
|
18,080
|
|
—
|
|
121,766
|
|
|||||||
|
Women's Health
|
71,506
|
|
2,261
|
|
—
|
|
73,767
|
|
|||||||
|
Gastrointestinal
|
77,596
|
|
19,372
|
|
—
|
|
96,968
|
|
|||||||
|
Eye & Ear Care
|
85,236
|
|
12,689
|
|
—
|
|
97,925
|
|
|||||||
|
Dermatologicals
|
64,806
|
|
2,289
|
|
—
|
|
67,095
|
|
|||||||
|
Oral Care
|
45,916
|
|
483
|
|
—
|
|
46,399
|
|
|||||||
|
Other OTC
|
6,193
|
|
22
|
|
—
|
|
6,215
|
|
|||||||
|
Household Cleaning
|
—
|
|
—
|
|
89,937
|
|
89,937
|
|
|||||||
|
Total segment revenues
|
$
|
566,893
|
|
$
|
57,793
|
|
$
|
89,937
|
|
$
|
714,623
|
|
|||
|
Year Ended March 31, 2014
|
|||||||||||||||
|
(In thousands)
|
North American OTC
Healthcare |
International OTC
Healthcare |
Household
Cleaning |
Consolidated
|
|||||||||||
|
Analgesics
|
$
|
108,101
|
|
$
|
1,883
|
|
$
|
—
|
|
$
|
109,984
|
|
|||
|
Cough & Cold
|
100,060
|
|
13,365
|
|
—
|
|
113,425
|
|
|||||||
|
Women's Health
|
1,960
|
|
1,835
|
|
—
|
|
3,795
|
|
|||||||
|
Gastrointestinal
|
81,469
|
|
838
|
|
—
|
|
82,307
|
|
|||||||
|
Eye & Ear Care
|
78,753
|
|
6,738
|
|
—
|
|
85,491
|
|
|||||||
|
Dermatologicals
|
56,436
|
|
1,655
|
|
—
|
|
58,091
|
|
|||||||
|
Oral Care
|
47,900
|
|
413
|
|
—
|
|
48,313
|
|
|||||||
|
Other OTC
|
8,208
|
|
2
|
|
—
|
|
8,210
|
|
|||||||
|
Household Cleaning
|
—
|
|
—
|
|
87,765
|
|
87,765
|
|
|||||||
|
Total segment revenues
|
$
|
482,887
|
|
$
|
26,729
|
|
$
|
87,765
|
|
$
|
597,381
|
|
|||
During fiscal 2016, 2015, and 2014, approximately
87.4%
,
85.2%
, and
86.9%
, respectively, of our total segment revenues were from customers in the United States. Other than the United States, no individual geographical area accounted for more than 10% of total segment revenues in any of the periods presented. During fiscal 2016, 2015, and 2014, our Canada sales accounted for approximately
5.2%
,
5.9%
, and
7.7%
, respectively, of our total segment revenues. During fiscal 2016, 2015 and 2014, our Australia sales accounted for approximately
5.6%
,
6.9%
and
3.0%
, respectively, of our total segment revenues.
At
March 31, 2016
and 2015, approximately
95.9%
and
95.6%
, respectively, of our consolidated goodwill and intangible assets were located in the United States and approximately
4.1%
and
4.4%
, respectively,were located in Australia. These consolidated goodwill and intangible assets have been allocated to the reportable segments as follows:
|
March 31, 2016
(In thousands)
|
North American OTC
Healthcare |
International OTC
Healthcare |
Household
Cleaning |
Consolidated
|
|||||||||||
|
Goodwill
|
$
|
330,615
|
|
$
|
22,776
|
|
$
|
6,800
|
|
$
|
360,191
|
|
|||
|
Intangible assets
|
|
|
|||||||||||||
|
Indefinite-lived
|
1,823,873
|
|
85,901
|
|
110,272
|
|
2,020,046
|
|
|||||||
|
Finite-lived
|
277,762
|
|
2,237
|
|
22,678
|
|
302,677
|
|
|||||||
|
Intangible assets, net
|
2,101,635
|
|
88,138
|
|
132,950
|
|
2,322,723
|
|
|||||||
|
Total
|
$
|
2,432,250
|
|
$
|
110,914
|
|
$
|
139,750
|
|
$
|
2,682,914
|
|
|||
106
|
March 31, 2015
(In thousands)
|
North American OTC
Healthcare |
International OTC
Healthcare |
Household
Cleaning |
Consolidated
|
|||||||||||
|
Goodwill
|
$
|
263,411
|
|
$
|
20,440
|
|
$
|
6,800
|
|
$
|
290,651
|
|
|||
|
Intangible assets
|
|
|
|||||||||||||
|
Indefinite-lived
|
1,676,991
|
|
86,141
|
|
110,272
|
|
1,873,404
|
|
|||||||
|
Finite-lived
|
235,642
|
|
1,231
|
|
24,423
|
|
261,296
|
|
|||||||
|
Intangible assets, net
|
1,912,633
|
|
87,372
|
|
134,695
|
|
2,134,700
|
|
|||||||
|
Total
|
$
|
2,176,044
|
|
$
|
107,812
|
|
$
|
141,495
|
|
$
|
2,425,351
|
|
|||
19. Unaudited Quarterly Financial Information
Unaudited quarterly financial information for 2016 and 2015 is as follows:
Year Ended March 31, 2016
|
|
Quarterly Period Ended
|
|||||||||||||||
|
(In thousands, except for per share data)
|
June 30,
2015
|
September 30,
2015
|
December 31,
2015
|
March 31,
2016
|
||||||||||||
|
Total revenues
|
$
|
192,132
|
|
$
|
206,065
|
|
$
|
200,195
|
|
$
|
207,855
|
|
||||
|
Cost of sales (exclusive of depreciation shown below)
|
79,896
|
|
86,125
|
|
83,411
|
|
89,604
|
|
||||||||
|
Gross profit
|
112,236
|
|
119,940
|
|
116,784
|
|
118,251
|
|
||||||||
|
Operating expenses
|
|
|
|
|
|
|
|
|
||||||||
|
Advertising and promotion
|
26,422
|
|
27,893
|
|
29,935
|
|
26,552
|
|
||||||||
|
General and administrative
|
17,589
|
|
16,462
|
|
18,135
|
|
20,232
|
|
||||||||
|
Depreciation and amortization
|
5,720
|
|
5,687
|
|
6,071
|
|
6,198
|
|
||||||||
|
|
49,731
|
|
50,042
|
|
54,141
|
|
52,982
|
|
||||||||
|
Operating income
|
62,505
|
|
69,898
|
|
62,643
|
|
65,269
|
|
||||||||
|
Net interest expense
|
21,884
|
|
20,667
|
|
19,462
|
|
23,147
|
|
||||||||
|
Loss on extinguishment of debt
|
451
|
|
—
|
|
—
|
|
17,519
|
|
||||||||
|
Income before income taxes
|
40,170
|
|
49,231
|
|
43,181
|
|
24,603
|
|
||||||||
|
Provision for income taxes
|
13,997
|
|
17,428
|
|
15,186
|
|
10,667
|
|
||||||||
|
Net income
|
$
|
26,173
|
|
$
|
31,803
|
|
$
|
27,995
|
|
$
|
13,936
|
|
||||
|
Earnings per share:
|
|
|
|
|
||||||||||||
|
Basic
|
$
|
0.50
|
|
$
|
0.60
|
|
$
|
0.53
|
|
$
|
0.26
|
|
||||
|
Diluted
|
$
|
0.49
|
|
$
|
0.60
|
|
$
|
0.53
|
|
$
|
0.26
|
|
||||
|
Weighted average shares outstanding:
|
||||||||||||||||
|
Basic
|
52,548
|
|
52,803
|
|
52,824
|
|
52,833
|
|
||||||||
|
Diluted
|
52,958
|
|
53,151
|
|
53,203
|
|
53,252
|
|
||||||||
|
Comprehensive income, net of tax:
|
||||||||||||||||
|
Currency translation adjustments
|
(405
|
)
|
(11,079
|
)
|
4,922
|
|
6,449
|
|
||||||||
|
Total other comprehensive income (loss)
|
(405
|
)
|
(11,079
|
)
|
4,922
|
|
6,449
|
|
||||||||
|
Comprehensive income
|
$
|
25,768
|
|
$
|
20,724
|
|
$
|
32,917
|
|
$
|
20,385
|
|
||||
107
Year Ended March 31, 2015
|
|
||||||||||||||||
|
|
Quarterly Period Ended
|
|||||||||||||||
|
(In thousands, except for per share data)
|
June 30,
2014
|
September 30,
2014
|
December 31,
2014
|
March 31,
2015
|
||||||||||||
|
Total revenues
|
$
|
145,702
|
|
$
|
181,269
|
|
$
|
197,606
|
|
$
|
190,046
|
|
||||
|
Cost of sales (exclusive of depreciation shown below)
|
63,836
|
|
78,727
|
|
85,861
|
|
79,976
|
|
||||||||
|
Gross profit
|
81,866
|
|
102,542
|
|
111,745
|
|
110,070
|
|
||||||||
|
Operating expenses
|
|
|
|
|
|
|
|
|
||||||||
|
Advertising and promotion
|
19,096
|
|
25,044
|
|
30,144
|
|
25,367
|
|
||||||||
|
General and administrative
|
17,006
|
|
27,128
|
|
19,454
|
|
17,685
|
|
||||||||
|
Depreciation and amortization
|
2,961
|
|
3,852
|
|
5,154
|
|
5,773
|
|
||||||||
|
|
39,063
|
|
56,024
|
|
54,752
|
|
48,825
|
|
||||||||
|
Operating income
|
42,803
|
|
46,518
|
|
56,993
|
|
61,245
|
|
||||||||
|
Net interest expense
|
14,653
|
|
18,193
|
|
24,592
|
|
23,796
|
|
||||||||
|
Gain on settlement
|
—
|
|
—
|
|
(1,133
|
)
|
—
|
|
||||||||
|
Income before income taxes
|
28,150
|
|
28,325
|
|
33,534
|
|
37,449
|
|
||||||||
|
Provision for income taxes
|
11,418
|
|
11,862
|
|
12,241
|
|
13,677
|
|
||||||||
|
Net income
|
$
|
16,732
|
|
$
|
16,463
|
|
$
|
21,293
|
|
$
|
23,772
|
|
||||
|
Earnings per share:
|
|
|
|
|
||||||||||||
|
Basic
|
$
|
0.32
|
|
$
|
0.32
|
|
$
|
0.41
|
|
$
|
0.45
|
|
||||
|
Diluted
|
$
|
0.32
|
|
$
|
0.31
|
|
$
|
0.40
|
|
$
|
0.45
|
|
||||
|
Weighted average shares outstanding:
|
|
|
|
|
||||||||||||
|
Basic
|
51,956
|
|
52,088
|
|
52,278
|
|
52,356
|
|
||||||||
|
Diluted
|
52,533
|
|
52,594
|
|
52,730
|
|
52,821
|
|
||||||||
|
Comprehensive income, net of tax:
|
||||||||||||||||
|
Currency translation adjustments
|
2,726
|
|
(10,830
|
)
|
(8,779
|
)
|
(7,268
|
)
|
||||||||
|
Total other comprehensive income (loss)
|
2,726
|
|
(10,830
|
)
|
(8,779
|
)
|
(7,268
|
)
|
||||||||
|
Comprehensive income
|
$
|
19,458
|
|
$
|
5,633
|
|
$
|
12,514
|
|
$
|
16,504
|
|
||||
108
20. Condensed Consolidating Financial Statements
As described in Note 9, Prestige Brands Holdings, Inc., together with certain of our
100%
owned subsidiaries, has fully and unconditionally guaranteed, on a joint and several basis, the obligations of Prestige Brands, Inc. (a
100%
owned subsidiary of the Company) set forth in the indentures governing the 2016 Senior Notes and the 2013 Senior Notes, including the obligation to pay principal and interest with respect to the 2016 Senior Notes and the 2013 Senior Notes. The
100%
owned subsidiaries of the Company that have guaranteed the 2016 Senior Notes and the 2013 Senior Notes are as follows: Prestige Services Corp., Prestige Brands Holdings, Inc. (a Virginia corporation), Prestige Brands International, Inc., Medtech Holdings, Inc., Medtech Products Inc., The Cutex Company, The Spic and Span Company, Blacksmith Brands, Inc., Insight Pharmaceuticals Corporation, Insight Pharmaceuticals, LLC, Practical Health Products, Inc., and DenTek Holdings, Inc. (collectively, the "Subsidiary Guarantors"). A significant portion of our operating income and cash flow is generated by our subsidiaries. As a result, funds necessary to meet Prestige Brands, Inc.'s debt service obligations are provided in part by distributions or advances from our subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of our subsidiaries, could limit Prestige Brands, Inc.'s ability to obtain cash from our subsidiaries for the purpose of meeting our debt service obligations, including the payment of principal and interest on the 2016 Senior Notes and the 2013 Senior Notes. Although holders of the 2016 Senior Notes and the 2013 Senior Notes will be direct creditors of the guarantors of the 2016 Senior Notes and the 2013 Senior Notes by virtue of the guarantees, we have indirect subsidiaries located primarily in the United Kingdom, the Netherlands and Australia (collectively, the "Non-Guarantor Subsidiaries") that have not guaranteed the 2016 Senior Notes or the 2013 Senior Notes, and such subsidiaries will not be obligated with respect to the 2016 Senior Notes or the 2013 Senior Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of the holders of the 2016 Senior Notes and the 2013 Senior Notes.
Presented below are supplemental Condensed Consolidating Balance Sheets as of March 31, 2016 and 2015 and Condensed Consolidating Income and Comprehensive Income Statements and Condensed Consolidating Statements of Cash Flows for each year in the three year period ended March 31, 2016. Such consolidating information includes separate columns for:
a) Prestige Brands Holdings, Inc., the parent,
b) Prestige Brands, Inc., the Issuer or the Borrower,
c) Combined Subsidiary Guarantors,
d) Combined Non-Guarantor Subsidiaries, and
e) Elimination entries necessary to consolidate the Company and all of its subsidiaries.
The Condensed Consolidating Financial Statements are presented using the equity method of accounting for investments in our
100%
owned subsidiaries. Under the equity method, the investments in subsidiaries are recorded at cost and adjusted for our share of the subsidiaries' cumulative results of operations, capital contributions, distributions and other equity changes. The elimination entries principally eliminate investments in subsidiaries and intercompany balances and transactions. The financial information in this footnote should be read in conjunction with the Consolidated Financial Statements presented and other notes related thereto contained in this Annual Report on Form 10-K for the fiscal year ended March 31, 2016.
109
Condensed Consolidating Statement of Income and Comprehensive Income
Year Ended March 31, 2016
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
Guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Revenues
|
||||||||||||||||||||||||
|
Net sales
|
$
|
—
|
|
$
|
111,747
|
|
$
|
643,330
|
|
$
|
50,672
|
|
$
|
(2,661
|
)
|
$
|
803,088
|
|
||||||
|
Other revenues
|
—
|
|
347
|
|
3,116
|
|
1,776
|
|
(2,080
|
)
|
3,159
|
|
||||||||||||
|
Total revenues
|
—
|
|
112,094
|
|
646,446
|
|
52,448
|
|
(4,741
|
)
|
806,247
|
|
||||||||||||
|
Cost of Sales
|
||||||||||||||||||||||||
|
Cost of sales (exclusive of depreciation shown below)
|
—
|
|
45,763
|
|
280,169
|
|
18,459
|
|
(5,355
|
)
|
339,036
|
|
||||||||||||
|
Gross profit
|
—
|
|
66,331
|
|
366,277
|
|
33,989
|
|
614
|
|
467,211
|
|
||||||||||||
|
Operating Expenses
|
||||||||||||||||||||||||
|
Advertising and promotion
|
—
|
|
9,465
|
|
90,353
|
|
10,984
|
|
—
|
|
110,802
|
|
||||||||||||
|
General and administrative
|
5,737
|
|
9,098
|
|
51,198
|
|
6,385
|
|
—
|
|
72,418
|
|
||||||||||||
|
Depreciation and amortization
|
4,050
|
|
594
|
|
18,617
|
|
415
|
|
—
|
|
23,676
|
|
||||||||||||
|
Total operating expenses
|
9,787
|
|
19,157
|
|
160,168
|
|
17,784
|
|
—
|
|
206,896
|
|
||||||||||||
|
Operating income (loss)
|
(9,787
|
)
|
47,174
|
|
206,109
|
|
16,205
|
|
614
|
|
260,315
|
|
||||||||||||
|
Other (income) expense
|
||||||||||||||||||||||||
|
Interest income
|
(48,342
|
)
|
(85,882
|
)
|
(5,087
|
)
|
(531
|
)
|
139,680
|
|
(162
|
)
|
||||||||||||
|
Interest expense
|
34,553
|
|
84,822
|
|
100,540
|
|
5,087
|
|
(139,680
|
)
|
85,322
|
|
||||||||||||
|
Loss on extinguishment of debt
|
—
|
|
17,970
|
|
—
|
|
—
|
|
—
|
|
17,970
|
|
||||||||||||
|
Equity in (income) loss of subsidiaries
|
(98,803
|
)
|
(70,953
|
)
|
(8,564
|
)
|
—
|
|
178,320
|
|
—
|
|
||||||||||||
|
Total other (income) expense
|
(112,592
|
)
|
(54,043
|
)
|
86,889
|
|
4,556
|
|
178,320
|
|
103,130
|
|
||||||||||||
|
Income (loss) before income taxes
|
102,805
|
|
101,217
|
|
119,220
|
|
11,649
|
|
(177,706
|
)
|
157,185
|
|
||||||||||||
|
Provision for income taxes
|
2,898
|
|
11,016
|
|
40,279
|
|
3,085
|
|
—
|
|
57,278
|
|
||||||||||||
|
Net income (loss)
|
$
|
99,907
|
|
$
|
90,201
|
|
$
|
78,941
|
|
$
|
8,564
|
|
$
|
(177,706
|
)
|
$
|
99,907
|
|
||||||
|
Comprehensive income, net of tax:
|
||||||||||||||||||||||||
|
Currency translation adjustments
|
(113
|
)
|
(113
|
)
|
(113
|
)
|
(113
|
)
|
339
|
|
(113
|
)
|
||||||||||||
|
Total other comprehensive income (loss)
|
(113
|
)
|
(113
|
)
|
(113
|
)
|
(113
|
)
|
339
|
|
(113
|
)
|
||||||||||||
|
Comprehensive income (loss)
|
$
|
99,794
|
|
$
|
90,088
|
|
$
|
78,828
|
|
$
|
8,451
|
|
$
|
(177,367
|
)
|
$
|
99,794
|
|
||||||
110
Condensed Consolidating Statement of Income and Comprehensive Income
Year Ended March 31, 2015
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
Guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Revenues
|
||||||||||||||||||||||||
|
Net sales
|
$
|
—
|
|
$
|
106,439
|
|
$
|
555,388
|
|
$
|
51,630
|
|
$
|
(3,387
|
)
|
$
|
710,070
|
|
||||||
|
Other revenues
|
—
|
|
385
|
|
4,452
|
|
1,497
|
|
(1,781
|
)
|
4,553
|
|
||||||||||||
|
Total revenues
|
—
|
|
106,824
|
|
559,840
|
|
53,127
|
|
(5,168
|
)
|
714,623
|
|
||||||||||||
|
Cost of Sales
|
||||||||||||||||||||||||
|
Cost of sales (exclusive of depreciation shown below)
|
—
|
|
39,637
|
|
254,670
|
|
19,127
|
|
(5,034
|
)
|
308,400
|
|
||||||||||||
|
Gross profit
|
—
|
|
67,187
|
|
305,170
|
|
34,000
|
|
(134
|
)
|
406,223
|
|
||||||||||||
|
Operating Expenses
|
||||||||||||||||||||||||
|
Advertising and promotion
|
—
|
|
8,828
|
|
79,944
|
|
10,879
|
|
—
|
|
99,651
|
|
||||||||||||
|
General and administrative
|
4,571
|
|
9,090
|
|
55,209
|
|
12,403
|
|
—
|
|
81,273
|
|
||||||||||||
|
Depreciation and amortization
|
3,381
|
|
592
|
|
12,752
|
|
1,015
|
|
—
|
|
17,740
|
|
||||||||||||
|
Total operating expenses
|
7,952
|
|
18,510
|
|
147,905
|
|
24,297
|
|
—
|
|
198,664
|
|
||||||||||||
|
Operating income (loss)
|
(7,952
|
)
|
48,677
|
|
157,265
|
|
9,703
|
|
(134
|
)
|
207,559
|
|
||||||||||||
|
Other (income) expense
|
||||||||||||||||||||||||
|
Interest income
|
(48,543
|
)
|
(73,755
|
)
|
(5,373
|
)
|
(456
|
)
|
128,035
|
|
(92
|
)
|
||||||||||||
|
Interest expense
|
34,198
|
|
81,326
|
|
88,464
|
|
5,373
|
|
(128,035
|
)
|
81,326
|
|
||||||||||||
|
Gain on sale of asset
|
—
|
|
—
|
|
(1,133
|
)
|
—
|
|
—
|
|
(1,133
|
)
|
||||||||||||
|
Equity in (income) loss of subsidiaries
|
(76,383
|
)
|
(51,573
|
)
|
(2,013
|
)
|
—
|
|
129,969
|
|
—
|
|
||||||||||||
|
Total other expense (income)
|
(90,728
|
)
|
(44,002
|
)
|
79,945
|
|
4,917
|
|
129,969
|
|
80,101
|
|
||||||||||||
|
Income (loss) before income taxes
|
82,776
|
|
92,679
|
|
77,320
|
|
4,786
|
|
(130,103
|
)
|
127,458
|
|
||||||||||||
|
Provision for income taxes
|
4,516
|
|
14,798
|
|
27,111
|
|
2,773
|
|
—
|
|
49,198
|
|
||||||||||||
|
Net income (loss)
|
$
|
78,260
|
|
$
|
77,881
|
|
$
|
50,209
|
|
$
|
2,013
|
|
$
|
(130,103
|
)
|
$
|
78,260
|
|
||||||
|
Comprehensive income, net of tax:
|
||||||||||||||||||||||||
|
Currency translation adjustments
|
(24,151
|
)
|
(24,151
|
)
|
(24,151
|
)
|
(24,151
|
)
|
72,453
|
|
(24,151
|
)
|
||||||||||||
|
Total other comprehensive income (loss)
|
(24,151
|
)
|
(24,151
|
)
|
(24,151
|
)
|
(24,151
|
)
|
72,453
|
|
(24,151
|
)
|
||||||||||||
|
Comprehensive income (loss)
|
$
|
54,109
|
|
$
|
53,730
|
|
$
|
26,058
|
|
$
|
(22,138
|
)
|
$
|
(57,650
|
)
|
$
|
54,109
|
|
||||||
111
Condensed Consolidating Statement of Income and Comprehensive Income
Year Ended March 31, 2014
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
Guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Revenues
|
||||||||||||||||||||||||
|
Net sales
|
$
|
—
|
|
$
|
97,509
|
|
$
|
474,338
|
|
$
|
23,286
|
|
$
|
(2,679
|
)
|
$
|
592,454
|
|
||||||
|
Other revenues
|
—
|
|
295
|
|
4,886
|
|
1,639
|
|
(1,893
|
)
|
4,927
|
|
||||||||||||
|
Total revenues
|
—
|
|
97,804
|
|
479,224
|
|
24,925
|
|
(4,572
|
)
|
597,381
|
|
||||||||||||
|
Cost of Sales
|
||||||||||||||||||||||||
|
Cost of sales (exclusive of depreciation shown below)
|
—
|
|
37,272
|
|
218,692
|
|
9,428
|
|
(3,562
|
)
|
261,830
|
|
||||||||||||
|
Gross profit
|
—
|
|
60,532
|
|
260,532
|
|
15,497
|
|
(1,010
|
)
|
335,551
|
|
||||||||||||
|
Operating Expenses
|
||||||||||||||||||||||||
|
Advertising and promotion
|
—
|
|
10,223
|
|
69,583
|
|
5,162
|
|
—
|
|
84,968
|
|
||||||||||||
|
General and administrative
|
3,140
|
|
8,026
|
|
34,469
|
|
2,846
|
|
—
|
|
48,481
|
|
||||||||||||
|
Depreciation and amortization
|
2,994
|
|
577
|
|
9,715
|
|
200
|
|
—
|
|
13,486
|
|
||||||||||||
|
Total operating expenses
|
6,134
|
|
18,826
|
|
113,767
|
|
8,208
|
|
—
|
|
146,935
|
|
||||||||||||
|
Operating Income (loss)
|
(6,134
|
)
|
41,706
|
|
146,765
|
|
7,289
|
|
(1,010
|
)
|
188,616
|
|
||||||||||||
|
Other (income) expense
|
||||||||||||||||||||||||
|
Interest income
|
(48,730
|
)
|
(57,446
|
)
|
(2,327
|
)
|
(382
|
)
|
108,825
|
|
(60
|
)
|
||||||||||||
|
Interest expense
|
34,436
|
|
68,642
|
|
72,064
|
|
2,325
|
|
(108,825
|
)
|
68,642
|
|
||||||||||||
|
Loss on extinguishment of debt
|
—
|
|
18,286
|
|
—
|
|
—
|
|
—
|
|
18,286
|
|
||||||||||||
|
Equity in (income) loss of subsidiaries
|
(66,739
|
)
|
(53,836
|
)
|
(4,052
|
)
|
—
|
|
124,627
|
|
—
|
|
||||||||||||
|
Total other expense (income)
|
(81,033
|
)
|
(24,354
|
)
|
65,685
|
|
1,943
|
|
124,627
|
|
86,868
|
|
||||||||||||
|
Income (loss) before income taxes
|
74,899
|
|
66,060
|
|
81,080
|
|
5,346
|
|
(125,637
|
)
|
101,748
|
|
||||||||||||
|
Provision for income taxes
|
2,284
|
|
3,500
|
|
22,055
|
|
1,294
|
|
—
|
|
29,133
|
|
||||||||||||
|
Net income (loss)
|
$
|
72,615
|
|
$
|
62,560
|
|
$
|
59,025
|
|
$
|
4,052
|
|
$
|
(125,637
|
)
|
$
|
72,615
|
|
||||||
|
Comprehensive income, net of tax:
|
||||||||||||||||||||||||
|
Currency translation adjustments
|
843
|
|
843
|
|
843
|
|
843
|
|
(2,529
|
)
|
843
|
|
||||||||||||
|
Total other comprehensive income (loss)
|
843
|
|
843
|
|
843
|
|
843
|
|
(2,529
|
)
|
843
|
|
||||||||||||
|
Comprehensive income (loss)
|
$
|
73,458
|
|
$
|
63,403
|
|
$
|
59,868
|
|
$
|
4,895
|
|
$
|
(128,166
|
)
|
$
|
73,458
|
|
||||||
112
Condensed Consolidating Balance Sheet
March 31, 2016
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
Guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||
|
Current assets
|
||||||||||||||||||||||||
|
Cash and cash equivalents
|
$
|
4,440
|
|
$
|
—
|
|
$
|
2,899
|
|
$
|
19,891
|
|
$
|
—
|
|
$
|
27,230
|
|
||||||
|
Accounts receivable, net
|
—
|
|
12,025
|
|
74,446
|
|
8,776
|
|
—
|
|
95,247
|
|
||||||||||||
|
Inventories
|
—
|
|
9,411
|
|
72,296
|
|
10,088
|
|
(532
|
)
|
91,263
|
|
||||||||||||
|
Deferred income tax assets
|
316
|
|
681
|
|
8,293
|
|
818
|
|
—
|
|
10,108
|
|
||||||||||||
|
Prepaid expenses and other current assets
|
15,311
|
|
257
|
|
8,379
|
|
1,218
|
|
—
|
|
25,165
|
|
||||||||||||
|
Total current assets
|
20,067
|
|
22,374
|
|
166,313
|
|
40,791
|
|
(532
|
)
|
249,013
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Property and equipment, net
|
9,166
|
|
210
|
|
5,528
|
|
636
|
|
—
|
|
15,540
|
|
||||||||||||
|
Goodwill
|
—
|
|
66,007
|
|
271,409
|
|
22,775
|
|
—
|
|
360,191
|
|
||||||||||||
|
Intangible assets, net
|
—
|
|
191,789
|
|
2,042,640
|
|
88,294
|
|
—
|
|
2,322,723
|
|
||||||||||||
|
Other long-term assets
|
—
|
|
1,324
|
|
—
|
|
—
|
|
—
|
|
1,324
|
|
||||||||||||
|
Intercompany receivables
|
1,457,011
|
|
2,703,192
|
|
1,083,488
|
|
10,738
|
|
(5,254,429
|
)
|
—
|
|
||||||||||||
|
Investment in subsidiary
|
1,641,477
|
|
1,527,718
|
|
81,545
|
|
|
|
(3,250,740
|
)
|
—
|
|
||||||||||||
|
Total Assets
|
$
|
3,127,721
|
|
$
|
4,512,614
|
|
$
|
3,650,923
|
|
$
|
163,234
|
|
$
|
(8,505,701
|
)
|
$
|
2,948,791
|
|
||||||
|
Liabilities and Stockholders' Equity
|
||||||||||||||||||||||||
|
Current liabilities
|
||||||||||||||||||||||||
|
Accounts payable
|
$
|
2,914
|
|
$
|
7,643
|
|
$
|
24,437
|
|
$
|
3,302
|
|
$
|
—
|
|
$
|
38,296
|
|
||||||
|
Accrued interest payable
|
—
|
|
8,664
|
|
—
|
|
—
|
|
—
|
|
8,664
|
|
||||||||||||
|
Other accrued liabilities
|
12,285
|
|
1,714
|
|
38,734
|
|
6,991
|
|
—
|
|
59,724
|
|
||||||||||||
|
Total current liabilities
|
15,199
|
|
18,021
|
|
63,171
|
|
10,293
|
|
—
|
|
106,684
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Long-term debt
|
||||||||||||||||||||||||
|
Principal amount
|
—
|
|
1,652,500
|
|
—
|
|
—
|
|
—
|
|
1,652,500
|
|
||||||||||||
|
Less unamortized debt costs
|
—
|
|
(27,191
|
)
|
—
|
|
—
|
|
—
|
|
(27,191
|
)
|
||||||||||||
|
Long-term debt, net
|
—
|
|
1,625,309
|
|
—
|
|
—
|
|
—
|
|
1,625,309
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Deferred income tax liabilities
|
—
|
|
60,317
|
|
408,893
|
|
412
|
|
—
|
|
469,622
|
|
||||||||||||
|
Other long-term liabilities
|
—
|
|
—
|
|
2,682
|
|
158
|
|
—
|
|
2,840
|
|
||||||||||||
|
Intercompany payables
|
2,368,186
|
|
1,241,084
|
|
1,570,265
|
|
74,894
|
|
(5,254,429
|
)
|
—
|
|
||||||||||||
|
Total Liabilities
|
2,383,385
|
|
2,944,731
|
|
2,045,011
|
|
85,757
|
|
(5,254,429
|
)
|
2,204,455
|
|
||||||||||||
|
Stockholders' Equity
|
||||||||||||||||||||||||
|
Common stock
|
530
|
|
—
|
|
—
|
|
—
|
|
—
|
|
530
|
|
||||||||||||
|
Additional paid-in capital
|
445,182
|
|
1,280,947
|
|
1,359,921
|
|
78,774
|
|
(2,719,642
|
)
|
445,182
|
|
||||||||||||
|
Treasury stock, at cost
|
(5,163
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(5,163
|
)
|
||||||||||||
|
Accumulated other comprehensive income (loss), net of tax
|
(23,525
|
)
|
(23,525
|
)
|
(23,525
|
)
|
(23,525
|
)
|
70,575
|
|
(23,525
|
)
|
||||||||||||
|
Retained earnings (accumulated deficit)
|
327,312
|
|
310,461
|
|
269,516
|
|
22,228
|
|
(602,205
|
)
|
327,312
|
|
||||||||||||
|
Total Stockholders' Equity
|
744,336
|
|
1,567,883
|
|
1,605,912
|
|
77,477
|
|
(3,251,272
|
)
|
744,336
|
|
||||||||||||
|
Total Liabilities and Stockholders' Equity
|
$
|
3,127,721
|
|
$
|
4,512,614
|
|
$
|
3,650,923
|
|
$
|
163,234
|
|
$
|
(8,505,701
|
)
|
$
|
2,948,791
|
|
||||||
113
Condensed Consolidating Balance Sheet
March 31, 2015
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
Guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||
|
Current assets
|
||||||||||||||||||||||||
|
Cash and cash equivalents
|
$
|
11,387
|
|
$
|
—
|
|
$
|
—
|
|
$
|
9,931
|
|
$
|
—
|
|
$
|
21,318
|
|
||||||
|
Accounts receivable, net
|
—
|
|
14,539
|
|
66,523
|
|
6,796
|
|
—
|
|
87,858
|
|
||||||||||||
|
Inventories
|
—
|
|
8,667
|
|
60,297
|
|
6,182
|
|
(1,146
|
)
|
74,000
|
|
||||||||||||
|
Deferred income tax assets
|
452
|
|
674
|
|
6,497
|
|
474
|
|
—
|
|
8,097
|
|
||||||||||||
|
Prepaid expenses and other current assets
|
5,731
|
|
141
|
|
3,804
|
|
758
|
|
—
|
|
10,434
|
|
||||||||||||
|
Total current assets
|
17,570
|
|
24,021
|
|
137,121
|
|
24,141
|
|
(1,146
|
)
|
201,707
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Property and equipment, net
|
10,726
|
|
175
|
|
2,207
|
|
636
|
|
—
|
|
13,744
|
|
||||||||||||
|
Goodwill
|
—
|
|
66,007
|
|
204,205
|
|
20,439
|
|
—
|
|
290,651
|
|
||||||||||||
|
Intangible assets, net
|
—
|
|
192,325
|
|
1,854,798
|
|
87,577
|
|
—
|
|
2,134,700
|
|
||||||||||||
|
Other long-term assets
|
—
|
|
1,165
|
|
—
|
|
—
|
|
—
|
|
1,165
|
|
||||||||||||
|
Intercompany receivables
|
1,210,017
|
|
2,607,054
|
|
668,169
|
|
8,764
|
|
(4,494,004
|
)
|
—
|
|
||||||||||||
|
Investment in subsidiary
|
1,545,575
|
|
1,228,535
|
|
65,564
|
|
—
|
|
(2,839,674
|
)
|
—
|
|
||||||||||||
|
Total Assets
|
$
|
2,783,888
|
|
$
|
4,119,282
|
|
$
|
2,932,064
|
|
$
|
141,557
|
|
$
|
(7,334,824
|
)
|
$
|
2,641,967
|
|
||||||
|
Liabilities and Stockholders' Equity
|
||||||||||||||||||||||||
|
Current liabilities
|
||||||||||||||||||||||||
|
Accounts payable
|
$
|
1,959
|
|
$
|
6,829
|
|
$
|
32,898
|
|
$
|
4,429
|
|
$
|
—
|
|
$
|
46,115
|
|
||||||
|
Accrued interest payable
|
—
|
|
11,974
|
|
—
|
|
—
|
|
—
|
|
11,974
|
|
||||||||||||
|
Other accrued liabilities
|
10,378
|
|
1,153
|
|
25,795
|
|
3,622
|
|
—
|
|
40,948
|
|
||||||||||||
|
Total current liabilities
|
12,337
|
|
19,956
|
|
58,693
|
|
8,051
|
|
—
|
|
99,037
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Long-term debt
|
||||||||||||||||||||||||
|
Principal amount
|
—
|
|
1,593,600
|
|
—
|
|
—
|
|
—
|
|
1,593,600
|
|
||||||||||||
|
Less unamortized debt costs
|
—
|
|
(32,327
|
)
|
—
|
|
—
|
|
—
|
|
(32,327
|
)
|
||||||||||||
|
Long-term debt, net
|
—
|
|
1,561,273
|
|
—
|
|
—
|
|
—
|
|
1,561,273
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Deferred income tax liabilities
|
—
|
|
59,038
|
|
292,504
|
|
27
|
|
—
|
|
351,569
|
|
||||||||||||
|
Other long-term liabilities
|
—
|
|
—
|
|
2,293
|
|
171
|
|
—
|
|
2,464
|
|
||||||||||||
|
Intercompany payables
|
2,143,927
|
|
1,001,219
|
|
1,279,833
|
|
69,025
|
|
(4,494,004
|
)
|
—
|
|
||||||||||||
|
Total Liabilities
|
2,156,264
|
|
2,641,486
|
|
1,633,323
|
|
77,274
|
|
(4,494,004
|
)
|
2,014,343
|
|
||||||||||||
|
Stockholders' Equity
|
||||||||||||||||||||||||
|
Common Stock
|
525
|
|
—
|
|
—
|
|
—
|
|
—
|
|
525
|
|
||||||||||||
|
Additional paid-in capital
|
426,584
|
|
1,280,948
|
|
1,131,578
|
|
74,031
|
|
(2,486,557
|
)
|
426,584
|
|
||||||||||||
|
Treasury stock, at cost
|
(3,478
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,478
|
)
|
||||||||||||
|
Accumulated other comprehensive income (loss), net of tax
|
(23,412
|
)
|
(23,412
|
)
|
(23,412
|
)
|
(23,412
|
)
|
70,236
|
|
(23,412
|
)
|
||||||||||||
|
Retained earnings (accumulated deficit)
|
227,405
|
|
220,260
|
|
190,575
|
|
13,664
|
|
(424,499
|
)
|
227,405
|
|
||||||||||||
|
Total Stockholders' Equity
|
627,624
|
|
1,477,796
|
|
1,298,741
|
|
64,283
|
|
(2,840,820
|
)
|
627,624
|
|
||||||||||||
|
Total Liabilities and Stockholders’ Equity
|
$
|
2,783,888
|
|
$
|
4,119,282
|
|
$
|
2,932,064
|
|
$
|
141,557
|
|
$
|
(7,334,824
|
)
|
$
|
2,641,967
|
|
||||||
114
Condensed Consolidating Statement of Cash Flows
Year Ended March 31, 2016
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
Guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Operating Activities
|
||||||||||||||||||||||||
|
Net income (loss)
|
$
|
99,907
|
|
$
|
90,201
|
|
$
|
78,941
|
|
$
|
8,564
|
|
$
|
(177,706
|
)
|
$
|
99,907
|
|
||||||
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
||||||||||||||||||||||||
|
Depreciation and amortization
|
4,050
|
|
594
|
|
18,617
|
|
415
|
|
—
|
|
23,676
|
|
||||||||||||
|
Deferred income taxes
|
136
|
|
1,272
|
|
45,070
|
|
(326
|
)
|
—
|
|
46,152
|
|
||||||||||||
|
Long term income taxes payable
|
—
|
|
—
|
|
(332
|
)
|
—
|
|
—
|
|
(332
|
)
|
||||||||||||
|
Amortization of debt origination costs
|
—
|
|
8,994
|
|
—
|
|
—
|
|
—
|
|
8,994
|
|
||||||||||||
|
Stock-based compensation costs
|
9,794
|
|
—
|
|
—
|
|
160
|
|
—
|
|
9,954
|
|
||||||||||||
|
Loss on extinguishment of debt
|
—
|
|
17,970
|
|
—
|
|
—
|
|
—
|
|
17,970
|
|
||||||||||||
|
Premium payment on 2012 Senior Notes
|
—
|
|
(10,158
|
)
|
—
|
|
—
|
|
—
|
|
(10,158
|
)
|
||||||||||||
|
(Gain) loss on sale or disposal of property and equipment
|
—
|
|
—
|
|
1
|
|
(36
|
)
|
—
|
|
(35
|
)
|
||||||||||||
|
Equity in income of subsidiaries
|
(98,803
|
)
|
(70,953
|
)
|
(8,564
|
)
|
—
|
|
178,320
|
|
—
|
|
||||||||||||
|
Changes in operating assets and liabilities, net of effects from acquisitions:
|
||||||||||||||||||||||||
|
Accounts receivable
|
—
|
|
2,514
|
|
(388
|
)
|
(302
|
)
|
—
|
|
1,824
|
|
||||||||||||
|
Inventories
|
—
|
|
(744
|
)
|
213
|
|
(1,860
|
)
|
(614
|
)
|
(3,005
|
)
|
||||||||||||
|
Prepaid expenses and other current assets
|
(9,580
|
)
|
(116
|
)
|
1,977
|
|
(202
|
)
|
—
|
|
(7,921
|
)
|
||||||||||||
|
Accounts payable
|
929
|
|
814
|
|
(11,284
|
)
|
(1,807
|
)
|
—
|
|
(11,348
|
)
|
||||||||||||
|
Accrued liabilities
|
1,907
|
|
(2,749
|
)
|
(1,943
|
)
|
1,457
|
|
—
|
|
(1,328
|
)
|
||||||||||||
|
Net cash provided by operating activities
|
8,340
|
|
37,639
|
|
122,308
|
|
6,063
|
|
—
|
|
174,350
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Investing Activities
|
||||||||||||||||||||||||
|
Purchases of property and equipment
|
(2,460
|
)
|
(93
|
)
|
(521
|
)
|
(494
|
)
|
—
|
|
(3,568
|
)
|
||||||||||||
|
Proceeds from the sale of property and equipment
|
—
|
|
—
|
|
—
|
|
344
|
|
—
|
|
344
|
|
||||||||||||
|
Proceeds from Insight Pharmaceuticals working capital arbitration settlement
|
—
|
|
—
|
|
7,237
|
|
—
|
|
—
|
|
7,237
|
|
||||||||||||
|
Acquisition of DenTek, less cash acquired
|
—
|
|
—
|
|
(226,984
|
)
|
—
|
|
—
|
|
(226,984
|
)
|
||||||||||||
|
Intercompany activity, net
|
—
|
|
(228,343
|
)
|
228,343
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
|
Net cash (used in) provided by investing activities
|
(2,460
|
)
|
|
(228,436
|
)
|
8,075
|
|
(150
|
)
|
—
|
|
(222,971
|
)
|
|||||||||||
|
|
||||||||||||||||||||||||
|
Financing Activities
|
||||||||||||||||||||||||
|
Proceeds from issuance of 2016 Senior Notes
|
—
|
|
350,000
|
|
—
|
|
—
|
|
—
|
|
350,000
|
|
||||||||||||
|
Repayment of 2012 Senior Notes
|
—
|
|
(250,000
|
)
|
—
|
|
—
|
|
—
|
|
(250,000
|
)
|
||||||||||||
|
Borrowings under Bridge term loans
|
—
|
|
80,000
|
|
—
|
|
—
|
|
—
|
|
80,000
|
|
||||||||||||
|
Repayments under Bridge term loans
|
—
|
|
(80,000
|
)
|
—
|
|
—
|
|
—
|
|
(80,000
|
)
|
||||||||||||
|
Term loan repayments
|
—
|
|
(60,000
|
)
|
—
|
|
—
|
|
—
|
|
(60,000
|
)
|
||||||||||||
|
Borrowings under revolving credit agreement
|
—
|
|
115,000
|
|
—
|
|
—
|
|
—
|
|
115,000
|
|
||||||||||||
|
Repayments under revolving credit agreement
|
—
|
|
(96,100
|
)
|
—
|
|
—
|
|
—
|
|
(96,100
|
)
|
||||||||||||
|
Payments of debt origination costs
|
—
|
|
(11,828
|
)
|
—
|
|
—
|
|
—
|
|
(11,828
|
)
|
||||||||||||
|
Proceeds from exercise of stock options
|
6,689
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,689
|
|
||||||||||||
|
Proceeds from restricted stock exercises
|
544
|
|
—
|
|
—
|
|
—
|
|
—
|
|
544
|
|
||||||||||||
|
Excess tax benefits from share-based awards
|
1,960
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,960
|
|
||||||||||||
|
Fair value of shares surrendered as payment of tax withholding
|
(2,229
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,229
|
)
|
||||||||||||
|
Intercompany activity, net
|
(19,791
|
)
|
143,725
|
|
(127,484
|
)
|
3,550
|
|
—
|
|
—
|
|
||||||||||||
|
Net cash provided by (used in) financing activities
|
(12,827
|
)
|
190,797
|
|
(127,484
|
)
|
3,550
|
|
—
|
|
54,036
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Effects of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
—
|
|
497
|
|
—
|
|
497
|
|
||||||||||||
|
Increase (decrease) in cash and cash equivalents
|
(6,947
|
)
|
—
|
|
2,899
|
|
9,960
|
|
—
|
|
5,912
|
|
||||||||||||
|
Cash and cash equivalents - beginning of year
|
11,387
|
|
—
|
|
—
|
|
9,931
|
|
—
|
|
21,318
|
|
||||||||||||
|
Cash and cash equivalents - end of year
|
$
|
4,440
|
|
$
|
—
|
|
$
|
2,899
|
|
$
|
19,891
|
|
$
|
—
|
|
$
|
27,230
|
|
||||||
115
Condensed Consolidating Statement of Cash Flows
Year Ended March 31, 2015
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
Guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Operating Activities
|
||||||||||||||||||||||||
|
Net income (loss)
|
$
|
78,260
|
|
$
|
77,881
|
|
$
|
50,209
|
|
$
|
2,013
|
|
$
|
(130,103
|
)
|
$
|
78,260
|
|
||||||
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
||||||||||||||||||||||||
|
Depreciation and amortization
|
3,381
|
|
592
|
|
12,752
|
|
1,015
|
|
—
|
|
17,740
|
|
||||||||||||
|
Gain on sale of asset
|
—
|
|
—
|
|
(1,133
|
)
|
—
|
|
—
|
|
(1,133
|
)
|
||||||||||||
|
Deferred income taxes
|
(192
|
)
|
2,462
|
|
26,795
|
|
(143
|
)
|
—
|
|
28,922
|
|
||||||||||||
|
Long-term income taxes payable
|
—
|
|
—
|
|
2,294
|
|
—
|
|
—
|
|
2,294
|
|
||||||||||||
|
Amortization of debt origination costs
|
—
|
|
8,821
|
|
—
|
|
—
|
|
—
|
|
8,821
|
|
||||||||||||
|
Stock-based compensation costs
|
6,918
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,918
|
|
||||||||||||
|
Lease termination costs
|
—
|
|
—
|
|
785
|
|
—
|
|
—
|
|
785
|
|
||||||||||||
|
Loss on sale or disposal of equipment
|
—
|
|
—
|
|
—
|
|
321
|
|
—
|
|
321
|
|
||||||||||||
|
Equity in income of subsidiaries
|
(76,383
|
)
|
(51,573
|
)
|
(2,013
|
)
|
—
|
|
129,969
|
|
—
|
|
||||||||||||
|
Changes in operating assets and liabilities, net of effects from acquisitions:
|
||||||||||||||||||||||||
|
Accounts receivable
|
473
|
|
(294
|
)
|
5,146
|
|
(3,717
|
)
|
—
|
|
1,608
|
|
||||||||||||
|
Inventories
|
—
|
|
5,690
|
|
8,981
|
|
555
|
|
134
|
|
15,360
|
|
||||||||||||
|
Prepaid expenses and other current assets
|
2,273
|
|
(28
|
)
|
2,631
|
|
(212
|
)
|
—
|
|
4,664
|
|
||||||||||||
|
Accounts payable
|
(2,457
|
)
|
(829
|
)
|
(16,734
|
)
|
2,383
|
|
—
|
|
(17,637
|
)
|
||||||||||||
|
Accrued liabilities
|
2,650
|
|
1,384
|
|
3,560
|
|
1,738
|
|
—
|
|
9,332
|
|
||||||||||||
|
Net cash provided by operating activities
|
14,923
|
|
44,106
|
|
93,273
|
|
3,953
|
|
—
|
|
156,255
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Investing Activities
|
||||||||||||||||||||||||
|
Purchases of property and equipment
|
(5,029
|
)
|
(119
|
)
|
(739
|
)
|
(214
|
)
|
—
|
|
(6,101
|
)
|
||||||||||||
|
Proceeds from sale of business
|
—
|
|
—
|
|
18,500
|
|
—
|
|
—
|
|
18,500
|
|
||||||||||||
|
Proceeds from sale of asset
|
—
|
|
—
|
|
10,000
|
|
—
|
|
—
|
|
10,000
|
|
||||||||||||
|
Acquisition of Insight Pharmaceuticals, less cash acquired
|
—
|
|
—
|
|
(749,666
|
)
|
—
|
|
—
|
|
(749,666
|
)
|
||||||||||||
|
Acquisition of the Hydralyte brand
|
—
|
|
—
|
|
—
|
|
(77,991
|
)
|
—
|
|
(77,991
|
)
|
||||||||||||
|
Intercompany activity, net
|
—
|
|
(809,157
|
)
|
731,166
|
|
77,991
|
|
—
|
|
—
|
|
||||||||||||
|
Net cash (used in) provided by investing activities
|
(5,029
|
)
|
(809,276
|
)
|
9,261
|
|
(214
|
)
|
—
|
|
(805,258
|
)
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Financing Activities
|
||||||||||||||||||||||||
|
Term loan borrowings
|
—
|
|
720,000
|
|
—
|
|
—
|
|
—
|
|
720,000
|
|
||||||||||||
|
Term loan repayments
|
—
|
|
(130,000
|
)
|
—
|
|
—
|
|
—
|
|
(130,000
|
)
|
||||||||||||
|
Borrowings under revolving credit agreement
|
—
|
|
124,600
|
|
—
|
|
—
|
|
—
|
|
124,600
|
|
||||||||||||
|
Repayments under revolving credit agreement
|
—
|
|
(58,500
|
)
|
—
|
|
—
|
|
—
|
|
(58,500
|
)
|
||||||||||||
|
Payments of debt origination costs
|
—
|
|
(16,072
|
)
|
—
|
|
—
|
|
—
|
|
(16,072
|
)
|
||||||||||||
|
Proceeds from exercise of stock options
|
3,954
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,954
|
|
||||||||||||
|
Proceeds from restricted stock exercises
|
57
|
|
—
|
|
—
|
|
—
|
|
—
|
|
57
|
|
||||||||||||
|
Excess tax benefits from share-based awards
|
1,330
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,330
|
|
||||||||||||
|
Fair value of shares surrendered as payment of tax withholding
|
(2,104
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,104
|
)
|
||||||||||||
|
Intercompany activity, net
|
(26,388
|
)
|
125,142
|
|
(102,534
|
)
|
3,780
|
|
—
|
|
—
|
|
||||||||||||
|
Net cash provided by (used in) financing activities
|
(23,151
|
)
|
765,170
|
|
(102,534
|
)
|
3,780
|
|
—
|
|
643,265
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
—
|
|
(1,275
|
)
|
—
|
|
(1,275
|
)
|
||||||||||||
|
(Decrease) Increase in cash and cash equivalents
|
(13,257
|
)
|
—
|
|
—
|
|
6,244
|
|
—
|
|
(7,013
|
)
|
||||||||||||
|
Cash and cash equivalents - beginning of year
|
24,644
|
|
—
|
|
—
|
|
3,687
|
|
—
|
|
28,331
|
|
||||||||||||
|
Cash and cash equivalents - end of year
|
$
|
11,387
|
|
$
|
—
|
|
$
|
—
|
|
$
|
9,931
|
|
$
|
—
|
|
$
|
21,318
|
|
||||||
116
Condensed Consolidating Statement of Cash Flows
Year Ended March 31, 2014
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
Guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Operating Activities
|
||||||||||||||||||||||||
|
Net income (loss)
|
$
|
72,615
|
|
$
|
62,560
|
|
$
|
59,025
|
|
$
|
4,052
|
|
$
|
(125,637
|
)
|
$
|
72,615
|
|
||||||
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
||||||||||||||||||||||||
|
Depreciation and amortization
|
2,994
|
|
577
|
|
9,715
|
|
200
|
|
—
|
|
13,486
|
|
||||||||||||
|
Deferred income taxes
|
(42
|
)
|
1,466
|
|
17,765
|
|
(177
|
)
|
—
|
|
19,012
|
|
||||||||||||
|
Amortization of debt origination costs
|
—
|
|
10,512
|
|
—
|
|
—
|
|
—
|
|
10,512
|
|
||||||||||||
|
Stock-based compensation costs
|
5,146
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,146
|
|
||||||||||||
|
Loss on extinguishment of debt
|
—
|
|
18,286
|
|
—
|
|
—
|
|
—
|
|
18,286
|
|
||||||||||||
|
Premium payment on 2010 Senior Notes
|
—
|
|
(15,527
|
)
|
—
|
|
—
|
|
—
|
|
(15,527
|
)
|
||||||||||||
|
Gain on disposal of equipment
|
—
|
|
—
|
|
(3
|
)
|
—
|
|
—
|
|
(3
|
)
|
||||||||||||
|
Equity in income of subsidiaries
|
(66,739
|
)
|
(53,836
|
)
|
(4,052
|
)
|
—
|
|
124,627
|
|
—
|
|
||||||||||||
|
Changes in operating assets and liabilities, net of effects from acquisitions:
|
||||||||||||||||||||||||
|
Accounts receivable
|
(452
|
)
|
(370
|
)
|
12,460
|
|
(1,903
|
)
|
—
|
|
9,735
|
|
||||||||||||
|
Inventories
|
—
|
|
(3,193
|
)
|
2,165
|
|
(2,832
|
)
|
1,010
|
|
(2,850
|
)
|
||||||||||||
|
Prepaid expenses and other current assets
|
(3,062
|
)
|
(20
|
)
|
711
|
|
241
|
|
—
|
|
(2,130
|
)
|
||||||||||||
|
Accounts payable
|
1,815
|
|
(2,942
|
)
|
(4,142
|
)
|
628
|
|
—
|
|
(4,641
|
)
|
||||||||||||
|
Accrued liabilities
|
(4,966
|
)
|
(3,835
|
)
|
(2,664
|
)
|
(594
|
)
|
—
|
|
(12,059
|
)
|
||||||||||||
|
Net cash provided by (used in) operating activities
|
7,309
|
|
13,678
|
|
90,980
|
|
(385
|
)
|
—
|
|
111,582
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Investing Activities
|
||||||||||||||||||||||||
|
Purchases of property and equipment
|
(2,351
|
)
|
(119
|
)
|
(108
|
)
|
(186
|
)
|
—
|
|
(2,764
|
)
|
||||||||||||
|
Proceeds from sale of property and equipment
|
—
|
|
—
|
|
3
|
|
—
|
|
—
|
|
3
|
|
||||||||||||
|
Acquisition of Care Pharmaceuticals, less cash acquired
|
—
|
|
—
|
|
—
|
|
(55,215
|
)
|
—
|
|
(55,215
|
)
|
||||||||||||
|
Intercompany activity, net
|
—
|
|
(55,215
|
)
|
—
|
|
55,215
|
|
—
|
|
—
|
|
||||||||||||
|
Net cash used in investing activities
|
(2,351
|
)
|
(55,334
|
)
|
(105
|
)
|
(186
|
)
|
—
|
|
(57,976
|
)
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Financing Activities
|
||||||||||||||||||||||||
|
Proceeds from issuance of 2013 Senior Notes
|
—
|
|
400,000
|
|
—
|
|
—
|
|
—
|
|
400,000
|
|
||||||||||||
|
Repayment of 2010 Senior Notes
|
—
|
|
(250,000
|
)
|
—
|
|
—
|
|
—
|
|
(250,000
|
)
|
||||||||||||
|
Term loan repayments
|
—
|
|
(157,500
|
)
|
—
|
|
—
|
|
—
|
|
(157,500
|
)
|
||||||||||||
|
Borrowings under revolving credit agreement
|
—
|
|
50,000
|
|
—
|
|
—
|
|
—
|
|
50,000
|
|
||||||||||||
|
Repayment under revolving credit agreement
|
—
|
|
(83,000
|
)
|
—
|
|
—
|
|
—
|
|
(83,000
|
)
|
||||||||||||
|
Payments of debt origination costs
|
—
|
|
(7,466
|
)
|
—
|
|
—
|
|
—
|
|
(7,466
|
)
|
||||||||||||
|
Proceeds from exercise of stock options
|
5,907
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,907
|
|
||||||||||||
|
Excess tax benefits from share-based awards
|
1,650
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,650
|
|
||||||||||||
|
Fair value of shares surrendered as payment of tax withholding
|
(744
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(744
|
)
|
||||||||||||
|
Intercompany activity, net
|
(1,847
|
)
|
89,622
|
|
(90,875
|
)
|
3,100
|
|
—
|
|
—
|
|
||||||||||||
|
Net cash (used in) provided by financing activities
|
4,966
|
|
41,656
|
|
(90,875
|
)
|
3,100
|
|
—
|
|
(41,153
|
)
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
—
|
|
208
|
|
—
|
|
208
|
|
||||||||||||
|
Increase in cash and cash equivalents
|
9,924
|
|
—
|
|
—
|
|
2,737
|
|
—
|
|
12,661
|
|
||||||||||||
|
Cash and cash equivalents - beginning of year
|
14,720
|
|
—
|
|
—
|
|
950
|
|
—
|
|
15,670
|
|
||||||||||||
|
Cash and cash equivalents - end of year
|
$
|
24,644
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,687
|
|
$
|
—
|
|
$
|
28,331
|
|
||||||
117
21. Subsequent Events
Share based compensation:
On May 9, 2016, the Compensation Committee of our Board of Directors granted
51,266
shares of restricted common stock units and stock options to acquire
236,116
shares of our common stock to certain executive officers and employees under the Plan. All of the shares of restricted common stock units vest in their entirety on the
three
-year anniversary of the date of grant. Upon vesting, the units will be settled in shares of our common stock. The stock options will vest
33.3%
per year over
three
years and are exercisable for up to
ten
years from the date of grant. These stock options were granted at an exercise price of
$57.18
per share, which is equal to the closing price for our common stock on the day of the grant. Termination of employment prior to vesting will result in forfeiture of the unvested restricted common stock units and the unvested stock options. Vested stock options will remain exercisable by the employee after termination, subject to the terms of the Plan.
118
None.
Disclosure Controls and Procedures
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a–15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), as of March 31, 2016. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2016, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
The report of management on our internal control over financial reporting as of March 31, 2016 and the attestation report of our independent registered public accounting firm on our internal control over financial reporting are set forth in Part II, Item 8. “Financial Statements and Supplementary Data" beginning on page 67 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
We have excluded DenTek Holdings, Inc. ("DenTek") from our assessment of internal control over financial reporting as of March 31, 2016, because (i) DenTek was acquired by us in the fourth quarter of 2016 and (ii) DenTek is a wholly-owned subsidiary whose total assets and total revenue represent approximately 1% and 1%, respectively, of the related consolidated financial statement amounts as of the year ended March 31, 2016. We are currently in the process of evaluating and integrating DenTek's historical internal control over financial reporting structure with ours. Other than the changes noted above, there have been no changes during the quarter ended March 31, 2016 in the Company’s internal control over financial reporting, as defined in Rule 13a - 15(f) of the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
119
Information required to be disclosed by this Item will be contained in the Company’s 2016 Proxy Statement under the headings “Election of Directors,” “Executive Compensation and Other Matters,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Governance of the Company”, which information is incorporated herein by reference.
Information required to be disclosed by this Item, including Items 402 (b) and 407 (e)(4) and (e)(5) of Regulation S-K, will be contained in the Company’s 2016 Proxy Statement under the headings “Executive Compensation and Other Matters”, “Governance of the Company”, "Compensation Discussion and Analysis", "Compensation Committee Report", and "Compensation Committee Interlocks and Insider Participation", which information is incorporated herein by reference.
Information required to be disclosed by this Item will be contained in the Company’s 2016 Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans”, which information is incorporated herein by reference.
Information required to be disclosed by this Item will be contained in the Company’s 2016 Proxy Statement under the headings “Certain Relationships and Related Transactions”, “Election of Directors” and “Governance of the Company”, which information is incorporated herein by reference.
Information required to be disclosed by this Item will be contained in the Company’s 2016 Proxy Statement under the heading “Ratification of Appointment of the Independent Registered Public Accounting Firm”, which information is incorporated herein by reference.
120
|
(a)(1)
|
Financial Statements
|
The financial statements and financial statement schedules listed below are set forth under Part II, Item 8 (pages 67 through 117 and page 122) of this Annual Report on Form 10-K, which are incorporated herein to this Item as if copied verbatim.
|
Prestige Brands Holdings, Inc.
|
|
Report of Independent Registered Public Accounting Firm,
PricewaterhouseCoopers LLP
|
|
Consolidated Statements of Income and Comprehensive Income for each of the three years in
the period ended March 31, 2016
|
|
Consolidated Balance Sheets at March 31, 2016 and 2015
|
|
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive
Income for each of the three years in the period ended March 31, 2016
|
|
Consolidated Statements of Cash Flows for each of the three years
in the period ended March 31, 2016
|
|
Notes to Consolidated Financial Statements
|
|
Schedule II—Valuation and Qualifying Accounts
|
|
(a)(2)
|
Financial Statement Schedules
|
Schedule II - Valuation and Qualifying Accounts listed in (a)(1) above is incorporated herein by reference as if copied verbatim. Schedules other than those listed in the preceding sentence have been omitted as they are either not required, not applicable, or the information has otherwise been shown in the consolidated financial statements or notes thereto.
|
(b)
|
Exhibits
|
See Exhibit Index immediately following the financial statements and financial statement schedules of this Annual Report on Form 10-K.
121
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
PRESTIGE BRANDS HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ David S. Marberger
|
|
|
|
Name:
|
David S. Marberger
|
|
|
|
Title:
|
Chief Financial Officer
|
|
|
|
Date:
|
May 17, 2016
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ RONALD M. LOMBARDI
|
|
Director, President
and Chief Executive Officer
|
|
May 17, 2016
|
|
Ronald M. Lombardi
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
/s/ DAVID S. MARBERGER
|
|
Chief Financial Officer
|
|
May 17, 2016
|
|
David S. Marberger
|
|
(Principal Financial Officer and
|
|
|
|
|
|
Principal Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/ JOHN E. BYOM
|
|
Director
|
|
May 17, 2016
|
|
John E. Byom
|
|
|
|
|
|
|
|
|
|
|
|
/s/ GARY E. COSTLEY
|
|
Director
|
|
May 17, 2016
|
|
Gary E. Costley
|
|
|
|
|
|
|
|
|
|
|
|
/s/ SHEILA A. HOPKINS
|
|
Director
|
|
May 17, 2016
|
|
Sheila A. Hopkins
|
|
|
|
|
|
|
|
|
|
|
|
/s/ CARL J. JOHNSON
|
|
Director
|
|
May 17, 2016
|
|
Carl J. Johnson
|
||||
|
|
||||
|
/s/ JAMES M. JENNESS
|
|
Director
|
|
May 17, 2016
|
|
James M. Jenness
|
|
|
|
|
122
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
(In thousands)
|
Balance at
Beginning of
Year
|
Amounts
Charged to
Expense
|
|
Deductions
|
Other
|
Balance at
End of
Year
|
|||||||||||||
|
Year Ended March 31, 2016
|
|
|
|
|
|
||||||||||||||
|
Reserves for sales returns and allowance
|
$
|
6,716
|
|
$
|
41,217
|
|
|
$
|
(40,085
|
)
|
$
|
975
|
|
(a)
|
$
|
8,823
|
|
||
|
Reserves for trade promotions
|
9,932
|
|
62,331
|
|
(62,409
|
)
|
2,787
|
|
(a)
|
12,641
|
|
||||||||
|
Reserves for consumer coupon redemptions
|
1,672
|
|
6,235
|
|
(5,637
|
)
|
2,053
|
|
(a)
|
4,323
|
|
||||||||
|
Allowance for doubtful accounts
|
1,277
|
|
(276
|
)
|
|
(186
|
)
|
—
|
|
815
|
|
||||||||
|
Year Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Reserves for sales returns and allowance
|
7,395
|
|
34,598
|
|
|
(35,277
|
)
|
—
|
|
6,716
|
|
||||||||
|
Reserves for trade promotions
|
6,101
|
|
60,499
|
|
(56,668
|
)
|
—
|
|
9,932
|
|
|||||||||
|
Reserves for consumer coupon redemptions
|
1,742
|
|
5,089
|
|
(5,159
|
)
|
—
|
|
1,672
|
|
|||||||||
|
Allowance for doubtful accounts
|
1,035
|
|
340
|
|
|
(98
|
)
|
—
|
|
1,277
|
|
||||||||
|
Year Ended March 31, 2014
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Reserves for sales returns and allowance
|
6,446
|
|
38,314
|
|
(37,365
|
)
|
—
|
|
7,395
|
|
|||||||||
|
Reserves for trade promotions
|
8,523
|
|
39,967
|
|
(42,389
|
)
|
—
|
|
6,101
|
|
|||||||||
|
Reserves for consumer coupon redemptions
|
4,249
|
|
2,755
|
|
(5,262
|
)
|
—
|
|
1,742
|
|
|||||||||
|
Allowance for doubtful accounts
|
863
|
|
134
|
|
|
(6
|
)
|
44
|
|
1,035
|
|
||||||||
(a) Reflects the applicable amounts acquired from the purchase of DenTek on February 5, 2016.
123
EXHIBIT INDEX
|
Exhibit No.
|
|
Description
|
|
2.1
|
Business Sale and Purchase Agreement, dated December 20, 2011, between GlaxoSmithKline LLC, GlaxoSmithKline plc and certain of its affiliates and Prestige Brands Holdings, Inc. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the SEC on December 27, 2011).+†
|
|
|
2.2
|
Business Sale and Purchase Agreement, dated December 20, 2011 between GlaxoSmithKline LC, GlaxoSmithKline Consumer Healthcare L.P., GlaxoSmithKline plc and Prestige Brands Holdings, Inc. (filed as Exhibit 2.2 to the Company's Current Report on Form 8-K filed with the SEC on December 20, 2011).+†
|
|
|
2.3
|
Stock Purchase Agreement, dated April 25, 2014, by and among Medtech Products Inc., Insight Pharmaceuticals Corporation, SPC Partners IV, L.P. and the other seller parties thereto (filed as Exhibit 2.5 to the Company's Annual Report on Form 10-K filed with the SEC on May 19, 2014). +
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Prestige Brands Holdings, Inc. (filed as Exhibit 3.1 to the Company's Form S-1/A filed with the SEC on February 8, 2005).+
|
|
3.2
|
|
Amended and Restated Bylaws of Prestige Brands Holdings, Inc., as amended (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on November 6, 2009).+
|
|
3.3
|
Certificate of Designations of Series A Preferred Stock of Prestige Brands Holdings, Inc., as filed with the Secretary of State of the State of Delaware on February 27, 2012 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the SEC on February 28, 2012).+
|
|
|
4.1
|
Form of stock certificate for common stock (filed as Exhibit 4.1 to the Company's Form S-1/A filed with the SEC on January 26, 2005).+
|
|
|
4.2
|
|
Indenture, dated as of December 17, 2013, among Prestige Brands, Inc., as issuer, the Company and certain subsidiaries, as guarantors, and U.S. Bank National Association, as Trustee with respect to 5.375% Senior Notes due 2021 (filed as Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on February 7, 2014).+
|
|
4.3
|
Second Supplemental Indenture, dated December 17, 2013 by and among Prestige Brands, Inc. the guarantors party thereto from time to time and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 17, 2013).+
|
|
|
4.4
|
Form of 5.375% Senior Note due 2021 (filed as Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on February 7, 2014).+
|
|
|
4.5
|
Indenture, dated as of February 19, 2016, among Prestige Brands, Inc., as issuer, the Company and certain subsidiaries, as guarantors, and U.S. Bank National Association, as Trustee with respect to 6.375% Senior Notes due 2024 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the SEC on February 19, 2016). +
|
|
|
4.6
|
First Supplemental Indenture, dated as of April 4, 2016, among DenTek Holdings, Inc. and DenTek Oral Care, Inc., as guaranteeing subsidiaries, Prestige Brands, Inc. and U.S. Bank National Association, as Trustee with respect to the 6.375% Senior Notes due 2024.*
|
|
|
4.7
|
Form of 6.375% Senior Notes due 2024 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the SEC on February 19, 2016). +
|
|
|
10.1
|
$660,000,000 Term Loan Credit Agreement, dated as of January 31, 2012, among Prestige Brands Inc., the Company, and certain subsidiaries of the Company as guarantors, Citibank, N.A., Citigroup Global Markets Inc., Morgan Stanley Senior Funding, Inc. and RBC Capital Markets (filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K filed with the SEC on May 18, 2012).+
|
|
|
10.2
|
Amendment No. 1, dated as of February 21, 2013, to the Term Loan Credit Agreement, dated as of January 31, 2012, among Prestige Brands Holdings, Inc., Prestige Brands, Inc., the other Guarantors from time to time party thereto, the lenders from time to time party thereto and Citibank, N.A. as administrative agent (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on February 25, 2013).+
|
|
|
10.3
|
Amendment No. 2, dated as of September 3, 2014, to the Term Loan Credit Agreement (as amended by Amendment No.1, dated as of February 21, 2013), dated as of January 31, 2012, among Prestige Brands Holdings, Inc., Prestige Brands, Inc., the other Guarantors from time to time party thereto, the lenders from time to time party thereto and Citibank, N.A. as administrative agent (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on February 5, 2015).+
|
|
|
10.4
|
Amendment No. 3, dated as of May 8, 2015, to the Term Loan Credit Agreement, dated as of December 31, 2012, as amended by Amendment No. 1, dated as of February 21, 2013, and as further amended by Amendment No. 2, dated as of September 3, 2014, among Prestige Brands Holdings, Inc., Prestige Brands, Inc., the other Guarantors from time to time party thereto, the lender from time to time party thereto and Citibank, N.A. as administrative agent (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K filed with the SEC on May 14, 2015).+
|
|
|
10.5
|
Term Loan Security Agreement, dated as of January 31, 2012, among Prestige Brands Inc., the Company and certain subsidiaries of the Company as guarantors, Citibank N.A. and U.S. Bank National Association, as Trustee (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K filed with the SEC on May 18, 2012).+
|
|
|
10.6
|
$50,000,000 ABL Credit Agreement, dated as of January 31, 2012, Among Prestige Brands, Inc., the Company, certain subsidiaries of the Company as guarantors, Citibank, N.A., Citigroup Global Markets Inc., Morgan Stanley Senior Funding, Inc. and RBC Capital Markets filed (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K filed with the SEC on May 18, 2012.).+
|
|
|
10.7
|
Incremental Amendment, dated as of September 12, 2012, to the ABL Credit Agreement dated as of January 31, 2012 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on November 7, 2012).+
|
|
|
10.8
|
Amendment, dated as of June 11, 2013, to the ABL Credit Agreement dated as of January 31, 2012 (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 1, 2013).+
|
|
|
10.9
|
Amendment No. 3, dated as of September 3, 2014, to the ABL Credit Agreement (as amended by that certain Incremental Amendment, dated as of September 12, 2012, and that certain Incremental Amendment, dated as of June 11, 2013), dated as of January 31, 2012, among Prestige Brands Holdings, Inc., Prestige Brands, Inc., the other Guarantors from time to time party thereto, the lenders from time to time party thereto and Citibank, N.A. as administrative agent, L/C issuer and swing line lender (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 3, 2014). +
|
|
|
10.10
|
Amendment No. 4, dated as of June 9, 2015, to the ABL Credit Agreement (as amended by that certain Incremental Amendment, dated as of September 12, 2012, and that certain Incremental Amendment, dated as of June 11, 2013, and that certain Incremental Amendment dated as of September 3, 2014), dated as of January 31, 2012, among Prestige Brands Holdings, Inc., Prestige Brands, Inc., the other Guarantors from time to time party thereto, the lenders from time to time party thereto and Citibank, N.A. as administrative agent, L/C issuer and swing line lender (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 6, 2015).+
|
|
|
10.11
|
Amendment No. 5 , dated as of February 4, 2016, to the ABL Credit Agreement, originally dated as of January 31, 2012, among the Company, Prestige Brands, Inc., the other Guarantors from time to time party thereto, the lenders from time to time party thereto and Citibank, N.A. as administrative agent, L/C issuer and swing line lender (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on February 4, 2016). +
|
|
|
10.12
|
Agreement of Lease between RA 660 White Plains Road LLC and Prestige Brands, Inc. (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 9, 2012).+
|
|
|
10.13
|
Amendment to agreement of lease between RA 660 White Plains Road LLC and Prestige Brands, Inc. (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 7, 2014). +
|
|
|
10.14
|
Second Amendment to Lease between RA 660 White Plains Road LLC and Prestige Brands, Inc. (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on November 6, 2014). +
|
|
|
10.15
|
Executive Employment Agreement, dated as of April 22, 2015, by and between Prestige Brands Holdings, Inc. and Ronald M. Lombardi (filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K filed with the SEC on May 14, 2015)+@
|
|
|
10.16
|
Executive Employment Agreement, dated as of October 28, 2015, by and between Prestige Brands Holdings, Inc. and David Marberger (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on November 5, 2015)+@
|
|
|
10.17
|
|
Executive Employment Agreement, dated as of August 21, 2006, between Prestige Brands Holdings, Inc. and Jean A. Boyko (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on November 9, 2006).+@
|
|
10.18
|
|
Executive Employment Agreement, dated as of October 1, 2007, between Prestige Brands Holdings, Inc. and John Parkinson (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed with the SEC on February 8, 2008).+@
|
|
10.19
|
|
Executive Employment Agreement, dated as of April 19, 2010, between Prestige Brands Holdings, Inc. and Timothy Connors (filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K filed with the SEC on June 11, 2010).+@
|
|
10.20
|
Executive Employment Agreement, dated as of April 1, 2013, between Prestige Brands Holdings, Inc. and Paul Migaki (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 1, 2013). +@
|
|
|
10.21
|
Executive Employment Agreement, dated as of February 29, 2012, by and between Prestige Brands Holdings, Inc. and Samuel C. Cowley (filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K filed with the SEC on May 18, 2012).+@
|
|
|
10.22
|
Executive Employment Agreement, dated as of August 11, 2014, by and between Prestige Brands Holdings, Inc. and Thomas Hochuli (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on November 6, 2014)+@
|
|
|
10.23
|
Executive Employment Agreement, dated as of April 1, 2016, between Prestige Brands Holdings, Inc. and Chris Heye. *@
|
|
|
10.24
|
Executive Retirement Agreement, dated as of April 22, 2015, by and between Prestige Brands Holdings, Inc. and Matthew M. Mannelly (filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K filed with the SEC on May 14, 2015)+@
|
|
|
10.25
|
|
Prestige Brands Holdings, Inc. 2005 Long-Term Equity Incentive Plan (filed as Exhibit 10.38 to the Company’s Form S-1/A filed with the SEC on January 26, 2005).+#
|
|
10.26
|
|
Form of Restricted Stock Grant Agreement (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 9, 2005).+#
|
|
10.27
|
|
Form of Nonqualified Stock Option Agreement (filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K filed with the SEC on May 19, 2014). +#
|
|
10.28
|
|
Form of Award Agreement for Restricted Stock Units (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K filed with the SEC on May 19, 2014). +#
|
|
10.29
|
|
Form of Director Indemnification Agreement (filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed with the SEC on May 17, 2013).+@
|
|
10.30
|
|
Form of Officer Indemnification Agreement (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed with the SEC on May 17, 2013).+@
|
|
10.31
|
|
Supply Agreement, dated May 15, 2008, by and between Fitzpatrick Bros., Inc. and The Spic and Span Company (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 11, 2008).+†
|
|
10.32
|
First Amendment to Supply Agreement, dated as of March 1, 2011, between Fitzpatrick Bros., Inc. and The Spic and Span Company (filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K filed with the SEC on May 13, 2011).+†
|
|
|
10.33
|
Transitional Manufacturing and Supply Agreement, dated January 31, 2012 between Medtech Products Inc. ("MedTech") and GlaxoSmithKline Consumer Healthcare L.P. ("GSK") (filed as Exhibit 10.28 to the Company's Annual Report on Form 10-K filed with the SEC on May 18, 2012).+†
|
|
|
10.34
|
Amendment No. 1 to Transitional Manufacturing and Supply Agreement, dated as of June 25, 2013 between GSK and Medtech.*
|
|
|
10.35
|
Amendment No. 2 to Transitional Manufacturing and Supply Agreement, dated as of November 6, 2015, between GSK and Medtech. *
|
|
|
10.36
|
Supply Agreement, dated as of July 1, 2012, among Medtech Products Inc. and Pharmacare Limited T/A Aspen Pharmacare (filed as Exhibit 10.27 to the Company’s Annual Report on Form 10-K filed with the SEC on May 17, 2013).+
|
|
|
10.37
|
Supply Agreement, dated as of November 16, 2012, among Medtech Products Inc. and BestSweet Inc (filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed with the SEC on May 17, 2013).+
|
|
|
21.1
|
|
Subsidiaries of the Registrant.*
|
|
23.1
|
|
Consent of PricewaterhouseCoopers LLP.*
|
|
31.1
|
|
Certification of Principal Executive Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
31.2
|
|
Certification of Principal Financial Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
32.1
|
|
Certification of Principal Executive Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
32.2
|
Certification of Principal Financial Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
|
*
|
Filed herewith.
|
|
|
|
|
†
|
Certain confidential portions have been omitted pursuant to a confidential treatment request separately filed with the SEC.
|
|
|
|
|
+
|
Incorporated herein by reference.
|
|
|
|
|
@
|
Represents a management contract.
|
|
|
|
|
#
|
Represents a compensatory plan.
|
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules