PRESTIGE CONSUMER HEALTHCARE INC.
10-Ks and 10-Qs
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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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[ X ]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2010
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OR
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____ to _____
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Commission File Number: 001-32433
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PRESTIGE BRANDS HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
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Delaware
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20-1297589
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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90 North Broadway
Irvington, New York 10533
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(Address of Principal Executive Offices, including zip code)
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(914) 524-6810
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(Registrant's telephone number, including area code)
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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
x
No
o
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
o
No
o
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
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Smaller reporting company
o
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
x
As
of January 31, 2011, there were 50,228,582 s
hares of common stock outstanding.
Prestige Brands Holdings, Inc.
Form 10-Q
Index
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PART I.
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FINANCIAL INFORMATION
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Item 1.
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Consolidated Financial Statements
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Consolidated Statements of Operations — three and nine month periods ended December 31, 2010 and 2009 (unaudited)
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Consolidated Balance Sheets — December 31, 2010 and March 31, 2010 (unaudited)
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Consolidated Statements of Cash Flows — nine month periods ended December 31, 2010 and 2009 (unaudited)
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Notes to Consolidated Financial Statements
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 3.
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Quantitative and Qualitative Disclosure About Market Risk
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Item 4.
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Controls and Procedures
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PART II.
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OTHER INFORMATION
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Item 1.
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Legal Proceedings
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Item 6.
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Exhibits
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Signatures
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Trademarks and Trade Names
Trademarks and trade names used in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q.
-
1
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ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS
Prestige Brands Holdings, Inc.
(Unaudited)
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Three Months Ended December 31
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Nine Months Ended December 31
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(In thousands, except per share data)
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2010
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2009
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2010
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2009
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Revenues
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Net sales
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$
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90,077
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$
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73,372
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$
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238,086
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$
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221,178
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Other revenues
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531
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446
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2,061
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1,483
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Total revenues
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90,608
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73,818
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240,147
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222,661
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Cost of Sales
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Cost of sales (exclusive of depreciation shown below)
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46,596
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34,647
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115,574
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104,174
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Gross profit
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44,012
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39,171
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124,573
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118,487
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Operating Expenses
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Advertising and promotion
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13,049
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6,037
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28,775
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24,379
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General and administrative
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15,426
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7,411
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30,941
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26,087
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Depreciation and amortization
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2,513
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2,458
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7,336
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7,368
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Total operating expenses
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30,988
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15,906
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67,052
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57,834
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Operating income
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13,024
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23,265
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57,521
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60,653
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Other expense
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Interest expense, net
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7,674
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5,558
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18,508
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16,853
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Loss on extinguishment of debt
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—
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—
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300
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—
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Total other expense
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7,674
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5,558
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18,808
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16,853
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Income from continuing operations before income taxes
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5,350
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17,707
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38,713
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43,800
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Provision for income taxes
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3,204
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7,642
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15,948
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17,531
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Income from continuing operations
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2,146
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10,065
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22,765
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26,269
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Discontinued Operations
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Income from discontinued operations, net of income tax
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32
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358
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591
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2,402
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Gain/(Loss) on sale of discontinued operations, net of income tax/(benefit)
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—
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157
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(550
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157
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Net income
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$
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2,178
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$
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10,580
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$
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22,806
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$
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28,828
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Basic earnings per share:
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Income from continuing operations
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$
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0.04
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$
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0.20
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$
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0.46
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$
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0.53
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Net income
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$
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0.04
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$
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0.21
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$
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0.46
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$
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0.58
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Diluted earnings per share:
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Income from continuing operations
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$
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0.04
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$
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0.20
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$
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0.45
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$
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0.53
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Net income
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$
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0.04
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$
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0.21
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$
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0.45
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$
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0.58
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Weighted average shares outstanding:
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Basic
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50,085
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50,030
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50,059
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50,008
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Diluted
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50,533
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50,074
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50,260
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50,078
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See accompanying notes.
-
2
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Prestige Brands Holdings, Inc.
(Unaudited)
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(In thousands)
Assets
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December 31,
2010 |
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March 31,
2010 |
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Current assets
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Cash and cash equivalents
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$
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83,266
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$
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41,097
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Accounts receivable
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41,981
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30,621
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Inventories
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47,907
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27,676
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Deferred income tax assets
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4,700
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6,353
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Prepaid expenses and other current assets
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1,800
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4,917
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Current assets of discontinued operations
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—
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1,486
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Total current assets
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179,654
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112,150
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Property and equipment
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1,406
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1,396
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Goodwill
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153,199
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111,489
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Intangible assets
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712,860
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554,359
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Other long-term assets
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6,729
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7,148
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Long-term assets of discontinued operations
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—
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4,870
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Total Assets
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$
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1,053,848
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$
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791,412
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Liabilities and Stockholders' Equity
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Current liabilities
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Accounts payable
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$
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18,682
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$
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12,771
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Accrued interest payable
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5,156
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1,561
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Other accrued liabilities
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20,589
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11,733
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Current portion of long-term debt
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659
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29,587
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Total current liabilities
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45,086
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55,652
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Long-term debt
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Principal amount
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508,841
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298,500
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Less unamortized discount
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(5,277
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)
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(3,943
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)
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Long-term debt, net of unamortized discount
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503,564
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294,557
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Deferred income tax liabilities
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150,696
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112,144
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Total Liabilities
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699,346
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462,353
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Commitments and Contingencies — Note 17
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Stockholders' Equity
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Preferred stock - $0.01 par value
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Authorized - 5,000 shares
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Issued and outstanding - None
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—
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—
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Common stock - $0.01 par value
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Authorized - 250,000 shares
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Issued - 50,229 shares at December 31, 2010 and 50,154 shares at March 31, 2010
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502
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502
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Additional paid-in capital
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386,928
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384,027
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Treasury stock, at cost - 148 shares at December 31, 2010 and 124 shares at March 31, 2010
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(327
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(63
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)
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Accumulated deficit
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(32,601
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)
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(55,407
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)
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Total Stockholders' Equity
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354,502
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329,059
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Total Liabilities and Stockholders' Equity
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$
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1,053,848
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$
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791,412
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See accompanying notes.
-
3
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Prestige Brands Holdings, Inc.
(Unaudited)
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Nine Months Ended December 31
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||||||
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(In thousands)
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2010
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2009
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||||
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Operating Activities
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||||||
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Net income
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$
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22,806
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$
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28,828
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization
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7,565
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8,679
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Loss (Gain) on sale of discontinued operations
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890
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(253
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)
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Deferred income taxes
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5,591
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10,254
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Amortization of deferred financing costs
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767
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1,432
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Stock-based compensation costs
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2,751
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1,658
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Loss on extinguishment of debt
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300
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—
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Amortization of debt discount
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480
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—
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Loss on disposition of equipment
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131
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—
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Changes in operating assets and liabilities
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Accounts receivable
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7,330
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6,407
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Inventories
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2,814
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(6,958
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)
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Inventories held for sale
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1,114
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(1,323
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)
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Prepaid expenses and other current assets
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3,166
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(664
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)
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Accounts payable
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(1,054
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)
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1,006
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Accrued liabilities
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7,008
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1,424
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Net cash provided by operating activities
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61,659
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50,490
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Investing Activities
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Purchases of equipment
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(405
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)
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(402
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)
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Proceeds from sale of discontinued operations
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4,122
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7,993
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Acquisition of Blacksmith, net of cash acquired
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(202,044
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)
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—
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Net cash (used for) provided by investing activities
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(198,327
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)
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7,591
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Financing Activities
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Proceeds from issuance of Senior Notes
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100,250
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—
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Proceeds from issuance of Senior Term Loan
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112,936
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|
—
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|||
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Payment of deferred financing costs
|
(648
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)
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—
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|
|||
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Repayment of long-term debt
|
(33,587
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)
|
(59,000
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)
|
|||
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Proceeds from exercise of stock options
|
150
|
|
—
|
|
|||
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Purchase of treasury stock
|
(264
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)
|
—
|
|
|||
|
Net cash provided by (used for) financing activities
|
178,837
|
|
|
(59,000
|
)
|
||
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Increase (decrease) in cash
|
42,169
|
|
|
(919
|
)
|
||
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Cash - beginning of period
|
41,097
|
|
|
35,181
|
|
||
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Cash - end of period
|
$
|
83,266
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|
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$
|
34,262
|
|
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Interest paid
|
$
|
13,354
|
|
|
$
|
18,345
|
|
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Income taxes paid
|
$
|
4,096
|
|
|
$
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9,820
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See accompanying notes.
-
4
-
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” which reference shall, unless the context requires otherwise, be deemed to refer to Prestige Brands Holdings, Inc. and all of its direct and indirect wholly-owned subsidiaries on a consolidated basis) is engaged in the marketing, sales and distribution of over-the-counter healthcare and household cleaning brands to mass merchandisers, drug stores, supermarkets and dollar and club stores primarily in the United States, Canada 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 10 to the consolidated financial statements.
Basis of Presentation
The unaudited consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All significant intercompany transactions and balances have been eliminated in the consolidated financial statements. In the opinion of management, the financial statements include all adjustments, consisting of normal recurring adjustments that are considered necessary for a fair presentation of the Company's consolidated financial position, results of operations and cash flows for the interim periods. Operating results for the
three and nine
month periods ended
December 31, 2010
are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2011. This financial information should be read in conjunction with the Company's financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2010
.
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 the Company's knowledge of current events and the Company's expectations, actual results could differ from those estimates. As discussed below, the Company's most significant estimates include those made in connection with the valuation of goodwill and intangible assets, sales returns and allowances, trade promotional allowances and inventory obsolescence.
Cash and Cash Equivalents
The Company considers all short-term deposits and investments with original maturities of three months or less to be cash equivalents. Substantially all of the Company's cash is held by a large regional bank with headquarters in California. The Company does not believe that, as a result of this concentration, it is subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships.
Accounts Receivable
The Company extends non-interest bearing trade credit to its customers in the ordinary course of business. The Company maintains 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, the Company (i) has established credit limits for all of its customer relationships, (ii) performs ongoing credit evaluations of customers' financial condition, (iii) monitors the payment history and aging of customers' receivables, and (iv) monitors open orders against an individual customer's outstanding receivable balance.
Inventories
Inventories are stated at the lower of cost or fair value, with cost determined by using the first-in, first-out method. The Company provides an allowance for slow moving and obsolete inventory, whereby it reduces 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.
-
5
-
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:
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Years
|
|
Machinery
|
5
|
|
Computer equipment
|
3
|
|
Furniture and fixtures
|
7
|
Leasehold improvements are amortized over the lesser of the term of the lease or 5 years.
Expenditures for maintenance and repairs are charged to expense as incurred. When an asset is sold or otherwise disposed of, the cost and associated accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized in the consolidated statement of operations.
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. The Company does not amortize goodwill, but performs impairment tests of the carrying value 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. The Company tests goodwill for impairment at the reporting unit “brand” level which is one level below the operating segment level.
Intangible Assets
Intangible assets, which are composed primarily of trademarks, are stated at cost less accumulated amortization. For intangible assets with finite lives, amortization is computed on the straight-line method over estimated useful lives ranging from 3 to 30 years.
Indefinite-lived intangible assets are tested for impairment at least annually in the fourth fiscal quarter of each year; however, at each reporting period an evaluation is made to determine whether events and circumstances continue to support an indefinite useful life. 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.
Deferred Financing Costs
The Company has incurred debt origination costs in connection with the issuance of long-term debt. These costs are capitalized as deferred financing costs and amortized using the straight-line method, which approximates the effective interest method, over the term of the related debt.
Revenue Recognition
Revenues are recognized 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. The Company has 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, recognizes revenue at that time. Provision is made for estimated discounts related to customer payment terms and estimated product returns at the time of sale based on the Company's historical experience.
As is customary in the consumer products industry, the Company participates in the promotional programs of its customers to enhance the sale of its 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 the Company's 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 offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel. At the completion of a promotional program, the estimated amounts are adjusted to actual results.
-
6
-
Due to the nature of the consumer products industry, the Company is required to estimate future product returns. Accordingly, the Company records 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 the Company's 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. Shipping, warehousing and handling costs were $6.6 million and $17.2 million, respectively, for the
three and nine
month periods ended
December 31, 2010
. During the
three and nine
month periods ended
December 31, 2009
, such costs were $5.8 million and $15.4 million, respectively.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred. Allowances for new distribution, including slotting fees, associated with products are recognized as a reduction of sales. Under allowances for new distribution arrangements, the retailers allow the Company's products to be placed on the stores' shelves in exchange for such fees.
Stock-based Compensation
The Company recognizes employee 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 Taxes Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 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. As a result, and under the prescribed FASB guidance, the Company has applied a more-likely-than-not recognition threshold for all tax uncertainties. 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.
The Company is subject to taxation in the United States and various state and foreign jurisdictions. The Company remains subject to examination by tax authorities for the fiscal year ended March 31, 2007.
The Company classifies penalties and interest related to unrecognized tax benefits as income tax expense in the Statements of Operations.
Derivative Instruments
Companies are required to recognize derivative instruments as either assets or liabilities in the consolidated Balance Sheets at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign operation.
The Company has designated its derivative financial instruments as cash flow hedges because they hedge exposure to variability in expected future cash flows that are attributable to interest rate risk. For these hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same line item (principally interest expense) associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of the gain or loss on the derivative instruments is recorded in results of operations immediately. Cash flows from these instruments are classified as operating activities.
-
7
-
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 stock options and unvested restricted shares, are included in the earnings per share calculation to the extent that they are dilutive.
Reclassifications
Certain prior period financial statement amounts have been reclassified to conform to the current period presentation due to the accounting treatment for discontinued operations.
Recently Issued Accounting Standards
In December 2010, the FASB issued guidance regarding the goodwill impairment test for reporting units with zero or negative carrying amounts.
Under the ASC Intangibles-Goodwill and Other Topic, testing for goodwill impairment is a two-step test. When a goodwill impairment test is performed (either on an annual or interim basis), an entity must assess whether the carrying amount of a reporting unit exceeds its fair value (Step 1). If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the amount of that impairment (Step 2). The new guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company is currently evaluating the impact of adopting this guidance.
In December 2010, the FASB issued guidance regarding disclosure of supplementary pro forma information for business combinations. This guidance specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The guidance also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
In May 2009, the FASB issued guidance regarding subsequent events, which was subsequently updated in February 2010. This guidance established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this guidance set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009, and was therefore adopted by the Company for the second quarter 2009 reporting. The adoption did not have a significant impact on the subsequent events that the Company reports, either through recognition or disclosure, in the consolidated financial statements. In February 2010, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance. This amendment was effective immediately and accordingly, the Company has not presented that disclosure in this Quarterly Report.
In January 2010, the FASB issued authoritative guidance requiring new disclosures and clarifying some existing disclosure requirements about fair value measurement. Under the new guidance, a reporting entity should (a) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers, and (b) present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
-
8
-
Management has reviewed and continues to monitor the actions of the various financial and regulatory reporting agencies and is currently not aware of any other pronouncement that could have a material impact on the Company's consolidated financial position, results of operations or cash flows.
2.
Acquisitions
Blacksmith Acquisition
On November 1, 2010, the Company acquired 100% of the capital stock of Blacksmith Brands Holdings, Inc. (“Blacksmith”) for $190.0 million in cash, plus a working capital adjustment of $13.4 million and an additional $1.1 million was paid by Prestige on behalf of Blacksmith for the seller's transaction costs. The working capital adjustment is among a number of items that the Company is challenging related to the purchase price. In connection with this acquisition, the Company acquired five Over-the-Counter brands:
Efferdent®, Effergrip®, PediaCare®, Luden's®,
and
NasalCrom®.
These brands are complementary to the Company's existing Over-the-Counter brands. The purchase price was funded by cash provided by the issuance of long term debt and additional bank borrowings, which are discussed further in Note 10.
The acquisition was accounted for in accordance with the Business Combinations Topic of the ASC 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 following table summarizes the preliminary allocation of the $204.5 million purchase price to the assets acquired and liabilities
assumed at the date of acquisition:
|
(In thousands)
|
||||
|
Cash acquired
|
$
|
2,507
|
|
|
|
Accounts receivable, net
|
17,473
|
|
||
|
Other receivables
|
1,198
|
|
||
|
Income taxes receivable
|
5
|
|
||
|
Inventories
|
23,045
|
|
||
|
Prepaids and other current assets
|
44
|
|
||
|
Property, plant and equipment, net
|
226
|
|
||
|
Goodwill
|
41,710
|
|
||
|
Trademarks
|
165,346
|
|
||
|
Other long-term assets
|
19
|
|
||
|
Total assets acquired
|
251,573
|
|
||
|
Accounts payable
|
6,965
|
|
||
|
Accrued expenses
|
3,412
|
|
||
|
Income taxes payable
|
2,031
|
|
||
|
Deferred income taxes
|
34,614
|
|
||
|
Total liabilities assumed
|
47,022
|
|
||
|
Total purchase price
|
$
|
204,551
|
|
|
Transaction and other costs associated with the Blacksmith acquisition of $6.9 million are included in general and administrative expenses on the Company's statement of operations for the three and nine month periods ended December 31, 2010.
The preliminary allocation of the purchase price to assets acquired and liabilities assumed is based on valuations performed to determine the fair value of such assets as of the acquisition date. The Company is still assessing the economic characteristics of certain trademarks. The Company expects to substantially complete this assessment during the fourth quarter of the fiscal year ending March 31, 2011 and may adjust the amounts recorded as of December 31, 2010 to reflect any revised valuations.
-
9
-
The Company preliminarily recorded goodwill based on the amount by which the purchase price exceeded the preliminary fair value of net assets acquired. The preliminary amount of goodwill deductible for tax purposes is $4.6 million.
The Company is amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average life of 15 years.
The operating results of Blacksmith have been included in the consolidated financial statements from the date of acquisition. Revenues of the acquired operations from November 1, 2010 through December 31, 2010 were $15.2 million while the net loss was $3.2 million.
The following table provides the Company's unaudited pro forma revenues, income from continuing operations and income from continuing operations per basic and diluted common share as if the results of Blacksmith's operations had been included in the Company's operations commencing on April 1, 2010, based upon available information related to Blacksmith's operations. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized by the Company had the Blacksmith acquisition been consummated at the beginning of the period for which the pro forma information is presented, or of future results.
|
(In thousands, except per share data)
|
Three Months Ended December 31, 2010
|
Nine Months Ended December 31, 2010
|
||||||
|
Revenues
|
$
|
100,515
|
|
$
|
295,838
|
|
||
|
Income from continuing operations
|
2,509
|
|
25,033
|
|
||||
|
Basic earnings per share:
|
||||||||
|
Income from continuing operations
|
$
|
0.05
|
|
$
|
0.50
|
|
||
|
Diluted earnings per share:
|
||||||||
|
Income from continuing operations
|
$
|
0.05
|
|
$
|
0.50
|
|
||
Dramamine Acquisition
On January 6, 2011, the Company completed the acquisition of certain assets associated with the
Dramamine
business in the United States. The acquisition is more fully described in Note 21.
3. Discontinued Operations and Sale of Certain Assets
On September 1, 2010, the Company sold certain assets related to the nail polish remover brand previously included in its Personal Care products segment to an unrelated third party. In accordance with the Discontinued Operations Topic of the ASC, the Company reclassified the related assets as assets of discontinued operations in the consolidated balance sheet as of
March 31, 2010
, and reclassified the related operating results as discontinued operations in the consolidated financial statements and related notes for all periods presented. The Company recognized a loss of $0.9 million on a pre-tax basis and $0.6 million net of tax effects on the sale in the nine month period ended December 31, 2010. The total sales price for the assets was $4.1 million, the proceeds for which were received upon closing. As the assets sold comprised a substantial majority of the assets in the Personal Care segment, the Company reclassified the remaining assets to the Over-the-Counter Healthcare segment for all periods presented.
In October 2009, the Company sold certain assets related to the shampoo brands previously included in its Personal Care products segment to an unrelated third party. In accordance with the Discontinued Operations Topic of the ASC, the Company reclassified the related assets as held for sale in the consolidated balance sheet as of March 31, 2010 and the Company reclassified the related operating results as discontinued in the consolidated financial statements and related notes for all periods presented. The Company recognized a gain of $0.3 million on a pre-tax basis and $0.2 million net of tax effects on the sale in the quarter and nine month period ended December 31, 2009. The total sales price for the assets was $9.0 million, subject to an inventory adjustment, with $8.0 million received upon closing. The remaining $1.0 million was received by the Company in October 2010.
-
10
-
The following table presents the assets related to the discontinued operations as of
December 31, 2010
and
March 31, 2010
(in thousands):
|
December 31,
2010 |
March 31,
2010 |
||||||
|
Inventory
|
$
|
—
|
|
$
|
1,486
|
|
|
|
Intangible assets
|
—
|
|
4,870
|
|
|||
|
Total assets of discontinued operations
|
$
|
—
|
|
$
|
6,356
|
|
|
The following table summarizes the results of discontinued operations (in thousands):
|
|
Three Months Ended December 31
|
Nine Months Ended December 31
|
|||||||||||||
|
|
2010
|
|
2009
|
2010
|
2009
|
||||||||||
|
Components of Income
|
|
||||||||||||||
|
Revenues
|
$
|
84
|
|
|
$
|
2,281
|
|
$
|
4,027
|
|
|
$
|
12,979
|
|
|
|
Income before income taxes
|
51
|
|
|
576
|
|
957
|
|
|
3,868
|
|
|||||
4. Accounts Receivable
Accounts receivable consist of the following (in thousands):
|
|
December 31,
2010 |
|
March 31,
2010 |
||||
|
|
|
||||||
|
Trade accounts receivable
|
$
|
47,357
|
|
|
$
|
35,527
|
|
|
Other receivables
|
1,313
|
|
|
1,588
|
|
||
|
|
48,670
|
|
|
37,115
|
|
||
|
Less allowances for discounts, returns and uncollectible accounts
|
(6,689
|
)
|
|
(6,494
|
)
|
||
|
|
|
|
|
|
|
||
|
|
$
|
41,981
|
|
|
$
|
30,621
|
|
5.
Inventories
Inventories consist of the following (in thousands):
|
|
December 31,
2010 |
|
March 31,
2010 |
||||
|
|
|
||||||
|
Packaging and raw materials
|
$
|
1,046
|
|
|
$
|
1,818
|
|
|
Finished goods
|
46,861
|
|
|
25,858
|
|
||
|
|
|
|
|
|
|
||
|
|
$
|
47,907
|
|
|
$
|
27,676
|
|
Inventories are shown net of allowances for obsolete and slow moving inventory of $2.3 million and $2.0 million at
December 31, 2010
and
March 31, 2010
, respectively.
-
11
-
6. Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
December 31,
2010 |
|
March 31,
2010 |
||||
|
|
|
||||||
|
Machinery
|
$
|
1,203
|
|
|
$
|
1,620
|
|
|
Computer equipment
|
2,102
|
|
|
1,570
|
|
||
|
Furniture and fixtures
|
277
|
|
|
239
|
|
||
|
Leasehold improvements
|
422
|
|
|
418
|
|
||
|
|
4,004
|
|
|
3,847
|
|
||
|
|
|
|
|
|
|
||
|
Less accumulated depreciation
|
(2,598
|
)
|
|
(2,451
|
)
|
||
|
|
|
|
|
|
|
||
|
|
$
|
1,406
|
|
|
$
|
1,396
|
|
The Company recorded depreciation expense of $0.2 million for each of the three months ended
December 31, 2010
and
2009
, and of $0.5 million for each of the
nine
months ended
December 31, 2010
and
2009
.
7.
Goodwill
A reconciliation of the activity affecting goodwill by operating segment is as follows (in thousands):
|
|
Over-the-
Counter
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
|
|
|
|||||||||
|
Balance — March 31, 2010
|
|
|
|||||||||
|
Goodwill
|
$
|
240,432
|
|
|
$
|
72,549
|
|
|
$
|
312,981
|
|
|
Accumulated purchase price adjustments
|
(6,162
|
)
|
—
|
|
(6,162
|
)
|
|||||
|
Accumulated impairment losses
|
(130,170
|
)
|
|
(65,160
|
)
|
|
(195,330
|
)
|
|||
|
|
104,100
|
|
|
7,389
|
|
|
111,489
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Additions
|
41,710
|
|
41,710
|
|
|||||||
|
Net adjustments
|
|
|
|||||||||
|
Goodwill
|
(4,643
|
)
|
—
|
|
(4,643
|
)
|
|||||
|
Accumulated impairment losses
|
4,643
|
|
—
|
|
4,643
|
|
|||||
|
—
|
|
—
|
|
—
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|||
|
Balance — December 31, 2010
|
|
|
|
|
|
|
|
|
|||
|
Goodwill
|
277,499
|
|
|
72,549
|
|
|
350,048
|
|
|||
|
Accumulated purchase price adjustments
|
(6,162
|
)
|
—
|
|
(6,162
|
)
|
|||||
|
Accumulated impairment losses
|
(125,527
|
)
|
|
(65,160
|
)
|
|
(190,687
|
)
|
|||
|
|
$
|
145,810
|
|
|
$
|
7,389
|
|
|
$
|
153,199
|
|
As described in Note 2, on November 1, 2010, the Company acquired 100% of the capital stock of Blacksmith. In connection with this acquisition, the Company preliminarily recorded goodwill of $
41.7 million
based on the amount by which the purchase price exceeded the preliminary fair value of net assets acquired.
-
12
-
As described in Note 3, on September 1, 2010, the Company sold certain assets related to its nail polish remover brand previously included in its Personal Care segment to an unrelated third party. In connection with this divestiture, the Company reversed the gross goodwill asset balance of $4.6 million, which was fully impaired as of
March 31, 2010
, and the related accumulated impairment charges of $4.6 million, which had been recorded for the nail polish remover brand. As described in Note 19, the Company's operating and reportable segments now consist of Over-the-Counter Healthcare and Household Cleaning, and any assets remaining in the Personal Care segment after the divestiture have been reclassified to the Over-the-Counter Healthcare segment. As such, the reversal of goodwill for Personal Care is included in the Over-the-Counter Healthcare segment in the table above.
At
March 31, 2010
, in conjunction with the annual test for goodwill impairment, the Company recorded an impairment charge aggregating $2.8 million to adjust the carrying amounts of goodwill related to its nail polish remover brand to its fair value of $0, as determined by use of a discounted cash flow methodology. The impairment was a result of distribution losses and increased competition from private label store brands.
For the nine months ended December 31, 2010, the Company was not required to recognize an additional impairment charge.
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. However, the Company considered its market capitalization at
March 31, 2010
, as compared to the aggregate fair values of the Company's reporting units to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology. Although the impairment charges represent management’s best estimate, the estimates and assumptions made in assessing the fair value of the Company’s 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 additional impairments in the future.
8.
Intangible Assets
A reconciliation of the activity affecting intangible assets is as follows (in thousands):
|
|
Indefinite
Lived
Trademarks
|
|
Finite Lived
Trademarks
|
|
Non Compete
Agreement
|
|
Totals
|
||||||||
|
Carrying Amounts
|
|
|
|
||||||||||||
|
Balance — March 31, 2010
|
$
|
454,571
|
|
|
$
|
142,994
|
|
|
$
|
158
|
|
|
$
|
597,723
|
|
|
|
|
|
|
|
|
||||||||||
|
Additions
|
158,047
|
|
|
7,299
|
|
|
—
|
|
|
165,346
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance — December 31, 2010
|
$
|
612,618
|
|
|
$
|
150,293
|
|
|
$
|
158
|
|
|
$
|
763,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance — March 31, 2010
|
$
|
—
|
|
|
$
|
43,206
|
|
|
$
|
158
|
|
|
$
|
43,364
|
|
|
|
|
|
|
|
|
||||||||||
|
Additions
|
—
|
|
|
6,845
|
|
|
—
|
|
|
6,845
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance — December 31, 2010
|
$
|
—
|
|
|
$
|
50,051
|
|
|
$
|
158
|
|
|
$
|
50,209
|
|
|
Intangibles, net — December 31, 2010
|
$
|
612,618
|
|
$
|
100,242
|
|
$
|
—
|
|
$
|
712,860
|
|
|||
As described in Note 2, on November 1, 2010, the Company acquired 100% of the capital stock of Blacksmith. In connection with this acquisition, the Company preliminarily allocated $
165.3 million
of the purchase price to intangible assets, which are comprised of acquired trademarks. The preliminary allocation is based on valuations performed to determine the fair value of such assets as of the acquisition date.
The table above represents intangible assets related to continuing operations. As described in Note 3, on September 1, 2010, the Company sold certain assets related to its nail polish remover brand previously included in its Personal Care segment to an unrelated third party. In connection with this divestiture, the Company excluded gross intangible assets of $8.3 million and the
-
13
-
related accumulated amortization of $3.4 million as of
March 31, 2010
from the table above. The net intangible assets related to the nail polish remover brand of $4.9 million as of
March 31, 2010
are presented separately on the Consolidated Balance Sheets.
In a manner similar to goodwill, the Company completed a test for impairment of its intangible assets during the fourth quarter of 2010. The Company recorded no impairment charge as facts and circumstances indicated that the fair values of the intangible assets for its operating segments exceeded their carrying values. Additionally, for the indefinite-lived intangible assets, an evaluation of the facts and circumstances as of
December 31, 2010
continues to support an indefinite useful life for these assets.
For the nine months ended December 31, 2010, the Company was not required to recognize an impairment charge.
At
December 31, 2010
, intangible assets are expected to be amortized over a period of 3 to 30 years as follows (in thousands):
|
Year Ending December 31
|
|
|||
|
2011
|
$
|
9,221
|
|
|
|
2012
|
8,769
|
|
||
|
2013
|
8,062
|
|
||
|
2014
|
6,247
|
|
||
|
2015
|
6,082
|
|
||
|
Thereafter
|
61,861
|
|
||
|
|
|
|
||
|
|
$
|
100,242
|
|
|
9.
Other Accrued Liabilities
Other accrued liabilities consist of the following (in thousands) as of the dates indicated:
|
|
December 31,
2010 |
|
March 31,
2010 |
||||
|
|
|
||||||
|
Accrued marketing costs
|
$
|
10,873
|
|
|
$
|
3,823
|
|
|
Accrued payroll
|
5,186
|
|
|
5,233
|
|
||
|
Accrued commissions
|
642
|
|
|
285
|
|
||
|
Accrued income taxes
|
—
|
|
|
372
|
|
||
|
Accrued professional fees
|
1,392
|
|
|
1,089
|
|
||
|
Accrued severance
|
1,912
|
|
|
929
|
|
||
|
Other
|
584
|
|
|
2
|
|
||
|
|
|
|
|
|
|
||
|
|
$
|
20,589
|
|
|
$
|
11,733
|
|
-
14
-
10.
Long-Term Debt
Long-term debt consists of the following (in thousands), as of the dates indicated:
|
|
December 31,
2010 |
|
March 31,
2010 |
|||||
|
Senior secured term loan facility ("2010 Senior Term Loan") that bears interest at the Company's option at either the prime rate plus a margin of 2.25% or LIBOR plus 3.25% with a LIBOR floor of 1.5%. At December 31, 2010, the average interest rate on the 2010 Senior Term Loan was 4.75%. Principal payments of $0.7 million are payable quarterly beginning December 31, 2011, accrued interest is payable quarterly, with the remaining principal due on the 2010 Senior Term Loan maturity date. The 2010 Senior Term Loan matures on March 24, 2016 and is collateralized by substantially all of the Company's assets. The 2010 Senior Term Loan is unconditionally guaranteed by Prestige Brands Holdings, Inc. and its domestic wholly-owned subsidiaries, other than Prestige Brands, Inc. (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.
|
$
|
259,500
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|||
|
Senior unsecured notes (“2010 Senior Notes”) that bear interest at 8.25% which is payable on April 1st and October 1st of each year. The 2010 Senior Notes mature on April 1, 2018; however, the Company may earlier redeem some or all of the 2010 Senior Notes at redemption prices set forth in the indenture governing the 2010 Senior Notes (the “Senior Notes Indenture”). The 2010 Senior Notes are unconditionally guaranteed by Prestige Brands Holdings, Inc. and its domestic wholly-owned subsidiaries other than Prestige Brands, Inc., the issuer. 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.
|
250,000
|
|
150,000
|
|
||||
|
Senior subordinated notes (“Senior Subordinated Notes”) that bore interest of 9.25% which was payable on April 15
th
and October 15
th
of each year. The balance outstanding on the Senior Subordinated Notes as of March 31, 2010 was repaid in full, on April 15, 2010. The Senior Subordinated Notes were unconditionally guaranteed by Prestige Brands Holdings, Inc., and its domestic wholly-owned subsidiaries other than Prestige Brands, Inc., the issuer.
|
—
|
|
|
28,087
|
|
|||
|
|
|
|
|
|
|
|||
|
|
509,500
|
|
|
328,087
|
|
|||
|
Current portion of long-term debt
|
(659
|
)
|
|
(29,587
|
)
|
|||
|
|
|
|
|
|
|
|||
|
|
508,841
|
|
|
298,500
|
|
|||
|
Less: net unamortized discount and premium on the 2010 Senior Term Loan and the 2010 Senior Notes
|
(5,277
|
)
|
(3,943
|
)
|
||||
|
Long-term debt, net of unamortized discount and premium
|
$
|
503,564
|
|
$
|
294,557
|
|
||
On March 24, 2010, Prestige Brands, Inc. issued $150.0 million of 2010 Senior Notes, with an interest rate of 8.25% and a maturity date of April 1, 2018. On November 1, 2010, Prestige Brands, Inc. issued an additional $100.0 million of 2010 Senior Notes as part of the same series as the 2010 Senior Notes issued in March 2010. The 2010 Senior Notes issued in March and November were issued at an aggregate face value of $150.0 million and $100.0 million, respectively, with a discount to the initial purchasers of $2.2 million and a premium of $0.3 million, respectively, and net proceeds to the Company of $147.8 million and $100.3 million, respectively, yielding an 8.5% effective interest rate.
On March 24, 2010, Prestige Brands, Inc. entered into a senior secured term loan facility (“2010 Senior Term Loan”) for $150.0 million, with an interest rate at LIBOR plus 3.25% with a LIBOR floor of 1.5% and a maturity date of March 24, 2016. The $150.0 million 2010 Senior Term Loan was entered into with a discount to lenders of $1.8 million and net proceeds to the Company of $148.2 million, yielding a 5.0% effective interest rate. On November 1, 2010, the Company, together with the Borrower and certain other subsidiaries of the Company, executed an Increase Joinder to the Company's Credit Agreement dated March 24, 2010 pursuant to which the Borrower borrowed an incremental term loan in the amount of $115.0 million. The incremental term loan will mature on March 24, 2016 and otherwise has the same terms as the 2010 Senior Term Loan.
Additionally, Prestige Brands, Inc. entered into a non-amortizing senior secured revolving credit facility (“2010 Revolving Credit Facility” and, collectively with the 2010 Senior Term Loan, the “Credit Agreement”) in an aggregate principal amount of up to $30.0 million. On November 1, 2010, pursuant to the Increase Joinder, the amount of the Borrower's 2010 Revolving Credit Facility was increased by $10.0 million and the Borrower had borrowing capacity under the revolving credit facility in
-
15
-
an aggregate principal amount of up to $40.0 million. The Company's 2010 Revolving Credit Facility was available for maximum borrowings of $40.0 million at
December 31, 2010
. Except for the increase in the amount of the revolving credit facility, no other changes were made to the 2010 Revolving Credit Facility.
In connection with the financing activities of March 2010 relating to the 2010 Senior Notes, the 2010 Senior Term Loan, and the 2010 Revolving Credit Facility, the Company incurred $7.3 million in issuance costs, of which $6.6 million was capitalized as deferred financing costs and $0.7 million expensed. In connection with the financing activities of November 2010 relating to the 2010 Senior Notes, the 2010 Senior Term Loan, and the 2010 Revolving Credit Facility, the Company incurred $0.6 million in issuance costs, all of which was capitalized as deferred financing costs. The deferred financing costs are being amortized over the terms of the related loan and notes.
On March 24, 2010, the Company retired its Tranche B Term Loan facility with an original maturity date of April 6, 2011. In addition, on March 24, 2010, we repaid a portion and, on April 15, 2010, redeemed in full the remaining outstanding indebtedness under our previously outstanding Senior Subordinated Notes due in 2012, which bore interest at 9.25% with a maturity date of April 15, 2012. In connection with the refinancing, the Company recognized a $0.3 million loss on the extinguishment of debt for the
nine
months ended
December 31, 2010
.
The 2010 Senior Notes are senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis. The 2010 Senior Notes are effectively junior in right of payment to all existing and future secured obligations of the Company, equal in right of payment with all existing and future senior unsecured indebtedness of the Company, and senior in right of payment to all future subordinated debt of the Company.
At any time prior to April 1, 2014, the Company may redeem the 2010 Senior Notes in whole or in part at a redemption price equal to 100% of the principal amount of the notes redeemed, plus a “make-whole premium” calculated as set forth in the Senior Notes Indenture, together with accrued and unpaid interest, if any, to the date of redemption. The Company may redeem the 2010 Senior Notes in whole or in part at any time on or after the 12-month period beginning April 1, 2014 at a redemption price of 104.125% of the principal amount thereof, at a redemption price of 102.063% of the principal amount thereof if the redemption occurs during the 12-month period beginning on April 1, 2015, and at a redemption price of 100% of the principal amount thereof if the redemption occurs on and after April 1, 2016, in each case, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to April 1, 2013, with the net cash proceeds from certain equity offerings, the Company may redeem up to 35% in aggregate principal amount of the 2010 Senior Notes at a redemption price of 108.250% of the principal amount of the 2010 Senior Notes to be redeemed, plus accrued and unpaid interest to the redemption date.
The Credit Agreement contains various financial covenants, including provisions that require the Company to maintain certain leverage and interest coverage ratios and not to exceed annual capital expenditures of $3.0 million. The Credit Agreement, the Senior Notes Indenture and the Indenture governing the Senior Subordinated Notes also contain provisions that restrict the Company from undertaking specified corporate actions, such as asset dispositions, acquisitions, dividend payments, repurchases of common shares outstanding, changes of control, incurrences of indebtedness, creation of liens, making of loans and transactions with affiliates. Additionally, the Credit Agreement, the Senior Notes Indenture and the Indenture governing the Senior Subordinated 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, the Senior Notes Indenture and the Indenture governing the Senior Subordinated Notes. At
December 31, 2010
, the Company was in compliance with the covenants under its long-term indebtedness.
Future principal payments required in accordance with the terms of the Credit Agreement and the Senior Notes Indenture are as follows (in thousands):
|
Year Ending December 31
|
|
|||
|
2011
|
$
|
659
|
|
|
|
2012
|
2,636
|
|
||
|
2013
|
2,636
|
|
||
|
2014
|
2,636
|
|
||
|
2015
|
2,636
|
|
||
|
Thereafter
|
498,297
|
|
||
|
|
|
|
||
|
|
$
|
509,500
|
|
|
-
16
-
11.
Fair Value Measurements
As deemed appropriate, the Company uses derivative financial instruments to mitigate the impact of changing interest rates associated with its long-term debt obligations. At
December 31, 2010
, the Company had no open financial derivative financial obligations. While the Company has not historically entered into derivative financial instruments for trading purposes, all of the Company’s derivatives were over-the-counter instruments with liquid markets. The notional, or contractual, amount of the Company’s derivative financial instruments was used to measure the amount of interest to be paid or received and did not represent an actual liability. The Company accounted for the interest rate cap and swap agreements as cash flow hedges.
The Company entered into an interest rate swap agreement, effective March 26, 2008, in the notional amount of $175.0 million, decreasing to $125.0 million at March 26, 2009 to replace and supplement the interest rate cap agreement that expired on May 30, 2008. The Company agreed to pay a fixed rate of 2.88% while receiving a variable rate based on LIBOR. The agreement terminated on March 26, 2010, and was neither renewed nor replaced.
The Fair Value Measurements and Disclosures Topic of the FASB ASC 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.
A summary of the fair value of the Company's derivative instruments, their impact on the consolidated statements of operations and comprehensive income and the amounts reclassified from other comprehensive income is as follows (in thousands):
|
|
|
|
For the Three Months Ended December 31, 2010
|
|||||||||||||||||
|
|
December 31, 2010
|
|
Income
Statement
Account
|
|
Amount
Income
|
|
Amount
Gains
|
|||||||||||||
|
Cash Flow Hedging
Instruments
|
Balance
Sheet
Location
|
|
Notional
Amount
|
|
Fair Value
Asset/
(Liability)
|
|
Gains/
Losses
Charged
|
|
(Expense)
Recognized
In Income
|
(Losses)
Recognized
In OCI
|
||||||||||
|
Interest Rate Swap
|
n/a
|
|
$
|
—
|
|
|
$
|
—
|
|
n/a
|
|
$
|
—
|
|
|
$
|
—
|
|
||
|
|
|
|
For the Nine Months Ended December 31, 2010
|
|||||||||||||||||
|
|
December 31, 2010
|
|
Income
Statement
Account
|
|
Amount
Income
|
|
Amount
Gains
|
|||||||||||||
|
Cash Flow Hedging
Instruments
|
Balance
Sheet
Location
|
|
Notional
Amount
|
|
Fair Value
Asset/
(Liability)
|
|
Gains/
Losses
Charged
|
|
(Expense)
Recognized
In Income
|
(Losses)
Recognized
In OCI
|
||||||||||
|
Interest Rate Swap
|
n/a
|
|
$
|
—
|
|
|
$
|
—
|
|
n/a
|
|
$
|
—
|
|
|
$
|
—
|
|
||
-
17
-
|
|
|
|
For the Three Months Ended December 31, 2009
|
|||||||||||||||||
|
|
December 31, 2009
|
|
Income
Statement
Account
|
|
Amount
Income
|
|
Amount
Gains
|
|||||||||||||
|
Cash Flow Hedging
Instruments
|
Balance
Sheet
Location
|
|
Notional
Amount
|
|
Fair Value
Asset/
(Liability)
|
|
Gains/
Losses
Charged
|
|
(Expense)
Recognized
In Income
|
(Losses)
Recognized
In OCI
|
||||||||||
|
Interest Rate Swap
|
Other Accrued
Liabilities |
|
$
|
125,000
|
|
|
$
|
(794
|
)
|
Interest
Expense |
|
$
|
(830
|
)
|
|
$
|
778
|
|
||
|
|
|
|
For the Nine Months Ended December 31, 2009
|
|||||||||||||||||
|
|
December 31, 2009
|
|
Income
Statement
Account
|
|
Amount
Income
|
|
Amount
Gains
|
|||||||||||||
|
Cash Flow Hedging
Instruments
|
Balance
Sheet
Location
|
|
Notional
Amount
|
|
Fair Value
Asset/
(Liability)
|
|
Gains/
Losses
Charged
|
|
(Expense)
Recognized
In Income
|
(Losses)
Recognized
In OCI
|
||||||||||
|
Interest Rate Swap
|
Other Accrued
Liabilities |
|
$
|
125,000
|
|
|
$
|
(794
|
)
|
Interest
Expense |
|
$
|
(2,090
|
)
|
|
$
|
1,358
|
|
||
The determination of fair value is based on closing prices for similar instruments traded in liquid over-the-counter markets. The changes in the fair value of this interest rate swap were recorded in Accumulated Other Comprehensive Income in the balance sheet due to its designation as a cash flow hedge. As the interest swap agreement terminated on March 26, 2010, the ending balance in Accumulated Other Comprehensive Income on the Consolidated Balance Sheet as of
March 31, 2010
is $0.
At
December 31, 2010
and
March 31, 2010
, the Company was not a party to any outstanding interest rate swap agreements.
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.
At
December 31, 2010
and
March 31, 2010
, the carrying value of the 2010 Senior Term Loan was
$259.5 million
and
$150.0 million
, respectively. The terms of the facility provide that the interest rate is adjusted, at the Company's option, on either a monthly or quarterly basis, to the prime rate plus a margin of 2.25% or LIBOR, with a floor of 1.50%, plus a margin of 3.25%. The market value of the Company's 2010 Senior Term Loan was approximately $261.4 million and $150.8 million at
December 31, 2010
and
March 31, 2010
, respectively.
At
December 31, 2010
and
March 31, 2010
, the carrying value of the Company's 2010 Senior Notes was
$250.0 million
and
$150.0 million
, respectively. The market value of these notes was approximately $258.8 million and $152.3 million at
December 31, 2010
and
March 31, 2010
, respectively. The market values have been determined from market transactions in the Company's debt securities. Also at
March 31, 2010
, the Company maintained a residual balance of $28.1 million relating to the Senior Subordinated Notes, all of which was redeemed on April 15, 2010 at par value.
12.
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
December 31, 2010
.
-
18
-
There were no share repurchases during the fiscal year ended
March 31, 2010
. During the three month period ended
December 31, 2010
, the Company received 17,000 shares of common stock from an employee in satisfaction of applicable withholding taxes payable upon vesting of restricted common stock on December 2, 2010. The average price of the shares used to satisfy these withholding obligations was $12.07 per share. All of such shares have been recorded as treasury stock. During the nine month period ended December 31, 2010, the Company received 24,000 shares of common stock from employees in satisfaction of applicable withholding taxes payable upon vesting of restricted common stock on May 25, 2010 and December 2, 2010. The average price of the shares used to satisfy these withholding obligations was $10.81 per share. All of such shares have been recorded as treasury stock.
13. Comprehensive Income
The following table describes the components of comprehensive income for the
three and nine
month periods ended
December 31, 2010
and
2009
(in thousands):
|
|
Three Months Ended December 31
|
||||||
|
|
2010
|
|
2009
|
||||
|
Components of Comprehensive Income
|
|
||||||
|
Net income
|
$
|
2,178
|
|
|
$
|
10,580
|
|
|
|
|
|
|
|
|
||
|
Unrealized gain on interest rate swaps, net of income tax of $296 (2009)
|
—
|
|
|
482
|
|
||
|
|
|
|
|
|
|
||
|
Comprehensive Income
|
$
|
2,178
|
|
|
$
|
11,062
|
|
|
|
Nine Months Ended December 31
|
||||||
|
|
2010
|
|
2009
|
||||
|
Components of Comprehensive Income
|
|
||||||
|
Net income
|
$
|
22,806
|
|
|
$
|
28,828
|
|
|
Unrealized gain on interest rate swaps, net of income tax of $516 (2009)
|
—
|
|
|
842
|
|
||
|
|
|
|
|
|
|
||
|
Comprehensive Income
|
$
|
22,806
|
|
|
$
|
29,670
|
|
-
19
-
14.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
|
|
|
Three Months Ended December 31
|
|
Nine Months Ended December 31
|
||||||||||||
|
|
|
2010
|
|
2009
|
|
2010
|
2009
|
|||||||||
|
Numerator
|
|
|
|
|
||||||||||||
|
Income from continuing operations
|
|
$
|
2,146
|
|
|
$
|
10,065
|
|
|
$
|
22,765
|
|
|
$
|
26,269
|
|
|
Income from discontinued operations and gain or loss on sale of discontinued operations
|
|
32
|
|
|
515
|
|
|
41
|
|
|
2,559
|
|
||||
|
Net income
|
|
$
|
2,178
|
|
|
$
|
10,580
|
|
|
$
|
22,806
|
|
|
$
|
28,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Denominator for basic earnings per share — weighted average shares
|
|
50,085
|
|
|
50,030
|
|
|
50,059
|
|
|
50,008
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Dilutive effect of unvested restricted common stock (including restricted stock units) and options issued to employees and directors
|
|
448
|
|
|
44
|
|
|
201
|
|
|
70
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Denominator for diluted earnings per share
|
|
50,533
|
|
|
50,074
|
|
|
50,260
|
|
|
50,078
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic earnings per share from continuing operations
|
|
$
|
0.04
|
|
|
$
|
0.20
|
|
|
$
|
0.46
|
|
|
$
|
0.53
|
|
|
Basic earnings per share from discontinued operations
|
|
—
|
|
|
0.01
|
|
|
—
|
|
|
0.05
|
|
||||
|
Basic net earnings per share
|
|
$
|
0.04
|
|
|
$
|
0.21
|
|
|
$
|
0.46
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Diluted earnings per share from continuing operations
|
|
$
|
0.04
|
|
|
$
|
0.20
|
|
|
$
|
0.45
|
|
|
$
|
0.53
|
|
|
Diluted earnings per share from discontinued operations
|
|
—
|
|
|
0.01
|
|
|
—
|
|
|
0.05
|
|
||||
|
Diluted net earnings per share
|
|
$
|
0.04
|
|
|
$
|
0.21
|
|
|
$
|
0.45
|
|
|
$
|
0.58
|
|
At
December 31, 2010
, 226,567 shares of restricted stock granted to employees and directors, including restricted stock units, subject only to time vesting, were unvested and excluded from the calculation of basic earnings per share; however, such shares were included in the calculation of diluted earnings per share. Additionally, 47,678 shares of restricted stock granted to employees have been excluded from the calculation of both basic and diluted earnings per share because vesting of such shares is subject to contingencies that were not met as of
December 31, 2010
. Lastly, at
December 31, 2010
, there were options to purchase 104,941 shares of common stock outstanding that were not included in the computation of diluted earnings per share because their exercise price was greater than the average market price of the common stock over the three month period ended
December 31, 2010
, and therefore, their inclusion would be antidilutive.
At
December 31, 2009
, 212,102 shares of restricted stock granted to employees and directors, subject only to time-vesting, were unvested and excluded from the calculation of basic earnings per share; however, such shares were included in the calculation of diluted earnings per share. Additionally, 101,802 shares of restricted stock granted to employees have been excluded from the calculation of both basic and diluted earnings per share because vesting of such shares is subject to contingencies that were not met as of
December 31, 2009
. Lastly, at
December 31, 2009
, there were options to purchase 1,391,172 shares of common stock outstanding that were not included in the computation of diluted earnings because their exercise price was greater than the average market price of the common stock over the three month period ended
December 31, 2009
, and therefore, their inclusion would be antidilutive.
-
20
-
15.
Share-Based Compensation
In connection with the Company's initial public offering, the Board of Directors adopted the 2005 Long-Term Equity Incentive Plan (the “Plan”) which provides for the grant, up to a maximum of 5.0 million shares, of restricted stock, stock options, restricted stock units, deferred stock units and other equity-based awards. 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. The Company believes that such awards better align the interests of its employees with those of its stockholders.
During the
nine
month period ended
December 31, 2010
, net compensation costs charged against income and the related income tax benefit recognized were $2.8 million and $1.1 million, respectively. During the
nine
month period ended
December 31, 2009
, net compensation costs charged against income and the related income tax benefit recognized were $1.7 million and $0.6 million, respectively.
Restricted Shares
Restricted shares granted to employees under the Plan generally vest in 3 to 5 years, contingent on attainment by the Company of revenue and earnings before income taxes, depreciation and amortization growth targets, or the attainment of certain time vesting thresholds. The restricted share awards provide for accelerated vesting if there is a change of control, as defined in the Plan or agreement pursuant to which the awards were made. The fair value of nonvested restricted shares is determined as the closing price of the Company's common stock on the day preceding the grant date. The weighted-average fair value of restricted shares granted during the
nine
month periods ended
December 31, 2010
and
2009
were $9.01 and $7.09, respectively.
A summary of the Company's restricted shares (including restricted stock units) granted under the Plan is presented below:
|
Restricted Shares
|
|
Shares
(in thousands)
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|||
|
|
|
|
|||||
|
Nonvested at March 31, 2010
|
|
287.1
|
|
|
$
|
8.86
|
|
|
Granted
|
|
122.6
|
|
|
9.01
|
|
|
|
Vested
|
|
(88.0
|
)
|
|
9.50
|
|
|
|
Forfeited
|
|
(42.5
|
)
|
|
10.09
|
|
|
|
Nonvested at December 31, 2010
|
|
279.2
|
|
|
8.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2009
|
|
342.4
|
|
|
11.31
|
|
|
|
Granted
|
|
171.6
|
|
|
7.09
|
|
|
|
Vested
|
|
(47.8
|
)
|
|
10.97
|
|
|
|
Forfeited
|
|
(152.2
|
)
|
|
11.54
|
|
|
|
Nonvested at December 31, 2009
|
|
314.0
|
|
|
8.94
|
|
|
|
|
|
|
|
|
|
|
|
Options
The Plan provides that the exercise price of the option granted shall be no less than the fair market value of the Company's common stock on the date the option is granted. Options granted have a term of no greater than 10 years from the date of grant and vest in accordance with a schedule determined at the time the option is granted, generally 3 to 5 years. The option awards provide for accelerated vesting if there is a change in control.
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 following table. Expected volatilities are based on the historical volatility of the Company's common stock and other factors, including the historical volatilities of comparable companies. The Company uses appropriate historical, 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 management's estimates and consideration of information derived from the public filings of companies similar to the Company 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
-
21
-
granted option. The weighted-average grant-date fair value of the options granted during the
nine
month periods ended
December 31, 2010
and
2009
were $4.91 and $3.64, respectively.
|
|
Nine Months Ended December 31
|
||||||
|
|
2010
|
|
2009
|
||||
|
Expected volatility
|
52.8
|
%
|
|
45.6
|
%
|
||
|
Expected dividends
|
$
|
—
|
|
|
$
|
—
|
|
|
Expected term in years
|
7.0
|
|
|
7.0
|
|
||
|
Risk-free rate
|
3.2
|
%
|
|
2.8
|
%
|
||
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, 2009
|
|
662.6
|
|
|
$
|
11.65
|
|
|
8.8
|
|
|
$
|
—
|
|
|
Granted
|
|
1,125.0
|
|
|
7.16
|
|
|
|
||||||
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
||
|
Forfeited or expired
|
|
(142.6
|
)
|
|
11.26
|
|
|
|
||||||
|
Outstanding at December 31, 2009
|
|
1,645.0
|
|
|
8.61
|
|
|
9.1
|
|
|
—
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Outstanding at March 31, 2010
|
|
1,584.2
|
|
|
8.50
|
|
|
8.9
|
|
|
2,070.0
|
|
||
|
Granted
|
|
418.5
|
|
|
9.26
|
|
|
|
||||||
|
Exercised
|
|
(13.7
|
)
|
|
10.91
|
|
|
|
||||||
|
Forfeited or expired
|
|
(301.0
|
)
|
|
10.63
|
|
|
|
||||||
|
Outstanding at December 31, 2010
|
|
1,688.0
|
|
|
8.29
|
|
|
7.9
|
|
|
6,294.3
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Exercisable at December 31, 2010
|
|
495.8
|
|
|
9.60
|
|
|
5.9
|
|
|
1,280.1
|
|
||
Since the Company's closing stock price of $11.95 at
December 31, 2010
exceeded the weighted-average exercise price of the outstanding options, the aggregate intrinsic value of the outstanding options was $6.3 million at
December 31, 2010
. Since the weighted-average exercise price of the outstanding options exceeded the Company's closing stock price of $7.86 at
December 31, 2009
, the aggregate intrinsic value of outstanding options was $0 at
December 31, 2009
.
At
December 31, 2010
, there were $3.8 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. The Company expects to recognize such costs over a weighted average period of 3.2 years. However, certain of the restricted shares vest upon the attainment of Company performance goals and if such goals are not met, no compensation costs would ultimately be recognized and any previously recognized compensation cost would be reversed. The total fair value of shares vested during the
nine
months ended
December 31, 2010
and
2009
was $0.8 million and $0.5 million, respectively. There were 13,700 stock options exercised by a former employee at a weighted average exercise price of $10.91 during the nine month period ending December 31, 2010. There were no options exercised during the
nine
month period ended December 31,
2009
. At
December 31, 2010
, there were 2.8 million shares available for issuance under the Plan.
16.
Income Taxes
Income taxes are recorded in the Company's quarterly financial statements based on the Company's estimated annual effective income tax rate subject to adjustments for discrete events should they occur. The effective tax rates used in the calculation of income taxes were
59.7%
and
41.1%
, respectively, for the
three and nine
month periods ended
December 31, 2010
, and were
42.9%
and
39.9%
, respectively, for the three and nine month periods ended December 31,
2009
. The increase in effective tax rates for the three and nine months ended December 31, 2010 is primarily due to $0.8 million of non-deductible transaction expenses, and a $0.3 million charge for increasing our deferred state tax rate related to the Blacksmith acquisition.
-
22
-
At
December 31, 2010
, Medtech Products Inc., a wholly-owned subsidiary of the Company, had a net operating loss carryforward of approximately $1.9 million which may be used to offset future taxable income of the consolidated group and which begins to expire in 2020. The net operating loss carryforward is subject to an annual limitation as to usage pursuant to Internal Revenue Code Section 382 of approximately $0.2 million.
Uncertain tax liability activity is as follows:
|
|
2010
|
|
2009
|
||||
|
(In thousands)
|
|
||||||
|
Balance — March 31
|
$
|
315
|
|
|
$
|
225
|
|
|
Adjustments based on tax positions related to the current year
|
141
|
|
|
100
|
|
||
|
Balance — December 31
|
$
|
456
|
|
|
$
|
325
|
|
The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The Company does not anticipate any significant events or circumstances that would cause a change to these uncertainties during the ensuing year. For the
three and nine
months ended
December 31, 2010
and
2009
, the Company did not incur or recognize any material interest or penalties related to income taxes.
17.
Commitments and Contingencies
San Francisco Technology Inc. Litigation
On April 5, 2010, Medtech Products Inc. (“Medtech”), a wholly-owned subsidiary of the Company, was served with a Complaint filed by San Francisco Technology Inc. (“SFT”) in the U.S. District Court for the Northern District of California, San Jose Division (the “California Court”). In the Complaint, SFT asserted a qui tam action against Medtech alleging false patent markings with the intent to deceive the public regarding Medtech's two
Dermoplast
products. Medtech filed a Motion to Dismiss or Stay and a Motion to Sever and Transfer Venue to the U.S. District Court for the Southern District of New York (the “New York Court”).
On July 19, 2010, the California Court issued an Order in which it severed the action as to each and every separate defendant (including Medtech). In addition, in the Order the California Court transferred the action against Medtech to the New York Court.
On October 25, 2010, Medtech filed with the New York Court a Motion to Dismiss, or in the Alternative, to Stay, the action brought by SFT which, on August 11, 2010, was transferred to the New York Court from the California Court. Medtech intends to vigorously defend against the action.
In addition to the matter described above, the Company is involved from time to time in other routine legal matters and other claims incidental to its business. The Company reviews 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). The Company believes the resolution of routine matters and other incidental claims, taking insurance into account, will not have a material adverse effect on its business, financial condition or results from operations.
Lease Commitments
The Company has operating leases for office facilities and equipment in New York and Wyoming, which expire at various dates through 2014.
-
23
-
The following summarizes future minimum lease payments for the Company's operating leases (in thousands) as of
December 31, 2010
:
|
|
Facilities
|
|
Equipment
|
|
Total
|
|||||||
|
Year Ending December 31
|
|
|
|
|||||||||
|
2011
|
$
|
931
|
|
|
$
|
82
|
|
|
$
|
1,013
|
|
|
|
2012
|
845
|
|
|
50
|
|
|
895
|
|
||||
|
2013
|
691
|
|
|
31
|
|
|
722
|
|
||||
|
2014
|
199
|
|
|
1
|
|
|
200
|
|
||||
|
Thereafter
|
—
|
|
|
—
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
$
|
2,666
|
|
|
$
|
164
|
|
|
$
|
2,830
|
|
|
Rent expense for each of the three month periods ended
December 31, 2010
and
2009
was
$0.2 million
, while rent expense for each of the
nine
month periods ended
December 31, 2010
and
2009
was
$0.6 million
.
Purchase Commitments
The Company has entered into a 10 year supply agreement for the exclusive manufacture of a portion of one of its household cleaning brands. Although the Company is committed under the supply agreement to pay the minimum amounts set forth in the table below, the total commitment is less than 10 percent of the estimated purchases that are expected to be made during the course of the agreement.
(In thousands)
|
Year Ending December 31
|
|
|||
|
2011
|
$
|
9,101
|
|
|
|
2012
|
1,174
|
|
||
|
2013
|
1,143
|
|
||
|
2014
|
1,113
|
|
||
|
2015
|
1,082
|
|
||
|
Thereafter
|
3,944
|
|
||
|
|
|
|
||
|
|
$
|
17,557
|
|
|
18.
Concentrations of Risk
The Company's sales are concentrated in the areas of over-the-counter healthcare and household cleaning products. The Company sells its products to mass merchandisers, food and drug accounts, and dollar and club stores. During the
three and nine
month periods ended
December 31, 2010
, approximately 53.0% and 61.6%, respectively, of the Company's total sales were derived from its four major brands, while during the
three and nine
month periods ended
December 31, 2009
approximately 63.7% and 65.1%, respectively, of the Company's total sales were derived from its four major brands. During the
three and nine
month periods ended
December 31, 2010
, approximately 22.8% and 22.6%, respectively, of the Company's sales were made to one customer, while during the
three and nine
month periods ended
December 31, 2009
, approximately 24.9% and 25.2%, respectively, of sales were to this customer. At
December 31, 2010
, approximately 20.5% of accounts receivable were owed by the same customer.
The Company manages the majority of its product distribution in the continental United States through a main distribution center in St. Louis, Missouri. In addition, as the result of the Blacksmith acquisition, the Company manages product distribution through a distribution center in Plainfield, Indiana. A serious disruption, such as a flood or fire, to either distribution center could damage the Company's inventories and could materially impair the Company's ability to distribute its products to customers in a timely manner or at a reasonable cost. The Company could incur significantly higher costs and experience longer lead times associated with the distribution of its products to its customers during the time that it takes the Company to reopen or replace either of its distribution centers. As a result, any such disruption could have a material adverse effect on the Company's sales and profitability.
-
24
-
At
December 31, 2010
, the Company had relationships with 43 third party manufacturers. Of those, the Company had long-term contracts with eight manufacturers that produced items that accounted for approximately 43.5% of gross sales for the
nine
months ended
December 31, 2010
. At
December 31, 2009
, the Company had relationships with 38 third party manufacturers. Of those, the Company had long-term contracts with seven manufacturers that produced items that accounted for approximately 31.0% of gross sales for the
nine
months ended
December 31, 2009
. The fact that the Company does not have long term contracts with certain manufacturers means they could cease producing products at any time and for any reason, or initiate arbitrary and costly price increases which could have a material adverse effect on the Company's business, financial condition and results from operations.
19.
Business Segments
Segment information has been prepared in accordance with the Segment Topic of the FASB ASC. As described in Note 3, on September 1, 2010, the Company sold certain assets related to its nail polish remover brand previously included in its Personal Care segment to an unrelated third party. The sold assets comprised a substantial majority of the assets in the Personal Care segment. The remaining assets and revenue generated do not constitute a reportable segment under the Segment Reporting Topic of the FASB ASC. The Company reclassified the remaining assets and results to the Over-the-Counter Healthcare segment for all periods presented. The Company's operating and reportable segments now consist of (i) Over-the-Counter Healthcare and (ii) Household Cleaning.
There were no inter-segment sales or transfers during any of the periods presented. The Company evaluates the performance of its operating segments and allocates resources to them based primarily on contribution margin.
The tables below summarize information about the Company's operating and reportable segments.
|
|
For the Three Months Ended December 31, 2010
|
||||||||||
|
|
Over-the-
Counter
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
(In thousands)
|
|
|
|||||||||
|
Net sales
|
$
|
67,287
|
|
|
$
|
22,790
|
|
|
$
|
90,077
|
|
|
Other revenues
|
173
|
|
|
358
|
|
|
531
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Total revenues
|
67,460
|
|
|
23,148
|
|
|
90,608
|
|
|||
|
Cost of sales
|
30,827
|
|
|
15,769
|
|
|
46,596
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Gross profit
|
36,633
|
|
|
7,379
|
|
|
44,012
|
|
|||
|
Advertising and promotion
|
11,842
|
|
|
1,207
|
|
|
13,049
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Contribution margin
|
$
|
24,791
|
|
|
$
|
6,172
|
|
|
30,963
|
|
|
|
Other operating expenses
|
|
|
|
|
|
|
17,939
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Operating income
|
|
|
|
|
|
|
13,024
|
|
|||
|
Other expense
|
|
|
|
|
|
|
7,674
|
|
|||
|
Provision for income taxes
|
|
|
|
|
|
|
3,204
|
|
|||
|
Income from continuing operations
|
|
|
|
|
|
|
2,146
|
|
|||
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
32
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Net income
|
|
|
|
|
|
|
$
|
2,178
|
|
||
-
25
-
|
|
For the Nine Months Ended December 31, 2010
|
||||||||||
|
|
Over-the-
Counter
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
(In thousands)
|
|
|
|||||||||
|
Net sales
|
$
|
162,652
|
|
|
$
|
75,434
|
|
|
$
|
238,086
|
|
|
Other revenues
|
368
|
|
|
1,693
|
|
|
2,061
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Total revenues
|
163,020
|
|
|
77,127
|
|
|
240,147
|
|
|||
|
Cost of sales
|
64,477
|
|
|
51,097
|
|
|
115,574
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Gross profit
|
98,543
|
|
|
26,030
|
|
|
124,573
|
|
|||
|
Advertising and promotion
|
23,918
|
|
|
4,857
|
|
|
28,775
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Contribution margin
|
$
|
74,625
|
|
|
$
|
21,173
|
|
|
95,798
|
|
|
|
Other operating expenses
|
|
|
|
|
|
|
38,277
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Operating income
|
|
|
|
|
|
|
57,521
|
|
|||
|
Other expense
|
|
|
|
|
|
|
18,808
|
|
|||
|
Provision for income taxes
|
|
|
|
|
|
|
15,948
|
|
|||
|
Income from continuing operations
|
|
|
|
|
|
|
22,765
|
|
|||
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
591
|
|
|||
|
Loss on sale of discontinued operations, net of income tax benefit
|
(550
|
)
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|||
|
Net income
|
|
|
|
|
|
|
$
|
22,806
|
|
||
|
|
For the Three Months Ended December 31, 2009
|
||||||||||
|
|
Over-the-
Counter
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
(In thousands)
|
|
|
|||||||||
|
Net sales
|
$
|
46,544
|
|
|
$
|
26,828
|
|
|
$
|
73,372
|
|
|
Other revenues
|
9
|
|
|
437
|
|
|
446
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Total revenues
|
46,553
|
|
|
27,265
|
|
|
73,818
|
|
|||
|
Cost of sales
|
17,166
|
|
|
17,481
|
|
|
34,647
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Gross profit
|
29,387
|
|
|
9,784
|
|
|
39,171
|
|
|||
|
Advertising and promotion
|
5,160
|
|
|
877
|
|
|
6,037
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Contribution margin
|
$
|
24,227
|
|
|
$
|
8,907
|
|
|
33,134
|
|
|
|
Other operating expenses
|
|
|
|
|
|
|
9,869
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Operating income
|
|
|
|
|
|
|
23,265
|
|
|||
|
Other expense
|
|
|
|
|
|
|
5,558
|
|
|||
|
Provision for income taxes
|
|
|
|
|
|
|
7,642
|
|
|||
|
Income from continuing operations
|
|
|
|
|
|
|
10,065
|
|
|||
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
358
|
|
|||
|
Gain on sale of discontinued operations, net of income tax
|
157
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|||
|
Net income
|
|
|
|
|
|
|
$
|
10,580
|
|
||
-
26
-
|
|
For the Nine Months Ended December 31, 2009
|
||||||||||
|
|
Over-the-
Counter
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
(In thousands)
|
|
|
|||||||||
|
Net sales
|
$
|
138,907
|
|
|
$
|
82,271
|
|
|
$
|
221,178
|
|
|
Other revenues
|
29
|
|
|
1,454
|
|
|
1,483
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Total revenues
|
138,936
|
|
|
83,725
|
|
|
222,661
|
|
|||
|
Cost of sales
|
50,409
|
|
|
53,765
|
|
|
104,174
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Gross profit
|
88,527
|
|
|
29,960
|
|
|
118,487
|
|
|||
|
Advertising and promotion
|
19,299
|
|
|
5,080
|
|
|
24,379
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Contribution margin
|
$
|
69,228
|
|
|
$
|
24,880
|
|
|
94,108
|
|
|
|
Other operating expenses
|
|
|
|
|
|
|
33,455
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Operating income
|
|
|
|
|
|
|
60,653
|
|
|||
|
Other expense
|
|
|
|
|
|
|
16,853
|
|
|||
|
Provision for income taxes
|
|
|
|
|
|
|
17,531
|
|
|||
|
Income from continuing operations
|
|
|
|
|
|
|
26,269
|
|
|||
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
2,402
|
|
|||
|
Gain on sale of discontinued operations, net of income tax
|
157
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|||
|
Net income
|
|
|
|
|
|
|
$
|
28,828
|
|
||
During the
three and nine
month periods ended
December 31, 2010
, approximately 95.5% and 95.7%, respectively, of the Company's sales were made to customers in the United States and Canada, while during the
three and nine
month periods ended
December 31, 2009
, approximately 95.5% and 95.6%, respectively, of sales were made to customers in the United States and Canada. Other than the United States, no individual geographical area accounted for more than 10% of net sales in any of the periods presented.
At
December 31, 2010
, substantially all of the Company's long-term assets were located in the United States and have been allocated to the operating segments as follows:
|
(In thousands)
|
Over-the-
Counter
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
|
|
|
|||||||||
|
Goodwill
|
$
|
145,810
|
|
|
$
|
7,389
|
|
|
$
|
153,199
|
|
|
|
|
|
|
|
|||||||
|
Intangible assets
|
|
|
|
|
|||||||
|
Indefinite-lived
|
492,797
|
|
|
119,821
|
|
|
612,618
|
|
|||
|
Finite-lived
|
68,407
|
|
|
31,835
|
|
|
100,242
|
|
|||
|
|
561,204
|
|
|
151,656
|
|
|
712,860
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
707,014
|
|
|
$
|
159,045
|
|
|
$
|
866,059
|
|
-
27
-
20. Condensed Consolidating Financial Statements
As described in Note 10, the Company, together with certain of its wholly-owned subsidiaries, have fully and unconditionally guaranteed, on a joint and several basis, the obligations of Prestige Brands, Inc. (a wholly-owned subsidiary of the Company) set forth in the Senior Notes Indenture, including, without limitation, the obligation to pay principal and interest with respect to the 2010 Senior Notes. The wholly-owned subsidiaries of the Company which have guaranteed the 2010 Senior Notes are as follows: Prestige Personal Care Holdings, Inc., Prestige Personal Care, Inc., Prestige Services Corp., Prestige Brands Holdings, Inc. (a Virginia corporation), Prestige Brands International, Inc., Medtech Holdings, Inc., Medtech Products Inc., The Cutex Company, The Denorex Company and The Spic and Span Company (collectively, the "Subsidiary Guarantors"). A significant portion of the Company's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet Prestige Brands, Inc.'s debt service obligations are provided in part by distributions or advances from the Company's subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Company's subsidiaries, could limit Prestige Brands, Inc.'s ability to obtain cash from the Company's subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the 2010 Senior Notes. Although holders of the 2010 Senior Notes will be direct creditors of the guarantors of the 2010 Senior Notes by virtue of the guarantees, the Company has indirect subsidiaries located primarily in the United Kingdom and in the Netherlands (collectively, the "Non-Guarantor Subsidiaries") that have not guaranteed the 2010 Senior Notes, and such subsidiaries will not be obligated with respect to the 2010 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 2010 Senior Notes.
Presented below are supplemental condensed consolidating balance sheets as of
December 31, 2010
and
March 31, 2010
and condensed consolidating statements of operations for the
three and nine
month periods ended
December 31, 2010
and
2009
, and condensed consolidating statements of cash flows for the
nine
month periods ended
December 31, 2010
and
2009
. Such consolidating information includes separate columns for:
a) Prestige Brands Holdings, Inc., the parent,
b) Prestige Brands, Inc., the issuer,
c) Combined Subsidiary Guarantors,
d) Combined Non-Guarantor Subsidiaries,
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 wholly-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 Quarterly Report on Form 10-Q for the quarter ended December 31, 2010.
-
28
-
Condensed Consolidating Statement of Operations
Three Months Ended
December 31, 2010
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Revenues
|
$
|
—
|
|
$
|
66,089
|
|
$
|
22,790
|
|
$
|
1,198
|
|
$
|
—
|
|
$
|
90,077
|
|
||||||
|
Other Revenue
|
—
|
|
173
|
|
358
|
|
336
|
|
(336
|
)
|
531
|
|
||||||||||||
|
Total Revenue
|
—
|
|
66,262
|
|
23,148
|
|
1,534
|
|
(336
|
)
|
90,608
|
|
||||||||||||
|
Cost of Sales
|
||||||||||||||||||||||||
|
Cost of Sales (exclusive of depreciation)
|
—
|
|
30,662
|
|
15,769
|
|
501
|
|
(336
|
)
|
46,596
|
|
||||||||||||
|
Gross Profit
|
—
|
|
35,600
|
|
7,379
|
|
1,033
|
|
—
|
|
44,012
|
|
||||||||||||
|
Advertising and promotion
|
3
|
|
11,232
|
|
1,206
|
|
608
|
|
—
|
|
13,049
|
|
||||||||||||
|
General and administrative
|
(74
|
)
|
12,445
|
|
2,797
|
|
258
|
|
—
|
|
15,426
|
|
||||||||||||
|
Depreciation and amortization
|
111
|
|
1,921
|
|
463
|
|
18
|
|
—
|
|
2,513
|
|
||||||||||||
|
Total operating expenses
|
40
|
|
25,598
|
|
4,466
|
|
884
|
|
—
|
|
30,988
|
|
||||||||||||
|
Operating income (loss)
|
(40
|
)
|
10,002
|
|
2,913
|
|
149
|
|
—
|
|
13,024
|
|
||||||||||||
|
Other (income) expense
|
||||||||||||||||||||||||
|
Interest income
|
(13,073
|
)
|
(2,258
|
)
|
—
|
|
(85
|
)
|
15,416
|
|
—
|
|
||||||||||||
|
Interest expense
|
—
|
|
19,534
|
|
3,556
|
|
—
|
|
(15,416
|
)
|
7,674
|
|
||||||||||||
|
Equity in income of subsidiaries
|
4,698
|
|
—
|
|
—
|
|
—
|
|
(4,698
|
)
|
—
|
|
||||||||||||
|
Total other (income) expense
|
(8,375
|
)
|
17,276
|
|
3,556
|
|
(85
|
)
|
(4,698
|
)
|
7,674
|
|
||||||||||||
|
Income (loss) from continuing operations before income taxes
|
8,335
|
|
(7,274
|
)
|
(643
|
)
|
234
|
|
4,698
|
|
5,350
|
|
||||||||||||
|
Provision for income taxes
|
6,157
|
|
(2,797
|
)
|
(245
|
)
|
89
|
|
—
|
|
3,204
|
|
||||||||||||
|
Income (loss) from continuing operations
|
2,178
|
|
(4,477
|
)
|
(398
|
)
|
145
|
|
4,698
|
|
2,146
|
|
||||||||||||
|
Discontinued operations
|
||||||||||||||||||||||||
|
Income from discontinued operations, net of income tax
|
—
|
|
17
|
|
15
|
|
—
|
|
—
|
|
32
|
|
||||||||||||
|
Loss on sale of discontinued operations, net of income tax benefit
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
|
Net income (loss)
|
$
|
2,178
|
|
$
|
(4,460
|
)
|
$
|
(383
|
)
|
$
|
145
|
|
$
|
4,698
|
|
$
|
2,178
|
|
||||||
-
29
-
Condensed Consolidating Statement of Operations
Three Months Ended
December 31, 2009
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Revenues
|
$
|
—
|
|
$
|
45,523
|
|
$
|
26,828
|
|
$
|
1,021
|
|
$
|
—
|
|
$
|
73,372
|
|
||||||
|
Other Revenue
|
—
|
|
9
|
|
437
|
|
186
|
|
(186
|
)
|
446
|
|
||||||||||||
|
Total Revenue
|
—
|
|
45,532
|
|
27,265
|
|
1,207
|
|
(186
|
)
|
73,818
|
|
||||||||||||
|
Cost of Sales
|
||||||||||||||||||||||||
|
Cost of Sales (exclusive of depreciation)
|
—
|
|
16,917
|
|
17,481
|
|
435
|
|
(186
|
)
|
34,647
|
|
||||||||||||
|
Gross Profit
|
—
|
|
28,615
|
|
9,784
|
|
772
|
|
—
|
|
39,171
|
|
||||||||||||
|
Advertising and promotion
|
—
|
|
4,620
|
|
877
|
|
540
|
|
—
|
|
6,037
|
|
||||||||||||
|
General and administrative
|
134
|
|
4,520
|
|
2,591
|
|
166
|
|
—
|
|
7,411
|
|
||||||||||||
|
Depreciation and amortization
|
99
|
|
1,869
|
|
472
|
|
18
|
|
—
|
|
2,458
|
|
||||||||||||
|
Total operating expenses
|
233
|
|
11,009
|
|
3,940
|
|
724
|
|
—
|
|
15,906
|
|
||||||||||||
|
Operating income (loss)
|
(233
|
)
|
17,606
|
|
5,844
|
|
48
|
|
—
|
|
23,265
|
|
||||||||||||
|
Other (income) expense
|
||||||||||||||||||||||||
|
Interest income
|
(13,162
|
)
|
(2,332
|
)
|
—
|
|
(27
|
)
|
15,521
|
|
—
|
|
||||||||||||
|
Interest expense
|
—
|
|
17,499
|
|
3,580
|
|
—
|
|
(15,521
|
)
|
5,558
|
|
||||||||||||
|
Equity in income of subsidiaries
|
(2,288
|
)
|
—
|
|
—
|
|
—
|
|
2,288
|
|
—
|
|
||||||||||||
|
Total other (income) expense
|
(15,450
|
)
|
15,167
|
|
3,580
|
|
(27
|
)
|
2,288
|
|
5,558
|
|
||||||||||||
|
Income (loss) from continuing operations before income taxes
|
15,217
|
|
2,439
|
|
2,264
|
|
75
|
|
(2,288
|
)
|
17,707
|
|
||||||||||||
|
Provision for income taxes
|
4,637
|
|
1,906
|
|
1,021
|
|
78
|
|
—
|
|
7,642
|
|
||||||||||||
|
Income (loss) from continuing operations
|
10,580
|
|
533
|
|
1,243
|
|
(3
|
)
|
(2,288
|
)
|
10,065
|
|
||||||||||||
|
Discontinued operations
|
||||||||||||||||||||||||
|
Income from discontinued operations, net of income tax
|
—
|
|
327
|
|
31
|
|
—
|
|
—
|
|
358
|
|
||||||||||||
|
Gain/(loss) on sale of discontinued operations, net of income tax/(benefit)
|
—
|
|
788
|
|
(631
|
)
|
—
|
|
—
|
|
157
|
|
||||||||||||
|
Net income (loss)
|
$
|
10,580
|
|
$
|
1,648
|
|
$
|
643
|
|
$
|
(3
|
)
|
$
|
(2,288
|
)
|
$
|
10,580
|
|
||||||
-
30
-
Condensed Consolidating Statement of Operations
Nine Months Ended
December 31, 2010
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Revenues
|
$
|
—
|
|
$
|
159,772
|
|
$
|
75,434
|
|
$
|
2,880
|
|
$
|
—
|
|
$
|
238,086
|
|
||||||
|
Other Revenue
|
—
|
|
369
|
|
1,692
|
|
1,327
|
|
(1,327
|
)
|
2,061
|
|
||||||||||||
|
Total Revenue
|
—
|
|
160,141
|
|
77,126
|
|
4,207
|
|
(1,327
|
)
|
240,147
|
|
||||||||||||
|
Cost of Sales
|
||||||||||||||||||||||||
|
Cost of Sales (exclusive of depreciation)
|
—
|
|
64,680
|
|
51,097
|
|
1,124
|
|
(1,327
|
)
|
115,574
|
|
||||||||||||
|
Gross Profit
|
—
|
|
95,461
|
|
26,029
|
|
3,083
|
|
—
|
|
124,573
|
|
||||||||||||
|
Advertising and promotion
|
2
|
|
22,864
|
|
4,858
|
|
1,051
|
|
—
|
|
28,775
|
|
||||||||||||
|
General and administrative
|
(225
|
)
|
22,651
|
|
8,196
|
|
319
|
|
—
|
|
30,941
|
|
||||||||||||
|
Depreciation and amortization
|
338
|
|
5,559
|
|
1,388
|
|
51
|
|
—
|
|
7,336
|
|
||||||||||||
|
Total operating expenses
|
115
|
|
51,074
|
|
14,442
|
|
1,421
|
|
—
|
|
67,052
|
|
||||||||||||
|
Operating income (loss)
|
(115
|
)
|
44,387
|
|
11,587
|
|
1,662
|
|
—
|
|
57,521
|
|
||||||||||||
|
Other (income) expense
|
||||||||||||||||||||||||
|
Interest income
|
(39,142
|
)
|
(6,884
|
)
|
—
|
|
(132
|
)
|
46,158
|
|
—
|
|
||||||||||||
|
Interest expense
|
—
|
|
54,021
|
|
10,645
|
|
—
|
|
(46,158
|
)
|
18,508
|
|
||||||||||||
|
Loss on extinguishment of debt
|
—
|
|
300
|
|
—
|
|
—
|
|
—
|
|
300
|
|
||||||||||||
|
Equity in income of subsidiaries
|
110
|
|
—
|
|
—
|
|
—
|
|
(110
|
)
|
—
|
|
||||||||||||
|
Total other (income) expense
|
(39,032
|
)
|
47,437
|
|
10,645
|
|
(132
|
)
|
(110
|
)
|
18,808
|
|
||||||||||||
|
Income (loss) from continuing operations before income taxes
|
38,917
|
|
(3,050
|
)
|
942
|
|
1,794
|
|
110
|
|
38,713
|
|
||||||||||||
|
Provision for income taxes
|
16,111
|
|
(993
|
)
|
361
|
|
469
|
|
—
|
|
15,948
|
|
||||||||||||
|
Income (loss) from continuing operations
|
22,806
|
|
(2,057
|
)
|
581
|
|
1,325
|
|
110
|
|
22,765
|
|
||||||||||||
|
Discontinued operations
|
||||||||||||||||||||||||
|
Income (loss) from discontinued operations, net of income tax
|
—
|
|
578
|
|
13
|
|
—
|
|
—
|
|
591
|
|
||||||||||||
|
Loss on sale of discontinued operations, net of income tax benefit
|
—
|
|
(550
|
)
|
—
|
|
—
|
|
—
|
|
(550
|
)
|
||||||||||||
|
Net income (loss)
|
$
|
22,806
|
|
$
|
(2,029
|
)
|
$
|
594
|
|
$
|
1,325
|
|
$
|
110
|
|
$
|
22,806
|
|
||||||
-
31
-
Condensed Consolidating Statement of Operations
Nine Months Ended
December 31, 2009
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Revenues
|
$
|
—
|
|
$
|
136,129
|
|
$
|
82,271
|
|
$
|
2,778
|
|
$
|
—
|
|
$
|
221,178
|
|
||||||
|
Other Revenue
|
—
|
|
29
|
|
1,454
|
|
984
|
|
(984
|
)
|
1,483
|
|
||||||||||||
|
Total Revenue
|
—
|
|
136,158
|
|
83,725
|
|
3,762
|
|
(984
|
)
|
222,661
|
|
||||||||||||
|
Cost of Sales
|
||||||||||||||||||||||||
|
Cost of Sales (exclusive of depreciation)
|
—
|
|
50,256
|
|
53,766
|
|
1,136
|
|
(984
|
)
|
104,174
|
|
||||||||||||
|
Gross Profit
|
—
|
|
85,902
|
|
29,959
|
|
2,626
|
|
—
|
|
118,487
|
|
||||||||||||
|
Advertising and promotion
|
—
|
|
18,217
|
|
5,080
|
|
1,082
|
|
—
|
|
24,379
|
|
||||||||||||
|
General and administrative
|
(114
|
)
|
16,290
|
|
9,921
|
|
(10
|
)
|
—
|
|
26,087
|
|
||||||||||||
|
Depreciation and amortization
|
278
|
|
5,621
|
|
1,417
|
|
52
|
|
—
|
|
7,368
|
|
||||||||||||
|
Total operating expenses (income)
|
164
|
|
40,128
|
|
16,418
|
|
1,124
|
|
—
|
|
57,834
|
|
||||||||||||
|
Operating income
|
(164
|
)
|
45,774
|
|
13,541
|
|
1,502
|
|
—
|
|
60,653
|
|
||||||||||||
|
Other (income) expense
|
||||||||||||||||||||||||
|
Interest income
|
(39,411
|
)
|
(6,977
|
)
|
—
|
|
(87
|
)
|
46,475
|
|
—
|
|
||||||||||||
|
Interest expense
|
—
|
|
52,609
|
|
10,719
|
|
—
|
|
(46,475
|
)
|
16,853
|
|
||||||||||||
|
Equity in income of subsidiaries
|
(4,259
|
)
|
—
|
|
—
|
|
—
|
|
4,259
|
|
—
|
|
||||||||||||
|
Total other (income) expense
|
(43,670
|
)
|
45,632
|
|
10,719
|
|
(87
|
)
|
4,259
|
|
16,853
|
|
||||||||||||
|
Income (loss) from continuing operations before income taxes
|
43,506
|
|
142
|
|
2,822
|
|
1,589
|
|
(4,259
|
)
|
43,800
|
|
||||||||||||
|
Provision (benefit) for income taxes
|
14,678
|
|
1,239
|
|
1,233
|
|
381
|
|
—
|
|
17,531
|
|
||||||||||||
|
Income (loss) from continuing operations
|
28,828
|
|
(1,097
|
)
|
1,589
|
|
1,208
|
|
(4,259
|
)
|
26,269
|
|
||||||||||||
|
Discontinued operations
|
||||||||||||||||||||||||
|
Income from discontinued operations, net of income tax
|
—
|
|
2,149
|
|
253
|
|
—
|
|
—
|
|
2,402
|
|
||||||||||||
|
Gain/(loss) on sale of discontinued operations, net of income tax/(benefit)
|
—
|
|
787
|
|
(630
|
)
|
—
|
|
—
|
|
157
|
|
||||||||||||
|
Net income (loss)
|
$
|
28,828
|
|
$
|
1,839
|
|
$
|
1,212
|
|
$
|
1,208
|
|
$
|
(4,259
|
)
|
$
|
28,828
|
|
||||||
-
32
-
Condensed Consolidating Balance Sheet
December 31, 2010
|
(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
|
$
|
82,652
|
|
$
|
—
|
|
$
|
—
|
|
$
|
614
|
|
$
|
—
|
|
$
|
83,266
|
|
||||||
|
Accounts receivable
|
17
|
|
33,930
|
|
7,041
|
|
993
|
|
—
|
|
41,981
|
|
||||||||||||
|
Inventories
|
—
|
|
38,148
|
|
8,969
|
|
790
|
|
—
|
|
47,907
|
|
||||||||||||
|
Deferred income tax assets
|
806
|
|
3,416
|
|
477
|
|
1
|
|
—
|
|
4,700
|
|
||||||||||||
|
Prepaid expenses and other current assets
|
1,039
|
|
671
|
|
89
|
|
1
|
|
—
|
|
1,800
|
|
||||||||||||
|
Current assets of discontinued operations
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
|
Total current assets
|
84,514
|
|
76,165
|
|
16,576
|
|
2,399
|
|
—
|
|
179,654
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Property and equipment
|
1,078
|
|
116
|
|
197
|
|
15
|
|
—
|
|
1,406
|
|
||||||||||||
|
Goodwill
|
—
|
|
145,809
|
|
7,390
|
|
—
|
|
—
|
|
153,199
|
|
||||||||||||
|
Intangible assets
|
—
|
|
560,751
|
|
151,656
|
|
453
|
|
—
|
|
712,860
|
|
||||||||||||
|
Other long-term assets
|
—
|
|
6,729
|
|
—
|
|
—
|
|
—
|
|
6,729
|
|
||||||||||||
|
Intercompany receivable
|
926,912
|
|
959,307
|
|
93,725
|
|
4,378
|
|
(1,984,322
|
)
|
—
|
|
||||||||||||
|
Investment in subsidiary
|
456,119
|
|
—
|
|
—
|
|
—
|
|
(456,119
|
)
|
—
|
|
||||||||||||
|
Total Assets
|
$
|
1,468,623
|
|
$
|
1,748,877
|
|
$
|
269,544
|
|
$
|
7,245
|
|
$
|
(2,440,441
|
)
|
$
|
1,053,848
|
|
||||||
|
Liabilities and Stockholders' Equity
|
||||||||||||||||||||||||
|
Current liabilities
|
||||||||||||||||||||||||
|
Accounts payable
|
$
|
895
|
|
$
|
12,056
|
|
$
|
4,912
|
|
$
|
819
|
|
$
|
—
|
|
$
|
18,682
|
|
||||||
|
Accrued interest payable
|
—
|
|
5,156
|
|
—
|
|
—
|
|
—
|
|
5,156
|
|
||||||||||||
|
Other accrued liabilities
|
5,315
|
|
22,093
|
|
(6,254
|
)
|
(565
|
)
|
—
|
|
20,589
|
|
||||||||||||
|
Current portion of long-term debt
|
—
|
|
659
|
|
—
|
|
—
|
|
—
|
|
659
|
|
||||||||||||
|
Total current liabilities
|
6,210
|
|
39,964
|
|
(1,342
|
)
|
254
|
|
—
|
|
45,086
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Long-term debt
|
||||||||||||||||||||||||
|
Principal amount
|
—
|
|
508,841
|
|
—
|
|
—
|
|
—
|
|
508,841
|
|
||||||||||||
|
Less unamortized discount
|
—
|
|
(5,277
|
)
|
—
|
|
—
|
|
—
|
|
(5,277
|
)
|
||||||||||||
|
Long-term debt, net of unamortized discount
|
—
|
|
503,564
|
|
—
|
|
—
|
|
—
|
|
503,564
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Deferred income tax liabilities
|
(2,550
|
)
|
129,991
|
|
23,163
|
|
92
|
|
—
|
|
150,696
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Intercompany payable
|
937,916
|
|
872,092
|
|
173,607
|
|
707
|
|
(1,984,322
|
)
|
—
|
|
||||||||||||
|
Intercompany equity in subsidiaries
|
172,545
|
|
—
|
|
—
|
|
—
|
|
(172,545
|
)
|
—
|
|
||||||||||||
|
Total Liabilities
|
1,114,121
|
|
1,545,611
|
|
195,428
|
|
1,053
|
|
(2,156,867
|
)
|
699,346
|
|
||||||||||||
|
Stockholders' Equity
|
||||||||||||||||||||||||
|
Common Stock
|
502
|
|
—
|
|
—
|
|
—
|
|
—
|
|
502
|
|
||||||||||||
|
Additional paid-in capital
|
386,928
|
|
337,458
|
|
118,637
|
|
24
|
|
(456,119
|
)
|
386,928
|
|
||||||||||||
|
Treasury stock
|
(327
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(327
|
)
|
||||||||||||
|
Retained earnings (accumulated deficit)
|
(32,601
|
)
|
(139,919
|
)
|
(44,521
|
)
|
11,895
|
|
172,545
|
|
(32,601
|
)
|
||||||||||||
|
Intercompany dividends
|
—
|
|
5,727
|
|
—
|
|
(5,727
|
)
|
—
|
|
—
|
|
||||||||||||
|
Total Stockholders' Equity
|
354,502
|
|
203,266
|
|
74,116
|
|
6,192
|
|
(283,574
|
)
|
354,502
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Total Liabilities and Stockholders' Equity
|
$
|
1,468,623
|
|
$
|
1,748,877
|
|
$
|
269,544
|
|
$
|
7,245
|
|
$
|
(2,440,441
|
)
|
$
|
1,053,848
|
|
||||||
-
33
-
Condensed Consolidating Balance Sheet
March 31, 2010
|
(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
|
$
|
40,644
|
|
$
|
—
|
|
$
|
—
|
|
$
|
453
|
|
$
|
—
|
|
$
|
41,097
|
|
||||||
|
Accounts receivable
|
1,054
|
|
18,865
|
|
10,025
|
|
677
|
|
—
|
|
30,621
|
|
||||||||||||
|
Inventories
|
—
|
|
19,798
|
|
7,257
|
|
621
|
|
—
|
|
27,676
|
|
||||||||||||
|
Deferred income tax assets
|
2,315
|
|
3,639
|
|
398
|
|
1
|
|
—
|
|
6,353
|
|
||||||||||||
|
Prepaid expenses and other current assets
|
4,442
|
|
226
|
|
248
|
|
1
|
|
—
|
|
4,917
|
|
||||||||||||
|
Current assets of discontinued operations
|
—
|
|
1,486
|
|
—
|
|
—
|
|
—
|
|
1,486
|
|
||||||||||||
|
Total current assets
|
48,455
|
|
44,014
|
|
17,928
|
|
1,753
|
|
—
|
|
112,150
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Property and equipment
|
841
|
|
236
|
|
297
|
|
22
|
|
—
|
|
1,396
|
|
||||||||||||
|
Goodwill
|
—
|
|
104,099
|
|
7,390
|
|
—
|
|
—
|
|
111,489
|
|
||||||||||||
|
Intangible assets
|
—
|
|
400,900
|
|
152,964
|
|
495
|
|
—
|
|
554,359
|
|
||||||||||||
|
Other long-term assets
|
—
|
|
7,148
|
|
—
|
|
—
|
|
—
|
|
7,148
|
|
||||||||||||
|
Long-term assets of discontinued operations
|
—
|
|
4,870
|
|
—
|
|
—
|
|
—
|
|
4,870
|
|
||||||||||||
|
Intercompany receivable
|
712,224
|
|
729,069
|
|
90,251
|
|
3,989
|
|
(1,535,533
|
)
|
—
|
|
||||||||||||
|
Investment in subsidiary
|
456,119
|
|
—
|
|
—
|
|
—
|
|
(456,119
|
)
|
—
|
|
||||||||||||
|
Total Assets
|
$
|
1,217,639
|
|
$
|
1,290,336
|
|
$
|
268,830
|
|
$
|
6,259
|
|
$
|
(1,991,652
|
)
|
$
|
791,412
|
|
||||||
|
Liabilities and Stockholders' Equity
|
||||||||||||||||||||||||
|
Current liabilities
|
||||||||||||||||||||||||
|
Accounts payable
|
$
|
2,526
|
|
$
|
5,837
|
|
$
|
4,060
|
|
$
|
348
|
|
$
|
—
|
|
$
|
12,771
|
|
||||||
|
Accrued interest payable
|
—
|
|
1,561
|
|
—
|
|
—
|
|
—
|
|
1,561
|
|
||||||||||||
|
Other accrued liabilities
|
10,234
|
|
4,960
|
|
(3,476
|
)
|
15
|
|
—
|
|
11,733
|
|
||||||||||||
|
Current portion of long-term debt
|
—
|
|
29,587
|
|
—
|
|
—
|
|
—
|
|
29,587
|
|
||||||||||||
|
Total current liabilities
|
12,760
|
|
41,945
|
|
584
|
|
363
|
|
—
|
|
55,652
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Long-term debt
|
||||||||||||||||||||||||
|
Principal amount
|
—
|
|
298,500
|
|
—
|
|
—
|
|
—
|
|
298,500
|
|
||||||||||||
|
Less unamortized discount
|
—
|
|
(3,943
|
)
|
—
|
|
—
|
|
—
|
|
(3,943
|
)
|
||||||||||||
|
Long-term debt, net of unamortized discount
|
—
|
|
294,557
|
|
—
|
|
—
|
|
—
|
|
294,557
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Deferred income tax liabilities
|
(4
|
)
|
91,828
|
|
20,224
|
|
96
|
|
—
|
|
112,144
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Intercompany payable
|
703,389
|
|
656,711
|
|
174,500
|
|
933
|
|
(1,535,533
|
)
|
—
|
|
||||||||||||
|
Intercompany equity in subsidiaries
|
172,435
|
|
—
|
|
—
|
|
—
|
|
(172,435
|
)
|
—
|
|
||||||||||||
|
Total Liabilities
|
888,580
|
|
1,085,041
|
|
195,308
|
|
1,392
|
|
(1,707,968
|
)
|
462,353
|
|
||||||||||||
|
Stockholders' Equity
|
||||||||||||||||||||||||
|
Common Stock
|
502
|
|
—
|
|
—
|
|
—
|
|
—
|
|
502
|
|
||||||||||||
|
Additional paid-in capital
|
384,027
|
|
337,458
|
|
118,637
|
|
24
|
|
(456,119
|
)
|
384,027
|
|
||||||||||||
|
Treasury stock
|
(63
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(63
|
)
|
||||||||||||
|
Retained earnings (accumulated deficit)
|
(55,407
|
)
|
(137,890
|
)
|
(45,115
|
)
|
10,570
|
|
172,435
|
|
(55,407
|
)
|
||||||||||||
|
Intercompany dividends
|
—
|
|
5,727
|
|
—
|
|
(5,727
|
)
|
—
|
|
—
|
|
||||||||||||
|
Total Stockholders' Equity
|
329,059
|
|
205,295
|
|
73,522
|
|
4,867
|
|
(283,684
|
)
|
329,059
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Total Liabilities and Stockholders’ Equity
|
$
|
1,217,639
|
|
$
|
1,290,336
|
|
$
|
268,830
|
|
$
|
6,259
|
|
$
|
(1,991,652
|
)
|
$
|
791,412
|
|
||||||
-
34
-
Condensed Consolidating Statement of Cash Flows
Nine Months Ended
December 31, 2010
|
(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)
|
$
|
22,806
|
|
$
|
(2,029
|
)
|
$
|
594
|
|
$
|
1,325
|
|
$
|
110
|
|
$
|
22,806
|
|
||||||
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
||||||||||||||||||||||||
|
Depreciation and amortization
|
338
|
|
5,789
|
|
1,388
|
|
50
|
|
—
|
|
7,565
|
|
||||||||||||
|
Loss on sale of discontinued operations
|
—
|
|
890
|
|
—
|
|
—
|
|
—
|
|
890
|
|
||||||||||||
|
Deferred income taxes
|
(1,039
|
)
|
3,768
|
|
2,862
|
|
—
|
|
—
|
|
5,591
|
|
||||||||||||
|
Amortization of deferred financing costs
|
—
|
|
767
|
|
—
|
|
—
|
|
—
|
|
767
|
|
||||||||||||
|
Stock-based compensation costs
|
2,751
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,751
|
|
||||||||||||
|
Loss on extinguishment of debt
|
—
|
|
300
|
|
—
|
|
—
|
|
—
|
|
300
|
|
||||||||||||
|
Amortization of debt discount
|
—
|
|
480
|
|
—
|
|
—
|
|
—
|
|
480
|
|
||||||||||||
|
Loss on disposal of equipment
|
3
|
|
105
|
|
20
|
|
3
|
|
—
|
|
131
|
|
||||||||||||
|
Changes in operating assets and liabilities
|
||||||||||||||||||||||||
|
Accounts receivable
|
1,037
|
|
3,624
|
|
2,985
|
|
(316
|
)
|
—
|
|
7,330
|
|
||||||||||||
|
Inventories
|
—
|
|
4,696
|
|
(1,712
|
)
|
(170
|
)
|
—
|
|
2,814
|
|
||||||||||||
|
Inventories held for sale
|
—
|
|
1,114
|
|
—
|
|
—
|
|
—
|
|
1,114
|
|
||||||||||||
|
Prepaid expenses and other current assets
|
3,404
|
|
(395
|
)
|
157
|
|
—
|
|
—
|
|
3,166
|
|
||||||||||||
|
Accounts payable
|
(1,631
|
)
|
(746
|
)
|
852
|
|
471
|
|
—
|
|
(1,054
|
)
|
||||||||||||
|
Accrued liabilities
|
(2,069
|
)
|
11,567
|
|
(2,778
|
)
|
288
|
|
—
|
|
7,008
|
|
||||||||||||
|
Net cash provided by (used for) operating activities
|
25,600
|
|
29,930
|
|
4,368
|
|
1,651
|
|
110
|
|
61,659
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Investing Activities
|
||||||||||||||||||||||||
|
Purchases of equipment
|
(358
|
)
|
(44
|
)
|
—
|
|
(3
|
)
|
—
|
|
(405
|
)
|
||||||||||||
|
Proceeds from sale of discontinued operations
|
—
|
|
4,122
|
|
—
|
|
—
|
|
—
|
|
4,122
|
|
||||||||||||
|
Acquisition of Blacksmith, net of cash acquired
|
(221
|
)
|
(201,823
|
)
|
—
|
|
—
|
|
—
|
|
(202,044
|
)
|
||||||||||||
|
Net cash (used for) provided by investing activities
|
(579
|
)
|
(197,745
|
)
|
—
|
|
(3
|
)
|
—
|
|
(198,327
|
)
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Financing Activities
|
||||||||||||||||||||||||
|
Proceeds from issuance of senior notes
|
—
|
|
100,250
|
|
—
|
|
—
|
|
—
|
|
100,250
|
|
||||||||||||
|
Proceeds from issuance of senior term loan
|
—
|
|
112,936
|
|
—
|
|
—
|
|
—
|
|
112,936
|
|
||||||||||||
|
Payment of deferred financing costs
|
—
|
|
(648
|
)
|
—
|
|
—
|
|
—
|
|
(648
|
)
|
||||||||||||
|
Repayment of long-term debt
|
—
|
|
(33,587
|
)
|
—
|
|
—
|
|
—
|
|
(33,587
|
)
|
||||||||||||
|
Proceeds from exercise of stock options
|
150
|
|
—
|
|
—
|
|
—
|
|
—
|
|
150
|
|
||||||||||||
|
Purchase of treasury stock
|
(264
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(264
|
)
|
||||||||||||
|
Intercompany activity, net
|
17,101
|
|
(11,136
|
)
|
(4,368
|
)
|
(1,487
|
)
|
(110
|
)
|
—
|
|
||||||||||||
|
Net cash (used for) provided by financing activities
|
16,987
|
|
167,815
|
|
(4,368
|
)
|
(1,487
|
)
|
(110
|
)
|
178,837
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Increase in cash
|
42,008
|
|
—
|
|
—
|
|
161
|
|
—
|
|
42,169
|
|
||||||||||||
|
Cash - beginning of period
|
40,644
|
|
—
|
|
—
|
|
453
|
|
—
|
|
41,097
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Cash - end of period
|
$
|
82,652
|
|
$
|
—
|
|
$
|
—
|
|
$
|
614
|
|
$
|
—
|
|
$
|
83,266
|
|
||||||
-
35
-
Condensed Consolidating Statement of Cash Flows
Nine Months Ended
December 31, 2009
|
(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)
|
$
|
28,828
|
|
$
|
1,839
|
|
$
|
1,212
|
|
$
|
1,208
|
|
$
|
(4,259
|
)
|
$
|
28,828
|
|
||||||
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
||||||||||||||||||||||||
|
Depreciation and amortization
|
278
|
|
6,334
|
|
2,015
|
|
52
|
|
—
|
|
8,679
|
|
||||||||||||
|
Loss (gain) on sale of discontinued operations
|
—
|
|
(1,268
|
)
|
1,015
|
|
—
|
|
—
|
|
(253
|
)
|
||||||||||||
|
Deferred income taxes
|
(605
|
)
|
5,525
|
|
5,334
|
|
—
|
|
—
|
|
10,254
|
|
||||||||||||
|
Amortization of deferred financing costs
|
—
|
|
1,432
|
|
—
|
|
—
|
|
—
|
|
1,432
|
|
||||||||||||
|
Stock-based compensation costs
|
1,658
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,658
|
|
||||||||||||
|
Loss on extinguishment of debt
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
|
Amortization of debt discount
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
|
Loss on disposal of equipment
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
|
Changes in operating assets and liabilities
|
||||||||||||||||||||||||
|
Accounts receivable
|
494
|
|
4,182
|
|
1,981
|
|
(250
|
)
|
—
|
|
6,407
|
|
||||||||||||
|
Inventories
|
—
|
|
(2,993
|
)
|
(3,459
|
)
|
(506
|
)
|
—
|
|
(6,958
|
)
|
||||||||||||
|
Inventories held for sale
|
—
|
|
(1,323
|
)
|
—
|
|
—
|
|
—
|
|
(1,323
|
)
|
||||||||||||
|
Prepaid expenses and other current assets
|
(643
|
)
|
26
|
|
(46
|
)
|
(1
|
)
|
—
|
|
(664
|
)
|
||||||||||||
|
Accounts payable
|
189
|
|
1,073
|
|
(558
|
)
|
302
|
|
—
|
|
1,006
|
|
||||||||||||
|
Accrued liabilities
|
4,484
|
|
1,048
|
|
(4,462
|
)
|
354
|
|
—
|
|
1,424
|
|
||||||||||||
|
Net cash provided by (used for) operating activities
|
34,683
|
|
15,875
|
|
3,032
|
|
1,159
|
|
(4,259
|
)
|
50,490
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Investing Activities
|
||||||||||||||||||||||||
|
Purchases of equipment
|
(337
|
)
|
(35
|
)
|
—
|
|
(30
|
)
|
—
|
|
(402
|
)
|
||||||||||||
|
Proceeds from sale of discontinued operations
|
(1,000
|
)
|
4,476
|
|
4,517
|
|
—
|
|
—
|
|
7,993
|
|
||||||||||||
|
Net cash (used for) provided by investing activities
|
(1,337
|
)
|
4,441
|
|
4,517
|
|
(30
|
)
|
—
|
|
7,591
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Financing Activities
|
||||||||||||||||||||||||
|
Payment of deferred financing costs
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
|
Repayment of long-term debt
|
—
|
|
(59,000
|
)
|
—
|
|
—
|
|
—
|
|
(59,000
|
)
|
||||||||||||
|
Purchase of treasury stock
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
|
Intercompany activity, net
|
(34,257
|
)
|
38,684
|
|
(7,549
|
)
|
(1,137
|
)
|
4,259
|
|
—
|
|
||||||||||||
|
Net cash (used for) provided by financing activities
|
(34,257
|
)
|
(20,316
|
)
|
(7,549
|
)
|
(1,137
|
)
|
4,259
|
|
(59,000
|
)
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Increase (decrease) in cash
|
(911
|
)
|
—
|
|
—
|
|
(8
|
)
|
—
|
|
(919
|
)
|
||||||||||||
|
Cash - beginning of period
|
34,458
|
|
—
|
|
—
|
|
723
|
|
—
|
|
35,181
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Cash - end of period
|
$
|
33,547
|
|
$
|
—
|
|
$
|
—
|
|
$
|
715
|
|
$
|
—
|
|
$
|
34,262
|
|
||||||
-
36
-
21.
Subsequent Events
On January 6, 2011, the Company acquired certain assets comprising the
Dramamine
business in the United States. The purchase price was $76.0 million in cash, subject to a post-closing inventory adjustment. The
Dramamine
brand is complementary to the Company's existing Over-the-Counter brands. The purchase price was funded by cash on hand. As of the date of filing this Quarterly Report on Form 10-Q, the Company has not yet completed the initial accounting for the acquisition, and the acquisition-date fair values of the acquired assets and assumed liabilities have not yet been determined.
-
37
-
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended
March 31, 2010
. This discussion and analysis may contain forward-looking statements that involve certain risks, assumptions and uncertainties. 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 our Annual Report on Form 10-K for the fiscal year ended
March 31, 2010
, as well as those described in future reports filed with the SEC.
|
See also “Cautionary Statement Regarding Forward-Looking Statements” on page
54
of this Quarterly Report on Form 10-Q.
|
General
We are engaged in the marketing, sales and distribution of brand name over-the-counter healthcare and household cleaning products to mass merchandisers, drug stores, supermarkets and dollar and club stores primarily in the United States, Canada and certain other international markets. We continue to use the strength of our brands, our established retail distribution network, a low-cost operating model and our experienced management team as a competitive advantage to grow our presence in these categories and, as a result, grow our sales and profits.
We have grown our brand portfolio by acquiring strong and well-recognized brands from larger consumer products and pharmaceutical companies, as well as other brands from smaller private companies. While the brands we have purchased from larger consumer products and pharmaceutical companies generally have had long histories of support and brand development, we believe that at the time we acquired them they were considered “non-core” by their previous owners and did not benefit from the focus of senior level management or strong marketing support. We believe that the brands we have purchased from smaller private companies have been constrained by the limited resources of their prior owners. After acquiring a brand, we seek to increase its sales, market share and distribution in both existing and new channels. We pursue this growth through increased spending on advertising and promotion, new marketing strategies, improved packaging and formulations and innovative new products.
Acquisitions
Blacksmith Acquisition
On November 1, 2010, we acquired 100% of the capital stock of Blacksmith Brands Holdings, Inc. (“Blacksmith”) for $190.0 million in cash, plus a working capital adjustment of $13.4 million and an additional $1.1 million was paid by us on behalf of Blacksmith for the seller's transaction costs. The working capital adjustment is among a number of items that we are challenging related to the purchase price. In connection with this acquisition, we acquired five leading consumer Over-the-Counter brands:
Efferdent®, Effergrip®, PediaCare®, Luden's®,
and
NasalCrom®
. These brands are complementary to our existing Over-the-Counter brands. We expect that the acquisition of the five brands will enhance our position in the Over-the-Counter market. Additionally, we believe that these newly acquired brands will benefit from a targeted advertising and marketing program, as well as our business model of outsourcing manufacturing and the elimination of redundant operations. The purchase price was funded by cash provided by the issuance of long term debt and additional bank borrowings, which are discussed further in Note 10 to the Consolidated Financial Statements.
The acquisition was accounted for in accordance with the Business Combinations Topic of the ASC 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.
-
38
-
The following table summarizes our preliminary allocation of the $204.5 million purchase price to the assets we acquired and liabilities
we
assumed in the Blacksmith acquisition:
|
(In thousands)
|
||||
|
Cash acquired
|
$
|
2,507
|
|
|
|
Accounts receivable, net
|
17,473
|
|
||
|
Other receivables
|
1,198
|
|
||
|
Income taxes receivable
|
5
|
|
||
|
Inventories
|
23,045
|
|
||
|
Prepaids and other current assets
|
44
|
|
||
|
Property, plant and equipment, net
|
226
|
|
||
|
Goodwill
|
41,710
|
|
||
|
Trademarks
|
165,346
|
|
||
|
Other long-term assets
|
19
|
|
||
|
Total assets acquired
|
251,573
|
|
||
|
Accounts payable
|
6,965
|
|
||
|
Accrued expenses
|
3,412
|
|
||
|
Income taxes payable
|
2,031
|
|
||
|
Deferred income taxes
|
34,614
|
|
||
|
Total liabilities assumed
|
47,022
|
|
||
|
Total purchase price
|
$
|
204,551
|
|
|
Transaction and other costs associated with the Blacksmith acquisition of $6.9 million are included in general and administrative expenses on the Company's statement of operations for the three and nine months ended December 31, 2010.
The preliminary allocation of the purchase price to assets acquired and liabilities assumed is based on valuations performed by an independent third party to determine the fair value of such assets as of the acquisition date. We are still assessing the economic characteristics of certain trademarks. We expect to substantially complete this assessment during the fourth quarter of the fiscal year ending March 31, 2011 and may adjust the amounts recorded as of December 31, 2010 to reflect any revised valuations.
We preliminarily recorded goodwill based on the amount by which the purchase price exceeded the preliminary fair value of net assets acquired. The preliminary amount of goodwill deductible for tax purposes is $4.6 million.
We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average life of 15 years.
The operating results of Blacksmith have been included in our consolidated financial statements from the date of acquisition. Revenues of the acquired operations from November 1, 2010 through December 31, 2010 were $15.2 million while the net loss was $3.2 million.
Discontinued Operations and Sale of Certain Assets
On September 1, 2010, we sold certain assets related to the nail polish remover brand previously included in our Personal Care products segment to an unrelated third party ("the
Cutex
® divestiture"). In accordance with the Discontinued Operations Topic of the ASC, we reclassified the related assets as assets of discontinued operations in the consolidated balance sheets as of
March 31, 2010
, and reclassified the related operating results as discontinued operations in the consolidated financial statements and related notes for all periods presented. We recognized a loss of $0.9 million on a pre-tax basis and $0.6 million net of tax effects on the sale in the nine month period ended December 31, 2010. The total sales price for the assets was $4.1
-
39
-
million, the proceeds for which were received upon closing. As the assets sold comprised a substantial majority of the assets in the Personal Care segment, we reclassified the remaining assets to the Over-the-Counter Healthcare segment for all periods presented.
In October 2009, we sold certain assets related to the shampoo brands previously included in our Personal Care products segment to an unrelated third party. In accordance with the Discontinued Operations Topic of the ASC, we reclassified the related assets as held for sale in the consolidated balance sheet as of March 31, 2010 and we reclassified the related operating results as discontinued in the consolidated financial statements and related notes for all periods presented. We recognized a gain of $0.3 million on a pre-tax basis and $0.2 million net of tax effects on the sale in the quarter and nine month period ended December 31, 2009. The total sales price for the assets was $9.0 million, subject to an inventory adjustment, with $8.0 million received upon closing. The remaining $1.0 million was received by us in October 2010.
The following table presents the assets related to the discontinued operations as of
December 31, 2010
and
March 31, 2010
(in thousands):
|
December 31,
2010 |
March 31,
2010 |
||||||
|
Inventory
|
$
|
—
|
|
$
|
1,486
|
|
|
|
Intangible assets
|
—
|
|
4,870
|
|
|||
|
Total assets of discontinued operations
|
$
|
—
|
|
$
|
6,356
|
|
|
The following table summarizes the results of discontinued operations (in thousands):
|
|
Three Months Ended December 31
|
Nine Months Ended December 31
|
|||||||||||||
|
|
2010
|
|
2009
|
2010
|
2009
|
||||||||||
|
Components of Income
|
|
|
|||||||||||||
|
Revenues
|
$
|
84
|
|
|
$
|
2,281
|
|
$
|
4,027
|
|
|
$
|
12,979
|
|
|
|
Income before income taxes
|
51
|
|
|
576
|
|
957
|
|
|
3,868
|
|
|||||
Three Month Period Ended
December 31, 2010
compared to the
Three Month Period Ended
December 31, 2009
Revenues (in thousands)
|
2010
|
2009
|
Increase
|
||||||||||||||||
|
|
Revenues
|
%
|
|
Revenues
|
%
|
|
(Decrease)
|
%
|
||||||||||
|
|
|
|
|
|
|
|||||||||||||
|
OTC Healthcare
|
$
|
67,460
|
|
|
74.5
|
|
$
|
46,553
|
|
|
63.1
|
|
$
|
20,907
|
|
|
44.9
|
|
|
Household Cleaning
|
23,148
|
|
|
25.5
|
|
27,265
|
|
|
36.9
|
|
(4,117
|
)
|
|
(15.1
|
)
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
90,608
|
|
|
100.0
|
|
$
|
73,818
|
|
|
100.0
|
|
$
|
16,790
|
|
|
22.7
|
|
Revenues for the three month period ended
December 31, 2010
were
$90.6 million
, an increase of
$16.8 million
, or
22.7%
, versus the three month period ended
December 31, 2009
. Revenues for the Over-the-Counter Healthcare segment increased, primarily due to revenues of $15.2 million from sales of the acquired Blacksmith products, while revenues for the Household Cleaning segment decreased, versus the comparable period in the prior year. Revenues from customers outside of North America, which represent 4.5% of total revenues, increased by $0.8 million, or 23%, during
2010
compared to
2009
, primarily due to increased shipments of eye care products to our Australian and Venezuelan distributors.
-
40
-
Over-the-Counter Healthcare Segment
Revenues for the Over-the-Counter Healthcare segment increased
$20.9 million
, or
45%
, during
2010
versus
2009
. The increase in revenues was primarily due to revenues of $15.2 million from sales of the acquired Blacksmith products. Additionally, we increased advertising and promotional activities which resulted in increased shipments to retailers. Revenue increases for
Chloraseptic
,
Little Remedies
,
Compound W
and
Clear Eyes
were partially offset by revenue decreases for
The Doctor's
.
Chloraseptic
revenues increased primarily due to new products and expanded distribution.
The Doctor's
revenue decrease was primarily the result of our largest customer discontinuing the sale of
The Doctor's Brushpicks
and reducing the number of stores in which
The
Doctor's Nightguard
is sold.
Little Remedies
revenue increased as the result of the launch of the new
Little Remedies
Honey Elixir product.
Compound W
revenues increased as the result of an increase in consumer consumption for both cryogenic and non-cryogenic products, and the continued sell-in of the new
Compound W
Skin Tag Remover in Canada.
Clear Eyes
revenues increased primarily due to distribution gains for its new multi-symptom relief eye
drop product.
Household Cleaning Segment
Revenues for the Household Cleaning segment decreased
$4.1 million
, or
15.1%
, during
2010
versus
2009
. Revenue decreased for
Comet,
Spic and Span
and
Chore Boy.
Comet
revenues decreased primarily due to lower consumer demand for bathroom spray.
Spic and Span
revenues were lower in 2010 versus 2009 due to a promotion in 2009 which resulted in increased shipments to retailers that was not repeated in 2010.
Gross Profit (in thousands)
|
2010
|
2009
|
Increase
|
||||||||||||||||
|
|
Gross Profit
|
%
|
|
Gross Profit
|
%
|
|
(Decrease)
|
%
|
||||||||||
|
|
|
|
|
|
|
|||||||||||||
|
OTC Healthcare
|
$
|
36,633
|
|
|
54.3
|
|
$
|
29,387
|
|
|
63.1
|
|
$
|
7,246
|
|
|
24.7
|
|
|
Household Cleaning
|
7,379
|
|
|
31.9
|
|
9,784
|
|
|
35.9
|
|
(2,405
|
)
|
|
(24.6
|
)
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
44,012
|
|
|
48.6
|
|
$
|
39,171
|
|
|
53.1
|
|
$
|
4,841
|
|
|
12.4
|
|
Gross profit for
2010
increased
$4.8 million
, or
12%
, when compared with
2009
. As a percent of total revenues, gross profit decreased from
53%
in
2009
to
49%
in
2010
. The increase in gross profit is primarily due to the $3.6 million of gross profit recognized on sales of the acquired Blacksmith brands, net of a $3.5 million step-up adjustment related to inventory valuation in connection with the Blacksmith acquisition. Due to the acquisition of Blacksmith, the Blacksmith inventory was valued at a price higher than it will be purchased for in the future. The decrease in gross profit as a percent of revenues was primarily due to the previously mentioned adjustment related to inventory valuation in connection with the Blacksmith acquisition.
Over-the-Counter Healthcare Segment
Gross profit for the Over-the-Counter Healthcare segment increased
$7.2 million
, or
24.7%
, during
2010
versus
2009
. As a percent of Over-the-Counter Healthcare revenues, gross profit decreased from
63.1%
during
2009
to
54.3%
during
2010
. The decrease in gross profit percentage was primarily the result of the previously mentioned step-up adjustment related to inventory valuation in connection with the Blacksmith acquisition, as well as the realization of a lower gross profit percentage for the acquired Blacksmith products.
Household Cleaning Segment
Gross profit for the Household Cleaning segment decreased by
$2.4 million
, or
25%
, during
2010
versus
2009
. As a percent of Household Cleaning revenue, gross profit decreased from
36%
during
2009
to
32%
during
2010
. The decrease in gross profit percentage was primarily the result of higher distribution costs and increased cost of sales due to the sale of promotional bonus packages for
Comet
and
Spic and Span
.
-
41
-
Contribution Margin (in thousands)
|
2010
|
2009
|
|||||||||||||||||
|
|
Contribution
Margin
|
%
|
|
Contribution
Margin
|
%
|
|
Increase
(Decrease)
|
%
|
||||||||||
|
|
|
|
|
|
|
|||||||||||||
|
OTC Healthcare
|
$
|
24,791
|
|
|
36.7
|
|
$
|
24,227
|
|
|
52.0
|
|
$
|
564
|
|
|
2.3
|
|
|
Household Cleaning
|
6,172
|
|
|
26.7
|
|
8,907
|
|
|
32.7
|
|
(2,735
|
)
|
|
(30.7
|
)
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
30,963
|
|
|
34.2
|
|
$
|
33,134
|
|
|
44.9
|
|
$
|
(2,171
|
)
|
|
(6.6
|
)
|
Contribution Margin, defined as gross profit less advertising and promotional expenses, decreased
$2.2 million
, or
7%
, during
2010
versus
2009
. The contribution margin decrease was due primarily to increased advertising and promotional spending and the inventory valuation charge related to the acquired Blacksmith brands, partially offset by the increase in gross profit. Advertising and promotional spending in the current quarter increased $7.0 million, or 116%, as a result of the differences in timing of advertising and promotional spending during the year. In 2009, the majority of spending occurred in the first two quarters of the year while in 2010, the majority of the advertising and promotional spending occurred during the third quarter.
Over-the-Counter Healthcare Segment
Contribution margin for the Over-the-Counter Healthcare segment increased
$0.6 million
, or
2%
, during
2010
versus
2009
. The contribution margin increase was the result of the $1.9 million contribution margin increase primarily related to increased sales of
Chloraseptic
,
Clear Eyes
,
Compound W
,
The Doctor's
and
Little Remedies
and increased international sales, less a $1.3 million reduction in contribution margin related to the acquired Blacksmith brands. Advertising and promotional spending increased $6.7 million, or 129% due to differences in timing of advertising and promotional spending as noted above.
Household Cleaning Segment
Contribution margin for the Household Cleaning segment decreased
$2.7 million
, or
31%
, during
2010
versus
2009
. The contribution margin decrease was the result of the decrease in gross profit as previously discussed, and a $0.3 million, or 38%, increase in advertising and promotional spending. The increase in advertising and promotional spending primarily related to increase in consumer promotion for
Comet
bathroom spray.
General and Administrative
General and administrative expenses were
$15.4 million
for
2010
versus
$7.4 million
for
2009
. The increase in expense was primarily due to the incurrence of $6.9 million of transaction and other costs directly related to the acquisition of Blacksmith.
Depreciation and Amortization
Depreciation and amortization expense was
$2.5 million
for both
2010
and
2009
.
Interest Expense
Net interest expense was
$7.7 million
during
2010
versus
$5.6 million
during
2009
. The increase in interest expense was primarily the result of a higher level of indebtedness outstanding related to the Blacksmith acquisition and an increase in cash held in anticipation of the
Dramamine
acquisition. The average cost of funds increased from 6.8% for
2009
to 7.6% for
2010
while the average indebtedness outstanding increased from $328.8 million during
2009
to $402.5 million during
2010
.
Income Taxes
The provision for income taxes during
2010
was
$3.2 million
versus
$7.6 million
during
2009
. The effective tax rate during
2010
was
59.7%
versus
42.9%
during
2009
. The increase in the effective rate is primarily due to $0.8 million of non-deductible transaction expenses and a $0.3 million charge for increasing our deferred state tax rate related to the Blacksmith acquisition.
-
42
-
Nine Month Period Ended
December 31, 2010
compared to the
Nine Month Period Ended
December 31, 2009
Revenues (in thousands)
|
2010
|
2009
|
Increase
|
||||||||||||||||
|
|
Revenues
|
%
|
|
Revenues
|
%
|
|
(Decrease)
|
%
|
||||||||||
|
|
|
|
|
|
|
|||||||||||||
|
OTC Healthcare
|
$
|
163,020
|
|
|
67.9
|
|
$
|
138,936
|
|
|
62.4
|
|
$
|
24,084
|
|
|
17.3
|
|
|
Household Cleaning
|
77,127
|
|
|
32.1
|
|
83,725
|
|
|
37.6
|
|
(6,598
|
)
|
|
(7.9
|
)
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
240,147
|
|
|
100.0
|
|
$
|
222,661
|
|
|
100.0
|
|
$
|
17,486
|
|
|
7.9
|
|
Revenues for the
nine
month period ended
December 31, 2010
were
$240.1 million
, an increase of
$17.5 million
, or
7.9%
, versus the
nine
month period ended
December 31, 2009
. Revenues for the Over-the-Counter Healthcare segment increased, primarily due to revenues of $15.2 million from the acquired Blacksmith products, while revenues for the Household Cleaning segment decreased, versus the comparable period in the prior year. Revenues from customers outside of North America, which represent 4.3% of total revenues, increased by $0.7 million, or 7%, during
2010
compared to
2009
, primarily due to increased shipments of eye care products by our United Kingdom subsidiary and to our Venezuelan distributor.
Over-the-Counter Healthcare Segment
Revenues for the Over-the-Counter Healthcare segment increased
$24.1 million
, or
17.3%
, during
2010
versus
2009
. The increase in revenues was primarily due to revenues of $15.2 million from sales of the acquired Blacksmith products. Revenue increases for
Chloraseptic, Clear Eyes
,
Compound W
and
Little Remedies
were partially offset by revenue decreases for
The Doctor's
.
Chloraseptic
revenues increased as a result of new products and expanded distribution.
Clear Eyes
revenues increased primarily due to increased consumer consumption and distribution gains for its new multi-symptom relief eye drop product.
Compound W
revenues increased as the result of an increase in consumer consumption for both cryogenic and non-cryogenic products, and the sell-in of the new
Compound W
Skin Tag Remover in Canada.
Little Remedies
revenues increased as the result of the successful sell-in of its new medicated pediatric product and increased consumer consumption of its non-medicated pediatric products.
The Doctor's
revenues decrease was primarily the result of our largest customer discontinuing the sale of
The Doctor's Brushpicks
and reducing the number of stores in which
The
Doctor's Nightguard
is sold.
Household Cleaning Segment
Revenues for the Household Cleaning segment decreased
$6.6 million
, or
8%
, during
2010
versus
2009
. Revenues decreased across the segment.
Comet
revenues decreased primarily due to lower consumer demand for bathroom spray.
Spic and Span
revenues decreased as a result of weaker consumer consumption of dilutibles.
Chore Boy
revenues decreased primarily due to decreased customer shipments of metal scrubbers.
Gross Profit (in thousands)
|
2010
|
2009
|
Increase
|
||||||||||||||||
|
|
Gross Profit
|
%
|
|
Gross Profit
|
%
|
|
(Decrease)
|
%
|
||||||||||
|
|
|
|
|
|
|
|||||||||||||
|
OTC Healthcare
|
$
|
98,543
|
|
|
60.4
|
|
$
|
88,527
|
|
|
63.7
|
|
$
|
10,016
|
|
|
11.3
|
|
|
Household Cleaning
|
26,030
|
|
|
33.7
|
|
29,960
|
|
|
35.8
|
|
(3,930
|
)
|
|
(13.1
|
)
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
124,573
|
|
|
51.9
|
|
$
|
118,487
|
|
|
53.2
|
|
$
|
6,086
|
|
|
5.1
|
|
Gross profit for
2010
increased
$6.1 million
, or
5%
, when compared with
2009
. As a percent of total revenues, gross profit decreased from
53.2%
in
2009
to
51.9%
in
2010
.
The increase in gross profit is primarily due to the $3.6 million of gross profit recognized on sales of the acquired Blacksmith products, net of a $3.5 million purchase accounting adjustment related to a reduction in inventory valuation for the Blacksmith acquisition. The decrease in gross profit as a percent of revenues was primarily due to the previously mentioned step-up adjustment related to inventory valuation in connection with the Blacksmith acquisition.
-
43
-
Over-the-Counter Healthcare Segment
Gross profit for the Over-the-Counter Healthcare segment increased
$10.0 million
, or
11%
, during
2010
versus
2009
. As a percent of Over-the-Counter Healthcare revenues, gross profit decreased from
64%
during
2009
to
60%
during
2010
. The decrease in gross profit percentage was primarily the result of the previously mentioned step-up adjustment related to inventory valuation in connection with the Blacksmith acquisition, as well as the realization of a lower gross profit percentage on sales of the acquired Blacksmith products.
Household Cleaning Segment
Gross profit for the Household Cleaning segment decreased by
$3.9 million
, or
13%
, during
2010
versus
2009
. As a percent of Household Cleaning revenue, gross profit decreased from
36%
during
2009
to
34%
during
2010
.
The decrease in gross profit percentage was primarily the result of higher product costs for
Chore Boy
, an unfavorable sales mix, higher distribution costs and increased cost of sales due to the sale of promotional bonus packages for
Comet
and
Spic and Span
.
Contribution Margin (in thousands)
|
2010
|
2009
|
|||||||||||||||||
|
|
Contribution
Margin
|
%
|
|
Contribution
Margin
|
%
|
|
Increase
(Decrease)
|
%
|
||||||||||
|
|
|
|
|
|
|
|||||||||||||
|
OTC Healthcare
|
$
|
74,625
|
|
|
45.8
|
|
$
|
69,228
|
|
|
49.8
|
|
$
|
5,397
|
|
|
7.8
|
|
|
Household Cleaning
|
21,173
|
|
|
27.5
|
|
24,880
|
|
|
29.7
|
|
(3,707
|
)
|
|
(14.9
|
)
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
95,798
|
|
|
39.9
|
|
$
|
94,108
|
|
|
42.3
|
|
$
|
1,690
|
|
|
1.8
|
|
Contribution Margin, defined as gross profit less advertising and promotional expenses, increased
$1.7 million
, or
1.8%
, during
2010
versus
2009
. The contribution margin increase was the result of the increase in gross profit as previously discussed offset by a $4.4 million, or 18%, increase in advertising and promotional spending.
Over-the-Counter Healthcare Segment
Contribution margin for the Over-the-Counter Healthcare segment increased
$5.4 million
, or
8%
, during
2010
versus
2009
. The contribution margin increase was the result of the increase in gross profit as previously discussed offset by a $4.6 million, or 24%, increase in advertising and promotional spending. The increase in advertising and promotional spending was primarily attributable to the acquired Blacksmith brands partially offset by a decrease in advertising and promotional spending for the
Chloraseptic
,
Clear Eyes
,
Compound W
,
Little Remedies
and
The Doctor's
brands.
Household Cleaning Segment
Contribution margin for the Household Cleaning segment decreased
$3.7 million
, or
15%
, during
2010
versus
2009
. The contribution margin decrease was the result of the decrease in gross profit as previously discussed, offset by a $0.2 million, or 4%, decrease in advertising and promotional spending. The decrease in advertising and promotional spending was primarily attributable to a decrease in media support for
Comet
bathroom spray, and decreases in trade promotion for
Comet
and
Spic and Span
, partially offset by an increase in
consumer promotion for
Comet
bathroom spray.
General and Administrative
General and administrative expenses were
$30.9 million
for
2010
versus
$26.1 million
for
2009
. The increase in expense was primarily due to the incurrence of costs of $6.9 million related to the Blacksmith acquisition, decreases in salary and legal expenses, partially offset by an increase in stock based compensation expense.
Depreciation and Amortization
Depreciation and amortization expense was
$7.3 million
for
2010
versus
$7.4 million
for
2009
. The decrease in expense was primarily due to the prior year period reduction of the useful life on some of our trademarks which resulted in an expense adjustment in that period.
Interest Expense
Net interest expense was
$18.5 million
during
2010
versus
$16.9 million
during
2009
. The increase in interest expense was primarily the result of a higher level of indebtedness outstanding combined with a reduction of variable interest rates on our
-
44
-
senior debt offset by an increase in debt issue costs included in interest expense in
2010
compared to
2009
. The average cost of funds decreased from 6.4% for
2009
to 5.9% for
2010
while the average indebtedness outstanding increased from $348.8 million during
2009
to $418.8 million during
2010
.
Income Taxes
The provision for income taxes during
2010
was
$15.9 million
versus
$17.5 million
during
2009
. The effective tax rate during
2010
was
41.1%
versus
39.9%
during
2009
. The increase in the effective rate is primarily due to $0.8 million of non-deductible transaction expenses and a $0.3 million charge for increasing our deferred state tax rate related to the Blacksmith acquisition.
Liquidity and Capital Resources
Liquidity
We have financed and expect to continue to finance our operations 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. During the fiscal year ended
March 31, 2010
, we issued $150.0 million of 8.25% Senior Notes due in 2018 and entered into a senior secured term loan facility of $150.0 million maturing in 2016. In November 2010, we issued an additional $100.0 million of 8.25% Senior Notes due in 2018, and borrowed $115.0 million under our existing Credit Agreement. The proceeds from the preceding transactions, in addition to cash that was on hand, were used to purchase, redeem or otherwise retire all of the previously issued senior subordinated notes, to repay all amounts under our former credit facility and terminate the associated credit agreement, and fund the Blacksmith and
Dramamine
acquisitions.
Dramamine Acquisition
On January 6, 2011, we acquired certain assets comprising the
Dramamine
business in the United States. The purchase price was $76.0 million in cash, subject to a post-closing inventory adjustment. The
Dramamine
brand is complementary to our existing Over-the-Counter brands. The purchase price was funded by cash on hand. As of the date of filing this Quarterly Report on Form 10-Q, we have not yet completed the initial accounting for the acquisition, and the acquisition-date fair values of the acquired assets and assumed liabilities have not yet been determined.
Operating Activities
Net cash provided by operating activities was
$61.7 million
for the
nine
month period ended
December 31, 2010
compared to
$50.5 million
for the comparable period in
2009
. The
$11.2 million
increase in net cash provided by operating activities was primarily the result of a net decrease in working capital, partially offset by the decreases in net income and deferred income taxes.
Consistent with the
nine
months ended
December 31, 2009
, our cash flow from operations exceeded net income due to the substantial non-cash charges related to depreciation and amortization of intangibles, increases in deferred income tax liabilities resulting from differences in the amortization of intangible assets and goodwill for income tax and financial reporting purposes, the amortization of certain deferred financing costs, as well as stock-based compensation costs.
Investing Activities
Net cash used for investing activities was
$198.3 million
for the
nine
month period ended
December 31, 2010
. Net cash provided by investing activities was
$7.6 million
for the
nine
month period ended
December 31, 2009
. Net cash used for investing activities for the
nine
month period ended
December 31, 2010
was primarily the result of the Blacksmith acquisition partially offset due to proceeds received from the
Cutex
divestiture. Net cash provided by investing activities for the
nine
month period ended
December 31, 2009
was primarily due to the divestiture of the shampoo business, partially offset by the acquisition of property and equipment.
Financing Activities
Net cash provided by financing activities was
$178.8 million
for the
nine
month period ended
December 31, 2010
compared to
$59.0 million
for the comparable period in
2009
. During the
nine
month period ended
December 31, 2010
, we issued an additional $100.0 million of 8.25% Senior Notes due in 2018, and borrowed $115.0 million under our existing Credit Agreement, which was partially offset by the redemption of the remaining $28.1 million of Senior Subordinated Notes due in 2012 that bore interest at 9.25%, and payment of the required principal amount on the 2010 Senior Term Loan of $0.8 million plus an additional principal amount of $3.8 million. This increased our outstanding indebtedness to
$509.5 million
at
December 31, 2010
from
$328.1 million
at
March 31, 2010
.
-
45
-
|
|
Nine Months Ended December 31
|
||||||
|
(In thousands)
|
2010
|
2009
|
|||||
|
Cash provided by (used for):
|
|
||||||
|
Operating Activities
|
$
|
61,659
|
|
$
|
50,490
|
|
|
|
Investing Activities
|
(198,327
|
)
|
|
7,591
|
|
||
|
Financing Activities
|
178,837
|
|
|
(59,000
|
)
|
||
Capital Resources
On March 24, 2010, we retired our Senior Secured Term Loan Facility with a maturity date of April 6, 2011. In addition, on March 24, 2010, we repaid a portion and, on April 15, 2010, redeemed in full the remaining outstanding indebtedness under our previously outstanding Senior Subordinated Notes due in 2012, which bore interest at 9.25% with a maturity date of April 15, 2012. On March 24, 2010, we also entered into a Senior Term Loan Facility with a maturity date of March 24, 2016, a Senior Revolving Credit Facility with a maturity date of March 24, 2015 and Senior Notes that bear interest at 8.25% with a maturity date of April 1, 2018. This debt refinancing improved our liquidity position due to the ability to increase the amount of the 2010 Senior Term Loan, obtaining a revolving line of credit and extending the maturities of our indebtedness. The new debt also better positions us to pursue acquisitions as part of our growth strategy.
On March 24, 2010, we entered into a $150.0 million 2010 Senior Term Loan with a discount to the lenders of $1.8 million and net proceeds of $148.2 million. The Senior Notes were issued at an aggregate face value of $250.0 million with a discount to the initial purchasers of $1.9 million and net proceeds to us of $248.1 million.
The discount was offered to improve the yield to maturity to lenders reflective of market conditions at the time of the offering. In addition to the discount, we incurred $7.9 million of costs primarily related to fees of bank arrangers and legal advisors of which $7.2 million was capitalized as deferred financing costs and $0.7 million expensed. The deferred financing costs are being amortized over the term of the loan and notes.
In connection with the acquisition of Blacksmith, on November 1, 2010, we amended our existing debt agreements and increased the amount borrowed thereunder. Specifically, on November 1, 2010, we amended our Credit Agreement in order to allow us to (i) borrow an additional $115.0 million as an incremental term loan under the Senior Term Loan Facility, which will mature on March 24, 2016 and has the same terms as the existing 2010 Senior Term Loan; and (ii) increase our borrowing capacity under the Senior Revolving Credit Facility by $10.0 million to $40.0 million. On November 1, 2010, we also issued an additional $100.0 million of Senior Notes due in 2018 as part of the same series as the Senior Notes issued on March 24, 2010.
As of
December 31, 2010
, we had an aggregate of
$509.5 million
of outstanding indebtedness, which consisted of the following:
|
•
|
$259.5 million
of borrowings under the
2010 Senior Term Loan
, and
|
|
•
|
$250.0 million
of 8.25%
Senior Notes due 2018.
|
We had $40.0 million of borrowing capacity under the Senior Revolving Credit Facility as of
December 31, 2010
, as well as $75.0 million under the Senior Term Loan Facility.
All loans under the 2010 Senior Term Loan bear interest at floating rates, based on either the prime rate, or at our option, the LIBOR rate, plus an applicable margin. The LIBOR rate option contains a floor rate of 1.5%. At
December 31, 2010
, an aggregate of
$259.5 million
was outstanding under the Senior Term Loan Facility at an interest rate of 4.75%.
We are able to, and sometimes do, use derivative financial instruments to mitigate the impact of changing interest rates associated with our long-term debt obligations. Although we do not enter into derivative financial instruments for trading purposes, all of our derivatives are straightforward over-the-counter instruments with liquid markets. The notional, or contractual, amount of our derivative financial instruments is used to measure the amount of interest to be paid or received and does not represent an actual liability. We account for these financial instruments as cash flow hedges.
In February 2008, we entered into an interest rate swap agreement in the notional amount of $175.0 million, decreasing to $125.0 million at March 26, 2009 to replace and supplement the interest rate cap agreement that expired on May 30, 2008. Under this swap, we agreed to pay a fixed rate of 2.88% while receiving a variable rate based on LIBOR. The agreement
-
46
-
terminated on March 26, 2010. At December 31, 2010 and March 31, 2010, we were not a party to any outstanding interest rate swap agreements.
The 2010 Senior Term Loan contains various financial covenants, including provisions that require us to maintain certain leverage and interest coverage ratios and not to exceed annual capital expenditures of $3.0 million. The 2010 Senior Term Loan, as well as the Indenture governing the 2010 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 transactions with affiliates. Specifically, we must:
|
•
|
Have a leverage ratio of less than 4.30 to 1.0 for the quarter ended December 31, 2010, (defined as, with certain adjustments, the ratio of our consolidated indebtedness 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 3.50 to 1.0 for the quarter ending March 31, 2014, and remains level thereafter, and
|
|
•
|
Have an interest coverage ratio of greater than 2.75 to 1.0 for the quarter ended
December 31, 2010
, (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 3.25 to 1.0 for the quarter ending March 31, 2013, and remains level thereafter.
|
At
December 31, 2010
, we were in compliance with the applicable financial and restrictive covenants under the Senior Credit Facility and the Indenture governing the 2010 Senior Notes. Additionally, management anticipates that in the normal course of operations, we will be in compliance with the financial and restrictive covenants during the ensuing year. Commencing on December 31, 2011, we are obligated to make quarterly principal payments on the Senior Term Loan Facility equal to $0.7 million.
We did not make repayments against outstanding indebtedness in excess of scheduled maturities for the quarter ended
December 31, 2010
, compared to payments in excess of outstanding maturities of $60.5 million made during the fiscal year ended
March 31, 2010
. During the
nine
months ended
December 31, 2010
, we redeemed the remaining $28.1 million of Senior Subordinated Notes.
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. Although we do not believe that inflation has had a material impact on our financial condition or results from operations for the periods referred to above, a high rate of inflation in the future could have a material adverse effect on our business, financial condition or results from operations. The recent volatility in crude oil prices has had an adverse impact on transportation costs, as well as certain petroleum based raw materials and packaging material. Although we take 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 may continue to have an adverse effect on our operating results.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in the notes to the unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q, as well as in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2010
. 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 upon 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 under different conditions. The most critical accounting estimates are as follows:
-
47
-
Revenue Recognition
We recognize revenue when the following revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the product has been shipped and the customer takes ownership and assumes the risk of loss; (iii) the selling price is fixed or determinable; and (iv) collection of the resulting receivable is reasonably assured. We have determined that the transfer of risk of loss generally occurs when product is received by the customer, and, accordingly recognize revenue at that time. Provision is 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 is recorded as advertising and promotional expenses or as a reduction of sales. Such costs vary from period-to-period based on the actual number of units sold during a finite period of time. We estimate the cost of such promotional programs at their inception based on historical experience and current market conditions and reduce sales by such estimates. 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. We do not provide incentives to customers for the acquisition of product in excess of normal inventory quantities since such incentives increase the potential for future returns, as well as reduce sales in the subsequent fiscal periods.
Estimates of costs of promotional programs are based on (i) historical sales experience, (ii) the current offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel. At the completion of the promotional program, the estimated amounts are adjusted to actual results. Our related promotional expense for the fiscal year ended
March 31, 2010
was $17.7 million. We believe that the estimation methodologies employed, combined with the nature of the promotional campaigns, make the likelihood remote that our obligation would be misstated by a material amount. However, for illustrative purposes, had we underestimated the promotional program rate by 10% for the fiscal year ended
March 31, 2010
, our sales and operating income would have been adversely affected by approximately $1.8 million. Net income would have been adversely affected by approximately $1.1 million. Similarly, had we underestimated the promotional program rate by 10% for the
three and nine
month periods ended
December 31, 2010
, our sales and operating income would have been adversely affected by approximately $0.6 million and $1.5 million. Net income would have been adversely affected by approximately $0.2 million and $1.0 million for the
three and nine
month periods ended
December 31, 2010
.
We also periodically run coupon programs in Sunday newspaper inserts 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 the fiscal year ended
March 31, 2010
, we had 25 coupon events. The amount recorded against revenues and accrued for these events during the year was $1.3 million. Cash settlement of coupon redemptions during the year was $1.3 million. During the
nine
month period ended
December 31, 2010
, we had 31 coupon events. The amount recorded against revenue and accrued for these events during the
three and nine
month periods ended
December 31, 2010
was $1.4 million and $2.1 million, respectively. Cash settlement of coupon redemptions during the
three and nine
month periods ended
December 31, 2010
was $0.4 million and $1.1 million, respectively.
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 the recording of 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 six 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 fiscal years ended
March 31, 2010
, 2009 and 2008, returns represented 3.9%, 3.8% and 4.4%, respectively, of gross sales. The 2008 rate of 4.4% included cost associated with the voluntary withdrawal from the marketplace of
Little Remedies
medicated pediatric cough and cold products in October 2007. Had the voluntary withdrawal not occurred, the actual returns rate would have been 3.9%. For the
three and nine
month periods ended
December 31, 2010
, product returns represented 3.0% and 2.8% of gross sales, respectively. At both
December 31, 2010
and
March 31, 2010
, the allowance for sales returns was $5.9 million.
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
-
48
-
the estimated return rate would be significant unexpected returns with respect to a product or products that comprise a significant portion of our revenues in a manner similar to the
Little Remedies
voluntary withdrawal discussed above. Based upon 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 4.4% to 3.8% of gross sales. An increase of 0.1% in our estimated return rate as a percentage of gross sales would have adversely affected our reported sales and operating income for the fiscal year ended
March 31, 2010
by approximately $0.3 million. Net income would have been adversely affected by approximately $0.2 million. An increase of 0.1% in our estimated return rate as a percentage of gross sales for the
three and nine
month periods ended
December 31, 2010
would have adversely affected our reported sales and operating income by approximately $0.1 million and $0.3 million, respectively, while our net income would have been adversely affected by approximately $0.1 million and $0.2 million, respectively.
Allowances 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. At
December 31, 2010
and
March 31, 2010
, the allowance for obsolete and slow moving inventory was $2.3 million and $2.0 million, representing 4.5% and 7.0%, respectively, of total inventory. Inventory obsolescence costs charged to operations were $1.7 million for the fiscal year ended
March 31, 2010
, while for the three month period ended
December 31, 2010
, we recorded obsolescence costs of $0.5 million. A 1.0% increase in our allowance for obsolescence at
March 31, 2010
would have adversely affected our reported operating income and net income for the fiscal year ended
March 31, 2010
by approximately $0.3 million and $0.2 million, respectively. Similarly, a 1.0% increase in our allowance at
December 31, 2010
would have adversely affected our reported operating income and net income for the
three and nine
month periods ended
December 31, 2010
by approximately $0.5 million and $0.2 million, respectively.
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.
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 0.7% of accounts receivable at
December 31, 2010
and
March 31, 2010
, respectively. Bad debt expense for the fiscal year ended
March 31, 2010
was $0.2 million, while during the
three and nine
month periods ended
December 31, 2010
, we recorded bad debt expense of $47,000 and $0.1 million, respectively.
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 future financial results. A 0.1% increase in our bad debt expense as a percentage of sales during the fiscal year ended
March 31, 2010
would have resulted in a decrease in reported operating income of approximately $0.3 million, and a decrease in our reported net income of approximately $0.2 million. Similarly, a 0.1% increase in our bad debt expense as a percentage of sales for the
three and nine
month periods ended
December 31, 2010
would have resulted in a decrease in reported operating income of approximately $0.1 million and $0.2 million, respectively, and a decrease in our reported net income of approximately $0.1 million for both periods.
Valuation of Intangible Assets and Goodwill
Goodwill and intangible assets amounted to
$866.1 million
and
$665.8 million
at
December 31, 2010
and
March 31, 2010
, respectively. At
December 31, 2010
, goodwill and intangible assets were apportioned among our two operating segments as follows:
-
49
-
|
(In thousands)
|
Over-the-
Counter
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
|
|
|
|||||||||
|
Goodwill
|
$
|
145,810
|
|
$
|
7,389
|
|
|
$
|
153,199
|
|
|
|
|
|
|
|
||||||||
|
Intangible assets
|
|
|
|
||||||||
|
Indefinite-lived
|
492,797
|
|
119,821
|
|
|
612,618
|
|
||||
|
Finite-lived
|
68,407
|
|
31,835
|
|
|
100,242
|
|
||||
|
|
561,204
|
|
|
151,656
|
|
|
712,860
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
707,014
|
|
|
$
|
159,045
|
|
|
$
|
866,059
|
|
Our
Clear Eyes, New-Skin, Chloraseptic
,
Compound W,
Wartner, Efferdent, Luden's and PediaCare
brands comprise the majority of the value of the intangible assets within the Over-the-Counter Healthcare segment. The
Comet, Spic and Span
and
Chore Boy
brands comprise substantially all of the intangible asset value within the Household Cleaning segment.
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 purchase 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:
|
•
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Brand History
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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.
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Market Position
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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.
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Recent and Projected Sales Growth
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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, which is required to reinvigorate a brand that has fallen from favor.
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History of and Potential for Product Extensions
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Consideration also 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 the intangible assets' values and useful lives 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 no longer 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
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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 of each year, 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 useful lives assigned to goodwill and intangible assets and tests for impairment.
We report goodwill and indefinite-lived intangible assets in two operating segments; Over-the-Counter Healthcare and Household Cleaning. We identify our reporting units in accordance with the Segment Reporting Topic of the FASB Accounting Standards Codification, which is at the brand level, and one level below the operating segment level. 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.
Finite-Lived Intangible Assets
As mentioned above, when events or changes in circumstances indicate the carrying value of the assets may not be recoverable, management performs a review to ascertain the impact of events and circumstances on the estimated useful lives and carrying values of our trademarks and trade names. In connection with this analysis, management:
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Reviews period-to-period sales and profitability by brand,
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Analyzes industry trends and projects brand growth rates,
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Prepares annual sales forecasts,
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Evaluates advertising effectiveness,
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Analyzes gross margins,
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Reviews contractual benefits or limitations,
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Monitors competitors' advertising spend and product innovation,
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Prepares projections to measure brand viability over the estimated useful life of the intangible asset, and
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Considers the regulatory environment, as well as industry litigation.
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Should analysis of any of the aforementioned factors warrant 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. 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 discounted cash flow analysis. 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.
Impairment Analysis
We estimate the fair value of our intangible assets and goodwill using a discounted cash flow method. This discounted cash flow methodology is a widely-accepted valuation technique utilized by market participants in the valuation process and has been applied consistently with prior periods. In addition, we considered our market capitalization at
March 31, 2010
, 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.
During the three month period ended
March 31, 2010
, we recorded a $2.8 million non-cash impairment charge of goodwill of a nail polish remover brand previously included in the Personal Care segment. The impairment was a result of distribution losses and increased competition from private label store brands.
The discount rate utilized in the analysis, 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 continue to 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 additional impairment charges in the future. However, we were not required to recognize an additional impairment charge during the three or nine month period ended
December 31, 2010
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Stock-Based Compensation
The Compensation and Equity Topic of the FASB ASC requires us to measure the cost of services to be rendered based on the grant-date fair value of an equity award. Compensation expense is to be recognized over the period 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:
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Type of instrument (i.e., restricted shares vs. an option, warrant or performance shares),
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Strike price of the instrument,
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Market price of our common stock on the date of grant,
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Discount rates,
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Duration of the instrument, and
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Volatility of our common stock in the public market.
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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 uses diligent analysis 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 non-cash compensation expense of $1.0 million and $2.8 million during the
three and nine
month periods ended
December 31, 2010
, respectively, and non-cash compensation expense of $0.8 million and $1.7 million during the
three and nine
month periods ended
December 31, 2009
, respectively.
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:
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Rules and regulations promulgated by regulatory agencies,
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Sufficiency of the evidence in support of our position,
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Anticipated costs to support our position, and
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Likelihood of a positive outcome.
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Recent Accounting Pronouncements
In December 2010, the FASB issued guidance regarding the goodwill impairment test for reporting units with zero or negative carrying amounts.
Under the ASC Intangibles-Goodwill and Other Topics, testing for goodwill impairment is a two-step test. When a goodwill impairment test is performed (either on an annual or interim basis), an entity must assess whether the carrying amount of a reporting unit exceeds its fair value (Step 1). If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the amount of that impairment (Step 2). The new guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. We are currently evaluating the impact of adopting this guidance.
In December 2010, the FASB issued guidance regarding disclosure of supplementary pro forma information for business combinations. This guidance specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The guidance also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. We do not expect this guidance to have a material impact on our consolidated financial statements.
In May 2009, the FASB issued guidance regarding subsequent events, which was subsequently updated in February 2010. This guidance established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this guidance set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for
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potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009, and was therefore adopted by us for the second quarter 2009 reporting. The adoption did not have a significant impact on the subsequent events that we reported, either through recognition or disclosure, in the consolidated financial statements. In February 2010, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance. This amendment was effective immediately and accordingly, we have not presented that disclosure in this Quarterly Report.
In January 2010, the FASB issued authoritative guidance requiring new disclosures and clarifying some existing disclosure requirements about fair value measurement. Under the new guidance, a reporting entity should (a) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers, and (b) present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We do not expect this guidance to have a material impact on our consolidated financial statements.
Management has reviewed and continues to monitor the actions of the various financial and regulatory reporting agencies and is currently not aware of any other pronouncement that could have a material impact on our consolidated financial position, results of operations or cash flows.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q. Except as required under federal securities laws and the rules and regulations of the SEC, we do not have any intention to update any forward-looking statements to reflect events or circumstances arising after the date of this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q 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,” “project,” “will be,” “will continue,” “will likely result,” or other similar words and phrases. Forward-looking statements and our plans and expectations are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, and our business in general is subject to such risks. For more information, see “Risk Factors” contained in Part I, Item 1A. of our Annual Report on Form 10-K for our fiscal year ended
March 31, 2010
. In addition, our expectations or beliefs concerning future events involve risks and uncertainties, including, without limitation:
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General economic conditions affecting our products and their respective markets,
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Our ability to increase organic growth via new product introductions or line extensions,
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The high level of competition in our industry and markets (including, without limitation, vendor and SKU rationalization and expansion of private label product offerings),
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Our ability to invest 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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Disruptions in our distribution center,
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Acquisitions, dispositions or other strategic transactions diverting managerial resources, or incurrence of additional liabilities or integration problems associated with such transactions,
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Changing consumer trends or pricing pressures which may cause us to lower our prices,
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Increases in supplier prices and transportation and fuel charges,
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Our ability to protect our intellectual property rights,
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Shortages of supply of sourced goods or interruptions in the manufacturing of our products,
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Our level of indebtedness, and ability to service our debt,
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Any adverse judgments rendered in any pending litigation or arbitration,
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Our ability to obtain additional financing, and
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The restrictions on our operations imposed by our Senior Credit Facility and the Indenture governing our Senior Notes.
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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates because our Senior Secured Credit Facility is variable rate debt. Interest rate changes generally do not affect the market value of the Senior Secured Credit Facility, but do affect the amount of our interest payments and, therefore, our future earnings and cash flows, assuming other factors are held constant. At
December 31, 2010
, we had variable rate debt of approximately
$259.5 million
related to our Senior Secured Credit Facility.
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 twelve months ending December 31, 2011 of approximately $3.0 million.
ITEM 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company's management, with the participation of its Chief Executive Officer and the 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 (“Exchange Act”) as of
December 31, 2010
. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of
December 31, 2010
, 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.
Changes in Internal Control over Financial Reporting
There have been no changes during the quarter ended
December 31, 2010
in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 1.
LEGAL PROCEEDINGS
Each of (i) Part I, Item 3 in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2010
; and (ii) Part II, Item 1 in our Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30, 2010 and September 30, 2010 is incorporated herein by this reference.
ITEM 6.
EXHIBITS
See Exhibit Index immediately following signature page.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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PRESTIGE BRANDS HOLDINGS, INC.
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Date:
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February 9, 2011
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By:
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/s/ RONALD M. LOMBARDI
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Ronald M. Lombardi
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Chief Financial Officer
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(Principal Financial Officer and
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Duly Authorized Officer)
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Exhibit Index
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2.1
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Asset Purchase Agreement, dated as of December 15, 2010, by and between McNeil-PPC, Inc. and Prestige Brands Holdings, Inc.
(incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on December 17, 2010)
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4.1
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First Supplemental Indenture dated as of November 1, 2010, by and among Prestige Brands, Inc., the Guarantors listed on the signature pages thereto and U.S. Bank National Association.
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10.1
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Increase Joinder, dated as of November 1, 2010, among Prestige Brands, Inc., each Guarantor listed on the signature pages thereto, Bank of America, N.A., Deutsche Bank Securities Inc., and Deutsche Bank Trust Company Americas to the Credit Agreement dated as of March 24, 2010 among Prestige Brands, Inc., Prestige Brands Holdings, Inc., Bank of America, N.A., Deutsche Bank Securities Inc. and the lenders and issuers party thereto.
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10.2
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Purchase Agreement, dated October 22, 2010, by and among Prestige Brands, Inc., each Guarantor listed on the signature pages thereto, Banc of America Securities LLC and Deutsche Bank Securities Inc.
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10.3
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Registration Rights Agreement, dated as of November 1, 2010, by and among Prestige Brands, Inc., each Guarantor listed on the signature pages thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated (formerly known as Banc of America Securities LLC) and Deutsche Bank Securities Inc.
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10.4
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Retirement Agreement, dated as of December 2, 2010, by and between Peter J. Anderson and Prestige Brands Holdings, Inc.#
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10.5
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Executive Employment Agreement, dated as of December 6, 2010, between Prestige Brands Holdings, Inc. and Ronald M. Lombardi.@
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31.1
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Certification of Principal Executive Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
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31.2
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Certification of Principal Financial Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
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32.1
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Certification of Principal Executive Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
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32.2
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Certification of Principal Financial Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
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@ Represents a management contract
# Represents a compensatory plan
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TABLE OF CONTENTS
Part IItem 1. Consolidated Financial StatementsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationPart IIItem 1. Legal ProceedingsItem 6. Exhibits