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 June 30, 2011
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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
x
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
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As of July 27, 2011, there were 50,406,268 shares 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 months ended June 30, 2011 and 2010 (unaudited)
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Consolidated Balance Sheets — June 30, 2011 and March 31, 2011 (unaudited)
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Consolidated Statements of Cash Flows — three months ended June 30, 2011 and 2010 (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 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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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.
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1
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ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS
Prestige Brands Holdings, Inc.
(Unaudited)
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Three Months Ended June 30,
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(In thousands, except per share data)
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2011
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2010
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Revenues
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Net sales
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$
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94,307
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$
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70,522
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Other revenues
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988
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714
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Total revenues
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95,295
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71,236
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Cost of Sales
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Cost of sales (exclusive of depreciation shown below)
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45,427
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33,265
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Gross profit
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49,868
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37,971
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Operating Expenses
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Advertising and promotion
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10,233
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7,486
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General and administrative
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9,850
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7,414
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Depreciation and amortization
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2,550
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2,410
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Total operating expenses
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22,633
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17,310
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Operating income
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27,235
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20,661
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Other (income) expense
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Interest income
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(2
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)
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—
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Interest expense
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8,580
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5,461
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Gain on settlement
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(5,063
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)
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—
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Loss on extinguishment of debt
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—
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300
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Total other expense
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3,515
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5,761
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Income from continuing operations before income taxes
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23,720
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14,900
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Provision for income taxes
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8,952
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5,691
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Income from continuing operations
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14,768
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9,209
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Discontinued Operations
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Income from discontinued operations, net of income tax
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—
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397
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Net income
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$
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14,768
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$
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9,606
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Basic earnings per share:
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Income from continuing operations
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$
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0.29
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$
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0.18
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Income from discontinued operations
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—
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0.01
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Net income
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$
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0.29
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$
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0.19
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Diluted earnings per share:
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Income from continuing operations
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$
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0.29
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$
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0.18
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Income from discontinued operations
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—
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0.01
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Net income
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$
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0.29
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$
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0.19
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Weighted average shares outstanding:
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Basic
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50,183
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50,038
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Diluted
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50,646
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50,105
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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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June 30,
2011 |
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March 31,
2011 |
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Current assets
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Cash and cash equivalents
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$
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5,991
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$
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13,334
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Accounts receivable, net
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43,805
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44,393
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Inventories
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43,721
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39,751
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Deferred income tax assets
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5,064
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5,292
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Prepaid expenses and other current assets
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3,456
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4,812
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Total current assets
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102,037
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107,582
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Property and equipment, net
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1,343
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1,444
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Goodwill
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154,896
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154,896
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Intangible assets, net
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783,988
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786,361
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Other long-term assets
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6,352
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6,635
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Total Assets
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$
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1,048,616
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$
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1,056,918
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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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24,168
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$
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21,615
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Accrued interest payable
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5,156
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10,313
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Other accrued liabilities
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20,484
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22,280
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Total current liabilities
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49,808
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54,208
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Long-term debt
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Principal amount
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469,000
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492,000
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Less unamortized discount
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(4,826
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(5,055
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Long-term debt, net of unamortized discount
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464,174
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486,945
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Deferred income tax liabilities
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156,891
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153,933
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Total Liabilities
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670,873
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695,086
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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 - $0.01 par value
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Authorized - 250,000 shares
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Issued - 50,405 shares at June 30, 2011 and 50,276 shares at March 31, 2011
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504
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503
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Additional paid-in capital
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389,355
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387,932
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Treasury stock, at cost - 181 shares at June 30, 2011 and 160 shares at March 31, 2011
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(687
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(416
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Accumulated other comprehensive loss, net of tax
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(10
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—
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Accumulated deficit
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(11,419
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(26,187
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Total Stockholders' Equity
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377,743
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361,832
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Total Liabilities and Stockholders' Equity
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$
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1,048,616
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$
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1,056,918
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See accompanying notes.
-
3
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Prestige Brands Holdings, Inc.
(Unaudited)
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Three Months Ended June 30,
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(In thousands)
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2011
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2010
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Operating Activities
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Net income
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$
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14,768
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$
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9,606
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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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2,550
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2,547
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Deferred income taxes
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3,186
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2,038
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Amortization of deferred financing costs
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283
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255
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Stock-based compensation costs
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861
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857
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Loss on extinguishment of debt
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—
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300
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Amortization of debt discount
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229
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142
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Loss on disposal of equipment
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—
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125
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Changes in operating assets and liabilities
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Accounts receivable
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585
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2,078
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Inventories
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(3,966
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)
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1,086
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Prepaid expenses and other current assets
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1,356
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2,029
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Accounts payable
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2,562
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(659
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)
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Accrued liabilities
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(6,971
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)
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309
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Net cash provided by operating activities
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15,443
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20,713
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Investing Activities
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Purchases of equipment
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(76
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(130
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)
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Net cash used in investing activities
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(76
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)
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(130
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)
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Financing Activities
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Payment of deferred financing costs
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—
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(112
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)
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Repayment of long-term debt
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(23,000
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)
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(28,462
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)
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Proceeds from exercise of stock options
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563
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—
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Shares surrendered as payment of tax withholding
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(271
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)
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—
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Net cash used in financing activities
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(22,708
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)
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(28,574
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)
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Effects of exchange rate changes on cash and cash equivalents
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(2
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)
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—
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Decrease in cash and cash equivalents
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(7,343
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)
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(7,991
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)
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Cash and cash equivalents - beginning of period
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13,334
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41,097
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Cash and cash equivalents - end of period
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$
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5,991
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$
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33,106
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Interest paid
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$
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13,201
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$
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3,182
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Income taxes paid
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$
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209
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$
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342
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See accompanying notes.
-
4
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Prestige Brands Holdings, Inc.
Notes to Consolidated Financial Statements
1.
Business and Basis of Presentation
Nature of Business
Prestige Brands Holdings, Inc. (referred to herein as the “Company” or "we" which reference shall, unless the context requires otherwise, be deemed to refer to Prestige Brands Holdings, Inc. and all of its direct and indirect wholly-owned subsidiaries on a consolidated basis) is engaged in the marketing, sales and distribution of Over-The-Counter ("OTC") 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 our consolidated financial position, results of operations and cash flows for the interim periods. Our fiscal year ends on March 31st of each year. References in these Consolidated Financial Statements or notes to a year (e.g., “2012”) mean our fiscal year ended on March 31st of that year. Operating results for the
three
months ended
June 30, 2011
are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2012. This financial information should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2011
.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on our knowledge of current events and actions that we may undertake in the future, actual results could differ from those estimates. As discussed below, our most significant estimates include those made in connection with the valuation of intangible assets, sales returns and allowances, trade promotional allowances and inventory obsolescence.
Cash and Cash Equivalents
We consider all short-term deposits and investments with original maturities of three months or less to be cash equivalents. Substantially all of our cash is held by a large regional bank with headquarters in California. We do not believe that, as a result of this concentration, we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships.
Accounts Receivable
We extend non-interest-bearing trade credit to our customers in the ordinary course of business. We maintain an allowance for doubtful accounts receivable based upon historical collection experience and expected collectability of the accounts receivable. In an effort to reduce credit risk, we (i) have established credit limits for all of our customer relationships, (ii) perform ongoing credit evaluations of customers' financial condition, (iii) monitor the payment history and aging of customers' receivables, and (iv) monitor open orders against an individual customer's outstanding receivable balance.
Inventories
Inventories are stated at the lower of cost or market value, with cost determined by using the first-in, first-out method. We reduce inventories for 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
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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
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Machinery
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5
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Computer equipment
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3
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Furniture and fixtures
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7
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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, we remove the cost and associated accumulated depreciation from the accounts and recognize the resulting gain or loss 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. We do not amortize goodwill, but perform 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. We test 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
We have 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. We have determined that these criteria are met and the transfer of the risk of loss generally occurs when product is received by the customer and, accordingly, 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 varies based on the actual number of units sold during a finite period of time. These promotional programs consist of direct to consumer incentives such as coupons and temporary price reductions, as well as incentives to our customers such as allowances for new distribution, including slotting fees, and cooperative advertising. Estimates of the costs of these promotional programs are based on (i) historical sales experience, (ii) the current promotional offering, (iii) forecasted data, (iv) current market conditions and (v) communication with customer purchasing/marketing personnel. At the completion of a promotional program, the estimated amounts are adjusted to actual results.
-
6
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Due to the nature of the consumer products industry, we are required to estimate future product returns. Accordingly, we record an estimate of product returns concurrent with recording sales, which is made after analyzing (i) historical return rates, (ii) current economic trends, (iii) changes in customer demand, (iv) product acceptance, (v) seasonality of our product offerings, and (vi) the impact of changes in product formulation, packaging and advertising.
Cost of Sales
Cost of sales includes product costs, warehousing costs, inbound and outbound shipping costs, and handling and storage costs. Shipping, warehousing and handling costs were $6.3 million and $4.9 million for the
three
months ended June 30, 2011 and 2010, respectively.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred. Allowances for new distribution associated with products, including slotting fees, are recognized as a reduction of sales. Under allowances for new distribution arrangements, the retailers allow our products to be placed on the stores' shelves in exchange for such fees.
Stock-based Compensation
We recognize stock-based compensation by measuring the cost of services to be rendered based on the grant-date fair value of the equity award. Compensation expense is to be recognized over the period an employee is required to provide service in exchange for the award, generally referred to as the requisite service period.
Income Taxes
Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Income Taxes Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 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, we have 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.
We are subject to taxation in the United States and various state and foreign jurisdictions.
We classify penalties and interest related to unrecognized tax benefits as income tax expense in the Consolidated Statements of 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.
While we have utilized derivative financial instruments in the past, we did not have any derivative financial instruments at
June 30, 2011
or March 31, 2011 or for any of the periods presented.
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, stock appreciation rights 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.
-
7
-
Recently Issued Accounting Standards
In June 2011, the FASB issued guidance regarding presentation of comprehensive income. Under the ASC Comprehensive Income
topic, entities are allowed the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. We do not expect that the adoption of this new guidance will have a material impact on our Consolidated Financial Statements.
In May 2011, the FASB issued guidance on fair value measurement. Under the ASC Fair Value Measurement topic, requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value”, have been amended. The new guidance states that the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of non-financial assets (that is, it does not apply to financial assets or any liabilities). The disclosure requirements have been enhanced, with the most significant change requiring entities, for their recurring Level 3 fair value measurements, to disclose quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements. New disclosures are required about the use of a non-financial asset measured or disclosed at fair value if its use differs from its highest and best use. In addition, entities must report the level in the fair value hierarchy of assets and liabilities not recorded at fair value but where fair value is disclosed. This guidance is effective during interim and annual periods beginning after December 15, 2011 and is required to be applied prospectively. We do not expect that the adoption of this new guidance will 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.
2.
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 pric
e. On July 20, 2011, we received notification from the arbitrator that we would be awarded a working capital adjustment in the amount of approximately $1.0 million, pending final resolution and distribution from the escrow agent, which is expected to be received and recorded against goodwill during the three months ending September 30, 2011.
In connection with this acquisition, we acquired five leading consumer OTC brands:
Efferdent, Effergrip, PediaCare, Luden's,
and
NasalCrom.
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.
The allocation of the purchase price to assets acquired and liabilities assumed is based on a valuation which we performed to determine the fair value of such assets as of the acquisition date. The following table summarizes our allocation of the $204.5 million purchase price to the assets acquired and liabilities
assumed at the Blacksmith acquisition date:
-
8
-
|
(In thousands)
|
November 1, 2010
|
|||
|
Cash acquired
|
$
|
2,507
|
|
|
|
Accounts receivable, net
|
17,473
|
|
||
|
Other receivables
|
1,198
|
|
||
|
Income taxes receivable
|
5
|
|
||
|
Inventories
|
22,155
|
|
||
|
Prepaids and other current assets
|
44
|
|
||
|
Property, plant and equipment, net
|
226
|
|
||
|
Goodwill
|
43,407
|
|
||
|
Trademarks
|
165,346
|
|
||
|
Other long-term assets
|
19
|
|
||
|
Total assets acquired
|
252,380
|
|
||
|
Accounts payable
|
7,060
|
|
||
|
Accrued expenses
|
5,212
|
|
||
|
Income taxes payable
|
2,031
|
|
||
|
Deferred income taxes
|
33,526
|
|
||
|
Total liabilities assumed
|
47,829
|
|
||
|
Total purchase price
|
$
|
204,551
|
|
|
We recorded goodwill based on the amount by which the purchase price exceeded the fair value of net assets acquired. The amount of goodwill deductible for tax purposes is $4.6 million.
The fair value of the trademarks was comprised of $158.0 million of non-amortizable intangible assets and $7.3 million of amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of 15 years. The weighted average remaining life for amortizable intangible assets at June 30, 2011 was 14.3 years.
The operating results of Blacksmith have been included in our Consolidated Financial Statements from November 1, 2010, the date of acquisition. Revenues of the acquired operations for the three months ended June 30, 2011 were $19.1 million.
The following table provides our 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 our operations commencing on April 1, 2010, and 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 us 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 June 30, 2010
|
|||
|
Revenues
|
$
|
95,104
|
|
|
|
Income from continuing operations
|
10,182
|
|
||
|
Basic earnings per share:
|
||||
|
Income from continuing operations
|
$
|
0.20
|
|
|
|
Diluted earnings per share:
|
||||
|
Income from continuing operations
|
$
|
0.20
|
|
|
Dramamine Acquisition
On January 6, 2011, we acquired certain assets comprising the
Dramamine
brand in the United States. The purchase price was $77.1 million in cash, after a $0.1 million post-closing inventory adjustment and including transaction costs incurred in the acquisition of $1.2 million. The purchase price was funded by cash on hand.
-
9
-
The acquisition was accounted for in accordance with the Business Combinations Topic of the ASC. Accordingly, as the
Dramamine
assets acquired do not constitute a business, as defined in the ASC, we have accounted for the transaction as an asset acquisition. The total consideration paid, including transaction costs, has been allocated to the tangible and intangible assets acquired based upon their relative fair values at the date of acquisition.
The allocation of the purchase price to assets acquired and liabilities assumed is based on valuations which we performed to determine the fair value of such assets as of the acquisition date. The following table summarizes our allocation of the $77.1 million purchase price to the assets we acquired comprising the
Dramamine
brand:
|
(In thousands)
|
||||
|
Inventories
|
$
|
1,249
|
|
|
|
Trademark
|
75,866
|
|
||
|
Total purchase price
|
$
|
77,115
|
|
|
The $75.9 million fair value of the acquired
Dramamine
trademark was comprised solely of non-amortizable intangible assets.
3. Discontinued Operations and Sale of Certain Assets
On September 1, 2010, we sold certain assets related to the
Cutex
nail polish remover brand for $4.1 million. In accordance with the Discontinued Operations Topic of the ASC, we reclassified the related operating results as discontinued operations in our 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 of $0.3 million, on the sale in the second quarter of 2011. As a result of the divestiture of
Cutex,
which comprised a substantial majority of the assets in our previously reported Personal Care segment, we reclassified the then remaining assets to the OTC Healthcare segment for all periods presented.
The following table summarizes the results of discontinued operations (in thousands):
|
|
Three Months Ended June 30,
|
||||||
|
|
2011
|
|
2010
|
||||
|
Components of Income
|
|
||||||
|
Revenues
|
$
|
—
|
|
|
$
|
2,174
|
|
|
Income from discontinued operations, net of income tax
|
—
|
|
|
397
|
|
||
4. Accounts Receivable
Accounts receivable consist of the following (in thousands):
|
|
June 30,
2011 |
|
March 31,
2011 |
||||
|
|
|
||||||
|
Trade accounts receivable
|
$
|
49,460
|
|
|
$
|
50,333
|
|
|
Other receivables
|
621
|
|
|
712
|
|
||
|
|
50,081
|
|
|
51,045
|
|
||
|
Less allowances for discounts, returns and uncollectible accounts
|
(6,276
|
)
|
|
(6,652
|
)
|
||
|
Accounts receivable, net
|
$
|
43,805
|
|
|
$
|
44,393
|
|
-
10
-
5.
Inventories
Inventories consist of the following (in thousands):
|
|
June 30,
2011 |
|
March 31,
2011 |
||||
|
|
|
||||||
|
Packaging and raw materials
|
$
|
749
|
|
|
$
|
1,287
|
|
|
Finished goods
|
42,972
|
|
|
38,464
|
|
||
|
Inventories
|
$
|
43,721
|
|
|
$
|
39,751
|
|
Inventories are carried and depicted above at the lower of cost or market, which includes a reduction in inventory values of $1.2 million and $0.6 million at
June 30, 2011
and
March 31, 2011
, respectively, related to obsolete and slow-moving inventory.
6. Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
June 30,
2011 |
|
March 31,
2011 |
||||
|
|
|
||||||
|
Machinery
|
$
|
1,237
|
|
|
$
|
1,215
|
|
|
Computer equipment
|
2,393
|
|
|
2,341
|
|
||
|
Furniture and fixtures
|
241
|
|
|
239
|
|
||
|
Leasehold improvements
|
423
|
|
|
423
|
|
||
|
|
4,294
|
|
|
4,218
|
|
||
|
Accumulated depreciation
|
(2,951
|
)
|
|
(2,774
|
)
|
||
|
Property and equipment, net
|
$
|
1,343
|
|
|
$
|
1,444
|
|
We recorded depreciation expense of $0.2 million for each of the three months ended
June 30, 2011
and
June 30, 2010
.
7.
Goodwill
A reconciliation of the activity affecting goodwill by operating segment is as follows (in thousands):
|
|
OTC
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
|
|
|
|||||||||
|
Balance — March 31, 2011
|
|
|
|||||||||
|
Goodwill
|
$
|
277,677
|
|
|
$
|
72,549
|
|
|
$
|
350,226
|
|
|
Accumulated impairment losses
|
(130,170
|
)
|
|
(65,160
|
)
|
|
(195,330
|
)
|
|||
|
|
147,507
|
|
|
7,389
|
|
|
154,896
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Additions
|
—
|
|
—
|
|
—
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|||
|
Balance — June 30, 2011
|
|
|
|
|
|
|
|
|
|||
|
Goodwill
|
277,677
|
|
|
72,549
|
|
|
350,226
|
|
|||
|
Accumulated impairment losses
|
(130,170
|
)
|
|
(65,160
|
)
|
|
(195,330
|
)
|
|||
|
|
$
|
147,507
|
|
|
$
|
7,389
|
|
|
$
|
154,896
|
|
At
March 31, 2011
, during our annual test for goodwill impairment, there were no indicators of impairment under the analysis. Accordingly, no impairment charge was recorded in 2011. Additionally, for the
three
months ended
June 30, 2011
, no indicators of impairment existed and no impairment charge was recorded.
The discounted cash flow methodology is a widely-accepted valuation technique utilized by market participants in the transaction evaluation process and has been applied consistently. We also considered our market capitalization at
March 31, 2011
, as compared to the aggregate fair values of our reporting units to assess the reasonableness of our estimates pursuant to the discounted cash
-
11
-
flow methodology. The estimates and assumptions made in assessing the fair value of our reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. Consequently, changing rates of interest and inflation, declining sales or margins, increases in competition, changing consumer preferences, technical advances or reductions in advertising and promotion may require 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, 2011
|
$
|
688,484
|
|
|
$
|
150,293
|
|
|
$
|
158
|
|
|
$
|
838,935
|
|
|
Additions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
|
Balance — June 30, 2011
|
$
|
688,484
|
|
|
$
|
150,293
|
|
|
$
|
158
|
|
|
$
|
838,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance — March 31, 2011
|
$
|
—
|
|
|
$
|
52,416
|
|
|
$
|
158
|
|
|
$
|
52,574
|
|
|
Additions
|
—
|
|
|
2,373
|
|
|
—
|
|
|
2,373
|
|
||||
|
Balance — June 30, 2011
|
$
|
—
|
|
|
$
|
54,789
|
|
|
$
|
158
|
|
|
$
|
54,947
|
|
|
Intangible assets, net — June 30, 2011
|
$
|
688,484
|
|
$
|
95,504
|
|
$
|
—
|
|
$
|
783,988
|
|
|||
In a manner similar to goodwill, we completed our test for impairment of our indefinite-lived intangible assets during the three months ended March 31, 2011. We did not record an impairment charge as facts and circumstances indicated that the fair values of the intangible assets for our operating segments exceeded their carrying values. Additionally, for the indefinite-lived intangible assets, an evaluation of the facts and circumstances as of
June 30, 2011
continues to support an indefinite useful life for these assets. Therefore, no impairment charge was recorded for the
three
months ended
June 30, 2011
.
The weighted average remaining life for finite-lived intangible assets at
June 30, 2011
was approximately 14.3 years and the amortization expense for the three months ended
June 30, 2011
was $2.4 million. At
June 30, 2011
, intangible assets are expected to be amortized over a period of 3 to 30 years as follows (in thousands):
|
Year Ending March 31,
|
|
|||
|
2012 (Remaining nine months ending March 31, 2012)
|
$
|
9,274
|
|
|
|
2013
|
8,325
|
|
||
|
2014
|
6,921
|
|
||
|
2015
|
6,082
|
|
||
|
2016
|
6,082
|
|
||
|
Thereafter
|
58,820
|
|
||
|
|
$
|
95,504
|
|
|
-
12
-
9.
Other Accrued Liabilities
Other accrued liabilities consist of the following (in thousands):
|
|
June 30,
2011 |
|
March 31,
2011 |
||||
|
|
|
||||||
|
Accrued marketing costs
|
$
|
10,653
|
|
|
$
|
9,967
|
|
|
Accrued payroll
|
3,455
|
|
|
7,589
|
|
||
|
Accrued commissions
|
409
|
|
|
408
|
|
||
|
Accrued income taxes
|
2,475
|
|
|
531
|
|
||
|
Accrued professional fees
|
2,170
|
|
|
1,953
|
|
||
|
Accrued severance
|
847
|
|
|
1,324
|
|
||
|
Accrued other
|
475
|
|
|
508
|
|
||
|
|
$
|
20,484
|
|
|
$
|
22,280
|
|
-
13
-
10.
Long-Term Debt
Long-term debt consists of the following (in thousands), as of the dates indicated:
|
|
June 30,
2011 |
|
March 31,
2011 |
|||||
|
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 June 30, 2011, the average interest rate on the 2010 Senior Term Loan was 4.75%. All required principal payments prior to maturity have been paid and the remaining principal on the 2010 Senior Term Loan is due on the 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.
|
$
|
219,000
|
|
|
$
|
242,000
|
|
|
|
|
|
|
|
|
|
|||
|
Senior unsecured notes ("2010 Senior Notes") bear interest at 8.25%, with interest only 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
|
|
250,000
|
|
||||
|
|
469,000
|
|
|
492,000
|
|
|||
|
Current portion of long-term debt
|
—
|
|
|
—
|
|
|||
|
|
|
|
|
|
|
|||
|
|
469,000
|
|
|
492,000
|
|
|||
|
Less: unamortized discount on the 2010 Senior Notes
|
(4,826
|
)
|
(5,055
|
)
|
||||
|
Long-term debt, net of unamortized discount and premium
|
$
|
464,174
|
|
$
|
486,945
|
|
||
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 the 2010 Senior Notes. 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, we, together with the Borrower and certain of our other subsidiaries, executed an Increase Joinder to our Credit Agreement dated March 24, 2010 (the "Increase Joinder") pursuant to which the Borrower entered into an incremental term loan in the amount of $115.0 million. The incremental 2010 Senior Term Loan will also mature on March 24, 2016.
Additionally, on March 24, 2010, 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 2010 Revolving Credit Facility was increased by $10.0 million and the Borrower had borrowing capacity under the revolving credit facility in an aggregate principal amount of up to $40.0 million. Our 2010 Revolving Credit Facility was available for maximum borrowings of $40.0 million at
June 30, 2011
. 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, we incurred $7.3 million in issuance costs, of which $6.6 million was capitalized as deferred financing costs and $0.7 million was 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, we incurred $0.6 million in issuance costs, all
-
14
-
of which were 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, we retired our existing Senior Secured 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, we recognized a $0.3 million loss on the extinguishment of debt for the
three
months ended
June 30, 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, we 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. We 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, we 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, if any, to the redemption date.
The Credit Agreement 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 Credit Agreement and the Senior Notes Indenture also contain provisions that restrict us from undertaking specified corporate actions, such as asset dispositions, acquisitions, dividend payments, repurchases of common shares outstanding, changes of control, incurrences of indebtedness, creation of liens, making of loans and transactions with affiliates. Additionally, the Credit Agreement and the Senior Notes Indenture 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 and the Senior Notes Indenture. At
June 30, 2011
, we were in compliance with the covenants under our long-term indebtedness.
During the three months ended June 30, 2011, we made voluntary principal payments against outstanding indebtedness of $23.0 million in excess of required payments under the Credit Agreement governing the 2010 Senior Term Loan. In accordance with the agreement governing the 2010 Senior Term Loan, such payment was applied against the first four required principal payments, and any additional principal payment is applied ratably toward the remaining required principal payments. As such, we do not have a required principal payment until the 2010 Senior Term Loan matures in 2016.
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 March 31,
|
|
|||
|
2012 (Remaining nine months ending March 31, 2012)
|
$
|
—
|
|
|
|
2013
|
—
|
|
||
|
2014
|
—
|
|
||
|
2015
|
—
|
|
||
|
2016
|
219,000
|
|
||
|
2017
|
—
|
|
||
|
Thereafter
|
250,000
|
|
||
|
|
$
|
469,000
|
|
|
-
15
-
11.
Fair Value Measurements
As we deem appropriate, we may from time to time utilize derivative financial instruments to mitigate the impact of changing interest rates associated with our long-term debt obligations or other derivative financial instruments. While we have utilized derivative financial instruments in the past, we did not have any derivative financial instruments outstanding at either
June 30, 2011
or at
March 31, 2011
or during any of the periods presented. We have not entered into derivative financial instruments for trading purposes; all of our derivatives were over-the-counter instruments with liquid markets.
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
June 30, 2011
and
March 31, 2011
, the carrying value of the 2010 Senior Term Loan was
$219.0 million
and
$242.0 million
, respectively. The terms of the facility provide that the interest rate is adjusted, at our 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 our 2010 Senior Term Loan was approximately $219.0 million and $243.4 million at
June 30, 2011
and
March 31, 2011
, respectively.
At
June 30, 2011
and
March 31, 2011
, the carrying value of our 2010 Senior Notes was
$250.0 million
. The market value of these notes was approximately $260.0 million and $264.4 million at
June 30, 2011
and
March 31, 2011
, respectively. The market values have been determined from market transactions in our debt securities.
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
June 30, 2011
.
During the three months ended June 30, 2011, we repurchased 20,999 shares of restricted common stock from current and former employees pursuant to the provisions of the various employee stock purchase agreements. The repurchases were at an average price of $12.86. No repurchases were made during the three months ended June 30, 2010. All of such shares have been recorded as treasury stock.
13. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) ("AOCI") is comprised of various items that affect equity and results from recognized transactions and other economic events, other than transactions with owners in their capacity as owners. AOCI consists of the following at June 30, 2011 and March 31, 2011 (in thousands):
|
|
June 30,
|
March 31,
|
|||||
|
|
2011
|
|
2011
|
||||
|
Components of Accumulated Other Comprehensive Income (Loss)
|
|
||||||
|
Cumulative translation adjustment
|
$
|
(10
|
)
|
|
$
|
—
|
|
|
Total accumulated other comprehensive loss
|
$
|
(10
|
)
|
|
$
|
—
|
|
-
16
-
The following table describes the components of comprehensive income for the
three
months ended
June 30, 2011
and
2010
(in thousands):
|
|
Three Months Ended June 30,
|
||||||
|
|
2011
|
|
2010
|
||||
|
Components of Comprehensive Income
|
|
||||||
|
Net income
|
$
|
14,768
|
|
|
$
|
9,606
|
|
|
Translation adjustments, net of related income tax effects
|
(10
|
)
|
|
—
|
|
||
|
Comprehensive Income
|
$
|
14,758
|
|
|
$
|
9,606
|
|
14.
Earnings Per Share
Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock outstanding plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method, which includes stock options, restricted stock awards and restricted stock units. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
|
|
|
Three Months Ended June 30,
|
||||||
|
|
|
2011
|
|
2010
|
||||
|
Numerator
|
|
|
||||||
|
Income from continuing operations
|
|
$
|
14,768
|
|
|
$
|
9,209
|
|
|
Income from discontinued operations, net of income tax
|
|
—
|
|
|
397
|
|
||
|
Net income
|
|
$
|
14,768
|
|
|
$
|
9,606
|
|
|
|
|
|
|
|
|
|
||
|
Denominator
|
|
|
|
|
|
|
||
|
Denominator for basic earnings per share — weighted average shares
|
|
50,183
|
|
|
50,038
|
|
||
|
Dilutive effect of unvested restricted common stock (including restricted stock units) and options issued to employees and directors
|
|
463
|
|
|
67
|
|
||
|
Denominator for diluted earnings per share
|
|
50,646
|
|
|
50,105
|
|
||
|
|
|
|
|
|
|
|
||
|
Earnings per Common Share:
|
|
|
|
|
|
|
||
|
Basic earnings per share from continuing operations
|
|
$
|
0.29
|
|
|
$
|
0.18
|
|
|
Basic earnings per share from discontinued operations
|
|
—
|
|
|
0.01
|
|
||
|
Basic net earnings per share
|
|
$
|
0.29
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
||
|
Diluted earnings per share from continuing operations
|
|
$
|
0.29
|
|
|
$
|
0.18
|
|
|
Diluted earnings per share from discontinued operations
|
|
—
|
|
|
0.01
|
|
||
|
Diluted net earnings per share
|
|
$
|
0.29
|
|
|
$
|
0.19
|
|
At
June 30, 2011
and
June 30, 2010
, there were zero and 0.4 million shares, respectively, of restricted stock awards that have been excluded from the calculation of basic earnings per share as these awards were subject to contingencies that were not met as of the end of each respective period. Additionally, for the three months ended June 30, 2011 and 2010, there were 0.3 million and 1.8 million shares, respectively, attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
15.
Share-Based Compensation
In connection with our initial public offering, the Board of Directors adopted the 2005 Long-Term Equity Incentive Plan (the “Plan”) which provides for the grant, up to a maximum of 5.0 million shares, of restricted stock, stock options, restricted 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.
-
17
-
During the
three
months ended
June 30, 2011
, pre-tax share-based compensation costs charged against income and the related income tax benefit recognized were $0.9 million and $0.2 million, respectively. During the
three
months ended
June 30, 2010
, pre-tax share-based compensation costs charged against income and the related income tax benefit recognized were $0.9 million and $0.3 million, respectively.
Restricted Shares
Restricted shares granted to employees under the Plan generally vest in 3 to 5 years, contingent on attainment of certain performance goals by the Company, including revenue and earnings before income taxes, depreciation and amortization 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. On May 10, 2011, the Compensation Committee of the Board of Directors granted 89,923 shares of restricted common stock to certain executive officers and employees under the Plan at a grant-date fair value of $11.27 per share. In addition, on May 30, 2011, previously issued restricted performance shares became vested, resulting in an additional grant of 16,153 shares at a fair value of $10.91 per share. The fair value of restricted shares is determined using the closing price of our common stock on the day preceding the grant date. The weighted-average grant-date fair value of restricted shares granted during the
three
months ended
June 30, 2011
and
2010
was $11.22 and $9.03, respectively.
A summary of the Company's restricted shares granted under the Plan is presented below:
|
Restricted Shares
|
|
Shares
(in thousands)
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|||
|
Three months ended June 30, 2010:
|
|
|
|||||
|
Nonvested at March 31, 2010
|
|
287.1
|
|
|
$
|
8.86
|
|
|
Granted
|
|
103.2
|
|
|
9.03
|
|
|
|
Vested and issued
|
|
(19.3
|
)
|
|
12.86
|
|
|
|
Forfeited
|
|
(8.2
|
)
|
|
10.91
|
|
|
|
Outstanding at June 30, 2010
|
|
362.8
|
|
|
8.65
|
|
|
|
Vested at June 30, 2010
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2011:
|
|||||||
|
Nonvested at March 31, 2011
|
|
275.4
|
|
|
8.46
|
|
|
|
Granted
|
|
106.1
|
|
|
11.22
|
|
|
|
Vested and issued
|
|
(76.4
|
)
|
|
10.91
|
|
|
|
Forfeited
|
|
(7.6
|
)
|
|
10.17
|
|
|
|
Outstanding at June 30, 2011
|
|
297.5
|
|
|
8.77
|
|
|
|
Vested at June 30, 2011
|
|
29.2
|
|
|
6.84
|
|
|
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, as defined in the Plan.
The fair value of each option award is estimated on the date of grant using the Black-Scholes Option Pricing Model that uses the assumptions noted in the table below. Expected volatilities are based on the historical volatility of our common stock and other factors, including the historical volatilities of comparable companies. We use appropriate historical data, as well as current data, to estimate option exercise and employee termination behaviors. Employees that are expected to exhibit similar exercise or termination behaviors are grouped together for the purposes of valuation. The expected terms of the options granted are derived from management's estimates and consideration of information derived from the public filings of companies similar to us and represent the period of time that options granted are expected to be outstanding. The risk-free rate represents the yield on U.S. Treasury bonds with a maturity equal to the expected term of the granted option. On May 10, 2011, the Compensation Committee of the Board of Directors granted stock options to acquire 308,154 shares of common stock to certain executive officers and employees under the Plan at an exercise price of $11.27 per share. The weighted-average grant-date fair value of the options granted during the
three
months ended
June 30, 2011
and
2010
was $5.83 and $4.81, respectively.
-
18
-
|
|
Three Months Ended June 30,
|
||||||
|
|
2011
|
|
2010
|
||||
|
Expected volatility
|
53.0
|
%
|
|
52.7
|
%
|
||
|
Expected dividends
|
$
|
—
|
|
|
$
|
—
|
|
|
Expected term in years
|
6.5
|
|
|
6.5
|
|
||
|
Risk-free rate
|
2.4
|
%
|
|
3.4
|
%
|
||
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)
|
||||||
|
Three months ended June 30, 2010:
|
|
|
|
|
||||||||||
|
Outstanding at March 31, 2010
|
|
1,584.2
|
|
|
$
|
8.50
|
|
|
||||||
|
Granted
|
|
358.0
|
|
|
9.03
|
|
|
|||||||
|
Exercised
|
|
—
|
|
|
—
|
|
|
|||||||
|
Forfeited or expired
|
|
(12.4
|
)
|
|
11.70
|
|
|
|||||||
|
Outstanding at June 30, 2010
|
|
1,929.8
|
|
|
8.58
|
|
|
8.9
|
|
|
$
|
—
|
|
|
|
Exercisable at June 30, 2010
|
392.7
|
|
11.91
|
|
7.4
|
|
—
|
|
||||||
|
Three months ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Outstanding at March 31, 2011
|
|
1,621.5
|
|
|
8.19
|
|
|
|||||||
|
Granted
|
|
308.1
|
|
|
11.27
|
|
|
|||||||
|
Exercised
|
|
(53.3
|
)
|
|
10.57
|
|
|
|||||||
|
Forfeited or expired
|
|
(8.8
|
)
|
|
10.15
|
|
|
|||||||
|
Outstanding at June 30, 2011
|
|
1,867.5
|
|
|
8.62
|
|
|
8.2
|
|
|
7,880
|
|
||
|
Exercisable at June 30, 2011
|
|
490.1
|
|
|
9.34
|
|
|
7.1
|
|
|
1,716
|
|
||
The aggregate intrinsic value of options exercised in the three months ended June 30, 2011 was $0.1 million. The aggregate intrinsic value at June 30, 2011 for options granted during the three months ended June 30, 2011 was $0.5 million. The weighted-average fair value per option at the grant date was $5.83 for the three months ended June 30, 2011.
At
June 30, 2011
, there were $4.7 million of unrecognized compensation costs related to nonvested share-based compensation arrangements under the Plan based on management's estimate of the shares that will ultimately vest. We expect to recognize such costs over a weighted-average period of 1.2 years. The total fair value of shares vested during the
three
months ended
June 30, 2011
and
2010
was $0.5 million and $0.2 million, respectively. For the three months ended June 30, 2011, cash received from the exercise of stock options was $0.6 million and we realized $0.2 million in tax benefits for the tax deductions resulting from these option exercises. There were no options exercised during the
three
months ended
June 30, 2010
and therefore we did not recognize any tax benefits during this period associated with option exercises. At
June 30, 2011
, there were 2.5 million shares available for issuance under the Plan.
16.
Income Taxes
Income taxes are recorded in our quarterly financial statements based on our estimated annual effective income tax rate subject to adjustments for discrete events should they occur. The effective tax rate used in the calculation of income taxes was
37.7%
and
38.2%
, respectively, for the
three
months ended
June 30, 2011
and
June 30, 2010
, respectively. The decrease in the effective tax rate for the
three
months ended
June 30, 2011
is primarily due to a discrete reduction in deferred state taxes.
At
June 30, 2011
, a wholly-owned subsidiary had a net operating loss carryforward of approximately $1.7 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.
-
19
-
Uncertain tax liability activity is as follows:
|
|
2011
|
|
2010
|
||||
|
(In thousands)
|
|
||||||
|
Balance — March 31
|
$
|
456
|
|
|
$
|
315
|
|
|
Adjustments based on tax positions related to the current year
|
—
|
|
|
—
|
|
||
|
Balance — June 30
|
$
|
456
|
|
|
$
|
315
|
|
We recognize interest and penalties related to uncertain tax positions as a component of income tax expense. We did not incur any material interest or penalties related to income taxes in any of the periods presented. We do not anticipate any significant events or circumstances that would cause a change to these uncertainties during the ensuing year.
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 severed the action as to each and every separate defendant (including Medtech) and 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. In May 2011, the New York Court granted Medtech's Motion to Dismiss, although SFT was allowed to file an amended Complaint. In August 2011, SFT and Medtech reached an agreement in principle to settle the litigation, which settlement will not have a material impact on the Company. Medtech expects to sign a settlement agreement in August 2011.
Trutek Arbitration
On November 1, 2010, Trutek Corp. (“Trutek”) commenced an arbitration proceeding against Prestige Brands, Inc. (“Prestige Brands”), a wholly-owned subsidiary of the Company, in which Trutek alleged that Prestige Brands breached certain terms of a license agreement between Trutek and Prestige Brands providing for the license of certain intellectual property by Trutek to Prestige Brands for an allergy relief product. Prestige Brands has denied Trutek's allegations of breach of the license agreement. A hearing is scheduled to occur in October 2011.
In addition to the matters described above, we are involved from time to time in other routine legal matters and other claims incidental to our business. We review outstanding claims and proceedings internally and with external counsel as necessary to assess probability and amount of potential loss. These assessments are re-evaluated at each reporting period and as new information becomes available to determine whether a reserve should be established or if any existing reserve should be adjusted. The actual cost of resolving a claim or proceeding ultimately may be substantially different than the amount of the recorded reserve. In addition, because it is not permissible under GAAP to establish a litigation reserve until the loss is both probable and estimable, in some cases there may be insufficient time to establish a reserve prior to the actual incurrence of the loss (upon verdict and judgment at trial, for example, or in the case of a quickly negotiated settlement). We believe the resolution of routine matters and other incidental claims, taking into account reserves and insurance, will not have a material adverse effect on our business, financial condition or results from operations.
-
20
-
Lease Commitments
We have operating leases for office facilities and equipment in New York and Wyoming, which expire at various dates through 2014.
The following summarizes future minimum lease payments for our operating leases (in thousands) as of
June 30, 2011
:
|
|
Facilities
|
|
Equipment
|
|
Total
|
|||||||
|
Year Ending March 31,
|
|
|
|
|||||||||
|
2012 (Remaining nine months ending March 31, 2012)
|
$
|
707
|
|
|
$
|
57
|
|
|
$
|
764
|
|
|
|
2013
|
976
|
|
|
44
|
|
|
1,020
|
|
||||
|
2014
|
640
|
|
|
21
|
|
|
661
|
|
||||
|
2015
|
50
|
|
|
—
|
|
|
50
|
|
||||
|
Thereafter
|
—
|
|
|
—
|
|
|
—
|
|
||||
|
|
$
|
2,373
|
|
|
$
|
122
|
|
|
$
|
2,495
|
|
|
Rent expense for each of the
three
months ended
June 30, 2011
and
2010
was $0.2 million.
Purchase Commitments
We have entered into a 10 year supply agreement for the exclusive manufacture of a portion of one of our Household Cleaning products. Although we are committed under the supply agreement to pay the minimum amounts set forth in the table below, the total commitment is less than 10 percent of the estimated purchases that are expected to be made during the course of the agreement.
(In thousands)
|
Year Ending March 31,
|
|
|||
|
2012 (Remaining nine months ending March 31, 2012)
|
$
|
871
|
|
|
|
2013
|
1,136
|
|
||
|
2014
|
1,105
|
|
||
|
2015
|
1,074
|
|
||
|
2016
|
1,044
|
|
||
|
Thereafter
|
2,635
|
|
||
|
|
$
|
7,865
|
|
|
18.
Concentrations of Risk
Our sales are concentrated in the areas of OTC Healthcare and Household Cleaning products. We sell our products to mass merchandisers, food and drug accounts, and dollar and club stores. During the
three
months ended
June 30, 2011
and
June 30, 2010
, approximately 51.3% and 68.3%, respectively, of our total sales were derived from our four major brands. During the
three
months ended
June 30, 2011
and
June 30, 2010
, approximately 24.9% and 23.5%, respectively, of our sales were made to one customer. At
June 30, 2011
, approximately 22.8% of accounts receivable were owed by the same customer.
We manage product distribution in the continental United States through a third-party distribution center in St. Louis, Missouri. A serious disruption, such as a flood or fire, to the main distribution center could damage our inventories and could materially impair our ability to distribute our products to customers in a timely manner or at a reasonable cost. We could incur significantly higher costs and experience longer lead times associated with the distribution of our products to our customers during the time that it takes us to reopen or replace our distribution center. As a result, any such disruption could have a material adverse effect on our sales and profitability.
At
June 30, 2011
, we had relationships with 45 third-party manufacturers. Of those, we had long-term contracts with 11 manufacturers that produced items that accounted for approximately 50.0% of gross sales for the
three
months ended
June 30, 2011
. At
June 30, 2010
, we had relationships with 34 third-party manufacturers. Of those, we had long-term contracts with 11 manufacturers that produced items that accounted for approximately 50.6% of gross sales for the
three
months ended
June 30, 2010
. The fact that we do 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 our business, financial condition and results from operations.
-
21
-
19.
Business Segments
Segment information has been prepared in accordance with the Segment Reporting Topic of the FASB ASC. As described in Note 3, on September 1, 2010, we sold certain assets related to the
Cutex
nail polish remover brand included in our previously reported Personal Care segment to an unrelated third-party. The assets sold comprised a substantial majority of the assets in our previously reported Personal Care segment. The remaining assets and revenues generated do not constitute a reportable segment under the Segment Reporting Topic of the FASB ASC. Therefore, we reclassified the remaining assets and results to the OTC Healthcare segment for all periods presented. Our current operating and reportable segments now consist of (i) OTC Healthcare and (ii) Household Cleaning.
There were no inter-segment sales or transfers during any of the periods presented. We evaluate the performance of our operating segments and allocate resources to them based primarily on contribution margin.
The tables below summarize information about our operating and reportable segments.
|
|
For the Three Months Ended June 30, 2011
|
||||||||||
|
|
OTC
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
(In thousands)
|
|
|
|||||||||
|
Net sales
|
$
|
71,003
|
|
|
$
|
23,304
|
|
|
$
|
94,307
|
|
|
Other revenues
|
199
|
|
|
789
|
|
|
988
|
|
|||
|
Total revenues
|
71,202
|
|
|
24,093
|
|
|
95,295
|
|
|||
|
Cost of sales
|
28,784
|
|
|
16,643
|
|
|
45,427
|
|
|||
|
Gross profit
|
42,418
|
|
|
7,450
|
|
|
49,868
|
|
|||
|
Advertising and promotion
|
8,421
|
|
|
1,812
|
|
|
10,233
|
|
|||
|
Contribution margin
|
$
|
33,997
|
|
|
$
|
5,638
|
|
|
39,635
|
|
|
|
Other operating expenses
|
|
|
|
|
|
|
12,400
|
|
|||
|
Operating income
|
|
|
|
|
|
|
27,235
|
|
|||
|
Other expense
|
|
|
|
|
|
|
3,515
|
|
|||
|
Provision for income taxes
|
|
|
|
|
|
|
8,952
|
|
|||
|
Income from continuing operations
|
|
|
|
|
|
|
14,768
|
|
|||
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
—
|
|
|||
|
Net income
|
|
|
|
|
|
|
$
|
14,768
|
|
||
|
|
For the Three Months Ended June 30, 2010
|
||||||||||
|
|
OTC
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
(In thousands)
|
|
|
|||||||||
|
Net sales
|
$
|
44,708
|
|
|
$
|
25,814
|
|
|
$
|
70,522
|
|
|
Other revenues
|
13
|
|
|
701
|
|
|
714
|
|
|||
|
Total revenues
|
44,721
|
|
|
26,515
|
|
|
71,236
|
|
|||
|
Cost of sales
|
15,852
|
|
|
17,413
|
|
|
33,265
|
|
|||
|
Gross profit
|
28,869
|
|
|
9,102
|
|
|
37,971
|
|
|||
|
Advertising and promotion
|
5,163
|
|
|
2,323
|
|
|
7,486
|
|
|||
|
Contribution margin
|
$
|
23,706
|
|
|
$
|
6,779
|
|
|
30,485
|
|
|
|
Other operating expenses
|
|
|
|
|
|
|
9,824
|
|
|||
|
Operating income
|
|
|
|
|
|
|
20,661
|
|
|||
|
Other expense
|
|
|
|
|
|
|
5,761
|
|
|||
|
Provision for income taxes
|
|
|
|
|
|
|
5,691
|
|
|||
|
Income from continuing operations
|
|
|
|
|
|
|
9,209
|
|
|||
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
397
|
|
|||
|
Net income
|
|
|
|
|
|
|
$
|
9,606
|
|
||
-
22
-
During the
three
months ended
June 30, 2011
and
June 30, 2010
, approximately 96.5% and 96.0%, respectively, of our 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
June 30, 2011
, substantially all of our long-term assets were located in the United States and have been allocated to the operating segments as follows:
|
(In thousands)
|
OTC
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
|
|
|
|||||||||
|
Goodwill
|
$
|
147,507
|
|
|
$
|
7,389
|
|
|
$
|
154,896
|
|
|
|
|
|
|
|
|||||||
|
Intangible assets
|
|
|
|
|
|||||||
|
Indefinite-lived
|
568,664
|
|
|
119,820
|
|
|
688,484
|
|
|||
|
Finite-lived
|
64,540
|
|
|
30,964
|
|
|
95,504
|
|
|||
|
|
633,204
|
|
|
150,784
|
|
|
783,988
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
780,711
|
|
|
$
|
158,173
|
|
|
$
|
938,884
|
|
20.
Gain on Settlement
On June 15, 2011, we received a settlement payment of $7.9 million in the resolution of a pending litigation matter. We incurred costs of $2.9 million in pursuing this matter. Therefore, we recorded a pre-tax gain on settlement of $5.1 million net of costs incurred and $3.2 million after income tax effects. The $5.1 million pre-tax gain is included in other (income) expense as this gain did not relate to our ongoing operations.
-
23
-
21. Condensed Consolidating Financial Statements
As described in Note 10, we, together with certain of our 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 our operating income and cash flow is generated by our subsidiaries. As a result, funds necessary to meet Prestige Brands, Inc.'s debt service obligations are provided in part by distributions or advances from our subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of our subsidiaries, could limit Prestige Brands, Inc.'s ability to obtain cash from our subsidiaries for the purpose of meeting our debt service obligations, including the payment of principal and interest on the 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, we have 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
June 30, 2011
and
March 31, 2011
, Condensed Consolidating Statements of Operations for the
three
months ended
June 30, 2011
and
2010
, and Condensed Consolidating Statements of Cash Flows for the
three
months ended
June 30, 2011
and
2010
. 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 note 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
June 30, 2011
.
-
24
-
Condensed Consolidating Statement of Operations
Three Months Ended
June 30, 2011
|
(In thousands)
|
Prestige
Brands
Holdings,
Inc.
|
Prestige
Brands,
Inc.,
the issuer
|
Combined
Subsidiary
Guarantors
|
Combined
Non-
guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Net sales
|
$
|
—
|
|
$
|
70,200
|
|
$
|
23,304
|
|
$
|
803
|
|
$
|
—
|
|
$
|
94,307
|
|
||||||
|
Other Revenues
|
—
|
|
199
|
|
789
|
|
544
|
|
(544
|
)
|
988
|
|
||||||||||||
|
Total Revenues
|
—
|
|
70,399
|
|
24,093
|
|
1,347
|
|
(544
|
)
|
95,295
|
|
||||||||||||
|
Cost of Sales
|
||||||||||||||||||||||||
|
Cost of Sales (exclusive of depreciation)
|
—
|
|
29,008
|
|
16,642
|
|
321
|
|
(544
|
)
|
45,427
|
|
||||||||||||
|
Gross Profit
|
—
|
|
41,391
|
|
7,451
|
|
1,026
|
|
—
|
|
49,868
|
|
||||||||||||
|
Advertising and promotion
|
—
|
|
8,226
|
|
1,812
|
|
195
|
|
—
|
|
10,233
|
|
||||||||||||
|
General and administrative
|
(441
|
)
|
7,469
|
|
2,785
|
|
37
|
|
—
|
|
9,850
|
|
||||||||||||
|
Depreciation and amortization
|
135
|
|
1,937
|
|
459
|
|
19
|
|
—
|
|
2,550
|
|
||||||||||||
|
Total operating expenses
|
(306
|
)
|
17,632
|
|
5,056
|
|
251
|
|
—
|
|
22,633
|
|
||||||||||||
|
Operating income
|
306
|
|
23,759
|
|
2,395
|
|
775
|
|
—
|
|
27,235
|
|
||||||||||||
|
Other (income) expense
|
||||||||||||||||||||||||
|
Interest income
|
(12,886
|
)
|
(1,494
|
)
|
—
|
|
(54
|
)
|
14,432
|
|
(2
|
)
|
||||||||||||
|
Interest expense
|
—
|
|
20,269
|
|
2,743
|
|
—
|
|
(14,432
|
)
|
8,580
|
|
||||||||||||
|
Gain on settlement
|
(5,063
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(5,063
|
)
|
||||||||||||
|
Equity in income of subsidiaries
|
(3,477
|
)
|
—
|
|
—
|
|
—
|
|
3,477
|
|
—
|
|
||||||||||||
|
Total other (income) expense
|
(21,426
|
)
|
18,775
|
|
2,743
|
|
(54
|
)
|
3,477
|
|
3,515
|
|
||||||||||||
|
Income (loss) before income taxes
|
21,732
|
|
4,984
|
|
(348
|
)
|
829
|
|
(3,477
|
)
|
23,720
|
|
||||||||||||
|
Provision (benefit) for income taxes
|
6,964
|
|
1,992
|
|
(194
|
)
|
190
|
|
—
|
|
8,952
|
|
||||||||||||
|
Net income (loss)
|
$
|
14,768
|
|
$
|
2,992
|
|
$
|
(154
|
)
|
$
|
639
|
|
$
|
(3,477
|
)
|
$
|
14,768
|
|
||||||
-
25
-
Condensed Consolidating Statement of Operations
Three Months Ended
June 30, 2010
|
(In thousands)
|
Prestige Brands Holdings, Inc.
|
Prestige Brands, Inc., the issuer
|
Combined Subsidiary Guarantors
|
Combined Non-guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
|
Net sales
|
$
|
—
|
|
$
|
43,970
|
|
$
|
25,815
|
|
$
|
737
|
|
$
|
—
|
|
$
|
70,522
|
|
||||||
|
Other Revenues
|
—
|
|
14
|
|
700
|
|
477
|
|
(477
|
)
|
714
|
|
||||||||||||
|
Total Revenues
|
—
|
|
43,984
|
|
26,515
|
|
1,214
|
|
(477
|
)
|
71,236
|
|
||||||||||||
|
Cost of Sales
|
||||||||||||||||||||||||
|
Cost of Sales (exclusive of depreciation)
|
—
|
|
16,038
|
|
17,413
|
|
291
|
|
(477
|
)
|
33,265
|
|
||||||||||||
|
Gross Profit
|
—
|
|
27,946
|
|
9,102
|
|
923
|
|
—
|
|
37,971
|
|
||||||||||||
|
Advertising and promotion
|
—
|
|
4,981
|
|
2,323
|
|
182
|
|
—
|
|
7,486
|
|
||||||||||||
|
General and administrative
|
(126
|
)
|
4,529
|
|
2,588
|
|
423
|
|
—
|
|
7,414
|
|
||||||||||||
|
Depreciation and amortization
|
111
|
|
1,819
|
|
463
|
|
17
|
|
—
|
|
2,410
|
|
||||||||||||
|
Total operating expenses
|
(15
|
)
|
11,329
|
|
5,374
|
|
622
|
|
—
|
|
17,310
|
|
||||||||||||
|
Operating income
|
15
|
|
16,617
|
|
3,728
|
|
301
|
|
—
|
|
20,661
|
|
||||||||||||
|
Other (income) expense
|
||||||||||||||||||||||||
|
Interest income
|
(12,975
|
)
|
(2,303
|
)
|
—
|
|
(22
|
)
|
15,300
|
|
—
|
|
||||||||||||
|
Interest expense
|
—
|
|
17,232
|
|
3,529
|
|
—
|
|
(15,300
|
)
|
5,461
|
|
||||||||||||
|
Loss on extinguishment of debt
|
—
|
|
300
|
|
—
|
|
—
|
|
—
|
|
300
|
|
||||||||||||
|
Equity in income of subsidiaries
|
(1,596
|
)
|
—
|
|
—
|
|
—
|
|
1,596
|
|
—
|
|
||||||||||||
|
Total other (income) expense
|
(14,571
|
)
|
15,229
|
|
3,529
|
|
(22
|
)
|
1,596
|
|
5,761
|
|
||||||||||||
|
Income (loss) from continuing operations before income taxes
|
14,586
|
|
1,388
|
|
199
|
|
323
|
|
(1,596
|
)
|
14,900
|
|
||||||||||||
|
Provision for income taxes
|
4,980
|
|
468
|
|
76
|
|
167
|
|
—
|
|
5,691
|
|
||||||||||||
|
Income (loss) from continuing operations
|
9,606
|
|
920
|
|
123
|
|
156
|
|
(1,596
|
)
|
9,209
|
|
||||||||||||
|
Discontinued operations
|
||||||||||||||||||||||||
|
Income (loss) from discontinued operations, net of income tax
|
—
|
|
401
|
|
(4
|
)
|
—
|
|
—
|
|
397
|
|
||||||||||||
|
Net income (loss)
|
$
|
9,606
|
|
$
|
1,321
|
|
$
|
119
|
|
$
|
156
|
|
$
|
(1,596
|
)
|
$
|
9,606
|
|
||||||
-
26
-
Condensed Consolidating Balance Sheet
June 30, 2011
|
(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
|
$
|
5,448
|
|
$
|
—
|
|
$
|
—
|
|
$
|
543
|
|
$
|
—
|
|
$
|
5,991
|
|
||||||
|
Accounts receivable, net
|
11
|
|
33,936
|
|
9,153
|
|
705
|
|
—
|
|
43,805
|
|
||||||||||||
|
Inventories, net
|
—
|
|
35,254
|
|
7,960
|
|
507
|
|
—
|
|
43,721
|
|
||||||||||||
|
Deferred income tax assets
|
428
|
|
4,295
|
|
341
|
|
—
|
|
—
|
|
5,064
|
|
||||||||||||
|
Prepaid expenses and other current assets
|
2,074
|
|
1,286
|
|
96
|
|
—
|
|
—
|
|
3,456
|
|
||||||||||||
|
Total current assets
|
7,961
|
|
74,771
|
|
17,550
|
|
1,755
|
|
—
|
|
102,037
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Property and equipment. net
|
1,049
|
|
134
|
|
150
|
|
10
|
|
—
|
|
1,343
|
|
||||||||||||
|
Goodwill
|
—
|
|
147,506
|
|
7,390
|
|
—
|
|
—
|
|
154,896
|
|
||||||||||||
|
Intangible assets, net
|
—
|
|
632,783
|
|
150,784
|
|
421
|
|
—
|
|
783,988
|
|
||||||||||||
|
Other long-term assets
|
—
|
|
6,352
|
|
—
|
|
—
|
|
—
|
|
6,352
|
|
||||||||||||
|
Intercompany receivable
|
1,011,708
|
|
948,500
|
|
92,602
|
|
4,923
|
|
(2,057,733
|
)
|
—
|
|
||||||||||||
|
Investment in subsidiary
|
456,119
|
|
—
|
|
—
|
|
—
|
|
(456,119
|
)
|
—
|
|
||||||||||||
|
Total Assets
|
$
|
1,476,837
|
|
$
|
1,810,046
|
|
$
|
268,476
|
|
$
|
7,109
|
|
$
|
(2,513,852
|
)
|
$
|
1,048,616
|
|
||||||
|
Liabilities and Stockholders' Equity
|
||||||||||||||||||||||||
|
Current liabilities
|
||||||||||||||||||||||||
|
Accounts payable
|
$
|
1,609
|
|
$
|
16,006
|
|
$
|
6,245
|
|
$
|
308
|
|
$
|
—
|
|
$
|
24,168
|
|
||||||
|
Accrued interest payable
|
—
|
|
5,156
|
|
—
|
|
—
|
|
—
|
|
5,156
|
|
||||||||||||
|
Other accrued liabilities
|
785
|
|
29,359
|
|
(8,468
|
)
|
(1,192
|
)
|
—
|
|
20,484
|
|
||||||||||||
|
Total current liabilities
|
2,394
|
|
50,521
|
|
(2,223
|
)
|
(884
|
)
|
—
|
|
49,808
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Long-term debt
|
||||||||||||||||||||||||
|
Principal amount
|
—
|
|
469,000
|
|
—
|
|
—
|
|
—
|
|
469,000
|
|
||||||||||||
|
Less unamortized discount
|
—
|
|
(4,826
|
)
|
—
|
|
—
|
|
—
|
|
(4,826
|
)
|
||||||||||||
|
Long-term debt, net of unamortized discount
|
—
|
|
464,174
|
|
—
|
|
—
|
|
—
|
|
464,174
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Deferred income tax liabilities
|
(2,029
|
)
|
133,933
|
|
24,892
|
|
95
|
|
—
|
|
156,891
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Intercompany payable
|
927,886
|
|
957,273
|
|
172,097
|
|
476
|
|
(2,057,732
|
)
|
—
|
|
||||||||||||
|
Intercompany equity in subsidiaries
|
170,843
|
|
—
|
|
—
|
|
—
|
|
(170,843
|
)
|
—
|
|
||||||||||||
|
Total Liabilities
|
1,099,094
|
|
1,605,901
|
|
194,766
|
|
(313
|
)
|
(2,228,575
|
)
|
670,873
|
|
||||||||||||
|
Stockholders' Equity
|
||||||||||||||||||||||||
|
Common Stock
|
504
|
|
—
|
|
—
|
|
—
|
|
—
|
|
504
|
|
||||||||||||
|
Additional paid-in capital
|
389,355
|
|
337,458
|
|
118,638
|
|
24
|
|
(456,120
|
)
|
389,355
|
|
||||||||||||
|
Treasury stock
|
(687
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(687
|
)
|
||||||||||||
|
Accumulated other comprehensive loss, net of tax
|
(10
|
)
|
—
|
|
—
|
|
(10
|
)
|
10
|
|
(10
|
)
|
||||||||||||
|
Retained earnings (accumulated deficit)
|
(11,419
|
)
|
(139,040
|
)
|
(44,928
|
)
|
13,135
|
|
170,833
|
|
(11,419
|
)
|
||||||||||||
|
Intercompany dividends
|
—
|
|
5,727
|
|
—
|
|
(5,727
|
)
|
—
|
|
—
|
|
||||||||||||
|
Total Stockholders' Equity
|
377,743
|
|
204,145
|
|
73,710
|
|
7,422
|
|
(285,277
|
)
|
377,743
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Total Liabilities and Stockholders' Equity
|
$
|
1,476,837
|
|
$
|
1,810,046
|
|
$
|
268,476
|
|
$
|
7,109
|
|
$
|
(2,513,852
|
)
|
$
|
1,048,616
|
|
||||||
-
27
-
Condensed Consolidating Balance Sheet
March 31, 2011
|
(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
|
$
|
12,698
|
|
$
|
—
|
|
$
|
—
|
|
$
|
636
|
|
$
|
—
|
|
$
|
13,334
|
|
||||||
|
Accounts receivable, net
|
13
|
|
34,835
|
|
8,842
|
|
703
|
|
—
|
|
44,393
|
|
||||||||||||
|
Inventories, net
|
—
|
|
31,023
|
|
8,050
|
|
678
|
|
—
|
|
39,751
|
|
||||||||||||
|
Deferred income tax assets
|
646
|
|
4,168
|
|
477
|
|
1
|
|
—
|
|
5,292
|
|
||||||||||||
|
Prepaid expenses and other current assets
|
4,505
|
|
156
|
|
150
|
|
1
|
|
—
|
|
4,812
|
|
||||||||||||
|
Total current assets
|
17,862
|
|
70,182
|
|
17,519
|
|
2,019
|
|
—
|
|
107,582
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Property and equipment, net
|
1,131
|
|
127
|
|
173
|
|
13
|
|
—
|
|
1,444
|
|
||||||||||||
|
Goodwill
|
—
|
|
147,506
|
|
7,390
|
|
—
|
|
—
|
|
154,896
|
|
||||||||||||
|
Intangible assets, net
|
—
|
|
634,704
|
|
151,220
|
|
437
|
|
—
|
|
786,361
|
|
||||||||||||
|
Other long-term assets
|
—
|
|
6,635
|
|
—
|
|
—
|
|
—
|
|
6,635
|
|
||||||||||||
|
Intercompany receivable
|
1,007,260
|
|
954,317
|
|
92,251
|
|
4,558
|
|
(2,058,386
|
)
|
—
|
|
||||||||||||
|
Investment in subsidiary
|
456,119
|
|
—
|
|
—
|
|
—
|
|
(456,119
|
)
|
—
|
|
||||||||||||
|
Total Assets
|
$
|
1,482,372
|
|
$
|
1,813,471
|
|
$
|
268,553
|
|
$
|
7,027
|
|
$
|
(2,514,505
|
)
|
$
|
1,056,918
|
|
||||||
|
Liabilities and Stockholders' Equity
|
||||||||||||||||||||||||
|
Current liabilities
|
||||||||||||||||||||||||
|
Accounts payable
|
$
|
1,920
|
|
$
|
14,656
|
|
$
|
4,627
|
|
$
|
412
|
|
$
|
—
|
|
$
|
21,615
|
|
||||||
|
Accrued interest payable
|
—
|
|
10,313
|
|
—
|
|
—
|
|
—
|
|
10,313
|
|
||||||||||||
|
Other accrued liabilities
|
15,555
|
|
15,134
|
|
(7,382
|
)
|
(1,027
|
)
|
—
|
|
22,280
|
|
||||||||||||
|
Total current liabilities
|
17,475
|
|
40,103
|
|
(2,755
|
)
|
(615
|
)
|
—
|
|
54,208
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Long-term debt
|
||||||||||||||||||||||||
|
Principal amount
|
—
|
|
492,000
|
|
—
|
|
—
|
|
—
|
|
492,000
|
|
||||||||||||
|
Less unamortized discount
|
—
|
|
(5,055
|
)
|
—
|
|
—
|
|
—
|
|
(5,055
|
)
|
||||||||||||
|
Long-term debt, net of unamortized discount
|
—
|
|
486,945
|
|
—
|
|
—
|
|
—
|
|
486,945
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Deferred income tax liabilities
|
(2,846
|
)
|
132,549
|
|
24,135
|
|
95
|
|
—
|
|
153,933
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Intercompany payable
|
931,601
|
|
952,721
|
|
173,310
|
|
754
|
|
(2,058,386
|
)
|
—
|
|
||||||||||||
|
Intercompany equity in subsidiaries
|
174,310
|
|
—
|
|
—
|
|
—
|
|
(174,310
|
)
|
—
|
|
||||||||||||
|
Total Liabilities
|
1,120,540
|
|
1,612,318
|
|
194,690
|
|
234
|
|
(2,232,696
|
)
|
695,086
|
|
||||||||||||
|
Stockholders' Equity
|
||||||||||||||||||||||||
|
Common Stock
|
503
|
|
—
|
|
—
|
|
—
|
|
—
|
|
503
|
|
||||||||||||
|
Additional paid-in capital
|
387,932
|
|
337,458
|
|
118,637
|
|
24
|
|
(456,119
|
)
|
387,932
|
|
||||||||||||
|
Treasury stock
|
(416
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(416
|
)
|
||||||||||||
|
Retained earnings (accumulated deficit)
|
(26,187
|
)
|
(142,032
|
)
|
(44,774
|
)
|
12,496
|
|
174,310
|
|
(26,187
|
)
|
||||||||||||
|
Intercompany dividends
|
—
|
|
5,727
|
|
—
|
|
(5,727
|
)
|
—
|
|
—
|
|
||||||||||||
|
Total Stockholders' Equity
|
361,832
|
|
201,153
|
|
73,863
|
|
6,793
|
|
(281,809
|
)
|
361,832
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Total Liabilities and Stockholders' Equity
|
$
|
1,482,372
|
|
$
|
1,813,471
|
|
$
|
268,553
|
|
$
|
7,027
|
|
$
|
(2,514,505
|
)
|
$
|
1,056,918
|
|
||||||
-
28
-
Condensed Consolidating Statement of Cash Flows
Three Months Ended
June 30, 2011
|
(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)
|
$
|
14,768
|
|
$
|
2,992
|
|
$
|
(154
|
)
|
$
|
639
|
|
$
|
(3,477
|
)
|
$
|
14,768
|
|
||||||
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
||||||||||||||||||||||||
|
Depreciation and amortization
|
136
|
|
1,935
|
|
459
|
|
20
|
|
—
|
|
2,550
|
|
||||||||||||
|
Deferred income taxes
|
1,035
|
|
1,257
|
|
894
|
|
—
|
|
—
|
|
3,186
|
|
||||||||||||
|
Amortization of deferred financing costs
|
—
|
|
283
|
|
—
|
|
—
|
|
—
|
|
283
|
|
||||||||||||
|
Stock-based compensation costs
|
861
|
|
—
|
|
—
|
|
—
|
|
—
|
|
861
|
|
||||||||||||
|
Amortization of debt discount
|
—
|
|
229
|
|
—
|
|
—
|
|
—
|
|
229
|
|
||||||||||||
|
Changes in operating assets and liabilities
|
||||||||||||||||||||||||
|
Accounts receivable
|
2
|
|
899
|
|
(311
|
)
|
(5
|
)
|
—
|
|
585
|
|
||||||||||||
|
Inventories
|
—
|
|
(4,231
|
)
|
90
|
|
175
|
|
—
|
|
(3,966
|
)
|
||||||||||||
|
Prepaid expenses and other current assets
|
2,431
|
|
(1,130
|
)
|
54
|
|
1
|
|
—
|
|
1,356
|
|
||||||||||||
|
Accounts payable
|
(311
|
)
|
1,350
|
|
1,618
|
|
(95
|
)
|
—
|
|
2,562
|
|
||||||||||||
|
Accrued liabilities
|
(10,916
|
)
|
4,903
|
|
(1,086
|
)
|
128
|
|
—
|
|
(6,971
|
)
|
||||||||||||
|
Net cash provided by (used in) operating activities
|
8,006
|
|
8,487
|
|
1,564
|
|
863
|
|
(3,477
|
)
|
15,443
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Investing Activities
|
||||||||||||||||||||||||
|
Purchases of equipment
|
(54
|
)
|
(22
|
)
|
—
|
|
—
|
|
—
|
|
(76
|
)
|
||||||||||||
|
Net cash used in investing activities
|
(54
|
)
|
(22
|
)
|
—
|
|
—
|
|
—
|
|
(76
|
)
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Financing Activities
|
||||||||||||||||||||||||
|
Repayment of long-term debt
|
—
|
|
(23,000
|
)
|
—
|
|
—
|
|
—
|
|
(23,000
|
)
|
||||||||||||
|
Proceeds from exercise of stock options
|
563
|
|
—
|
|
—
|
|
—
|
|
—
|
|
563
|
|
||||||||||||
|
Shares surrendered as payment of tax withholding
|
(271
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(271
|
)
|
||||||||||||
|
Intercompany activity, net
|
(15,494
|
)
|
14,535
|
|
(1,564
|
)
|
(954
|
)
|
3,477
|
|
—
|
|
||||||||||||
|
Net cash (used in) provided by financing activities
|
(15,202
|
)
|
(8,465
|
)
|
(1,564
|
)
|
(954
|
)
|
3,477
|
|
(22,708
|
)
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
—
|
|
(2
|
)
|
—
|
|
(2
|
)
|
||||||||||||
|
Decrease in cash
|
(7,250
|
)
|
—
|
|
—
|
|
(93
|
)
|
—
|
|
(7,343
|
)
|
||||||||||||
|
Cash - beginning of period
|
12,698
|
|
—
|
|
—
|
|
636
|
|
—
|
|
13,334
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Cash - end of period
|
$
|
5,448
|
|
$
|
—
|
|
$
|
—
|
|
$
|
543
|
|
$
|
—
|
|
$
|
5,991
|
|
||||||
-
29
-
Condensed Consolidating Statement of Cash Flows
Three Months Ended
June 30, 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)
|
$
|
9,606
|
|
$
|
1,321
|
|
$
|
119
|
|
$
|
156
|
|
$
|
(1,596
|
)
|
$
|
9,606
|
|
||||||
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
||||||||||||||||||||||||
|
Depreciation and amortization
|
110
|
|
1,957
|
|
463
|
|
17
|
|
—
|
|
2,547
|
|
||||||||||||
|
Deferred income taxes
|
(183
|
)
|
1,306
|
|
924
|
|
(9
|
)
|
—
|
|
2,038
|
|
||||||||||||
|
Amortization of deferred financing costs
|
—
|
|
255
|
|
—
|
|
—
|
|
—
|
|
255
|
|
||||||||||||
|
Stock-based compensation costs
|
857
|
|
—
|
|
—
|
|
—
|
|
—
|
|
857
|
|
||||||||||||
|
Loss on extinguishment of debt
|
—
|
|
300
|
|
—
|
|
—
|
|
—
|
|
300
|
|
||||||||||||
|
Amortization of debt discount
|
—
|
|
142
|
|
—
|
|
—
|
|
—
|
|
142
|
|
||||||||||||
|
Loss on disposal of equipment
|
—
|
|
105
|
|
20
|
|
—
|
|
—
|
|
125
|
|
||||||||||||
|
Changes in operating assets and liabilities, net of effects of purchases of businesses:
|
||||||||||||||||||||||||
|
Accounts receivable
|
(18
|
)
|
1,719
|
|
297
|
|
80
|
|
—
|
|
2,078
|
|
||||||||||||
|
Inventories
|
—
|
|
1,947
|
|
(941
|
)
|
80
|
|
—
|
|
1,086
|
|
||||||||||||
|
Prepaid expenses and other current assets
|
2,713
|
|
(811
|
)
|
126
|
|
1
|
|
—
|
|
2,029
|
|
||||||||||||
|
Accounts payable
|
(1,506
|
)
|
(731
|
)
|
1,592
|
|
(14
|
)
|
—
|
|
(659
|
)
|
||||||||||||
|
Accrued liabilities
|
(13,593
|
)
|
14,385
|
|
(615
|
)
|
131
|
|
1
|
|
309
|
|
||||||||||||
|
Net cash provided by (used in) operating activities
|
(2,014
|
)
|
21,895
|
|
1,985
|
|
442
|
|
(1,595
|
)
|
20,713
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Investing Activities
|
||||||||||||||||||||||||
|
Purchases of equipment
|
(108
|
)
|
(22
|
)
|
—
|
|
—
|
|
—
|
|
(130
|
)
|
||||||||||||
|
Net cash used in investing activities
|
(108
|
)
|
(22
|
)
|
—
|
|
—
|
|
—
|
|
(130
|
)
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Financing Activities
|
||||||||||||||||||||||||
|
Payment of deferred financing costs
|
—
|
|
(112
|
)
|
—
|
|
—
|
|
—
|
|
(112
|
)
|
||||||||||||
|
Repayment of long-term debt
|
—
|
|
(28,462
|
)
|
—
|
|
—
|
|
—
|
|
(28,462
|
)
|
||||||||||||
|
Intercompany activity, net
|
(5,970
|
)
|
6,701
|
|
(1,985
|
)
|
(341
|
)
|
1,595
|
|
—
|
|
||||||||||||
|
Net cash (used in) provided by financing activities
|
(5,970
|
)
|
(21,873
|
)
|
(1,985
|
)
|
(341
|
)
|
1,595
|
|
(28,574
|
)
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Increase (decrease) in cash
|
(8,092
|
)
|
—
|
|
—
|
|
101
|
|
—
|
|
(7,991
|
)
|
||||||||||||
|
Cash - beginning of period
|
40,644
|
|
—
|
|
—
|
|
453
|
|
—
|
|
41,097
|
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Cash - end of period
|
$
|
32,552
|
|
$
|
—
|
|
$
|
—
|
|
$
|
554
|
|
$
|
—
|
|
$
|
33,106
|
|
||||||
-
30
-
22.
Subsequent Events
Legal Proceedings:
As discussed in Note 2, on July 20, 2011, we received notification from the arbitrator in the working capital arbitration related to the acquisition of Blacksmith Brands Holdings, Inc. that we would be awarded a working capital adjustment in the amount of approximately $1.0 million, pending final resolution and distribution from the escrow agent, which is expected to be received and recorded against goodwill during the three months ending September 30, 2011.
Equity Awards:
On August 2, 2011, the Compensation Committee of our Board of Directors granted 16,408 shares of restricted stock units to the independent members of our Board of Directors. The restricted stock units will vest in their entirety one year after the date of grant so long as membership on the Board of Directors continues through the vesting date, with settlement in common stock to occur on the earliest of the director's death, disability or six month anniversary of the date on which the director's Board membership ceases for reasons other than death or disability.
-
31
-
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, 2011
. 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, 2011
, as well as those described in future reports filed with the SEC.
|
See also “Cautionary Statement Regarding Forward-Looking Statements” on page
45
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.
On July 20, 2011, we received notification from the arbitrator that we would be awarded a working capital adjustment in the amount of approximately $1.0 million, pending final resolution and distribution from the escrow agent, which is expected to be received and recorded against goodwill during the three months ending September 30, 2011.
In connection with this acquisition, we acquired five leading consumer OTC brands:
Efferdent®, Effergrip®, PediaCare®, Luden's®,
and
NasalCrom®
. We expect that the acquisition of the five brands will enhance our position in the OTC 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.
-
32
-
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)
|
November 1, 2010
|
|||
|
Cash acquired
|
$
|
2,507
|
|
|
|
Accounts receivable, net
|
17,473
|
|
||
|
Other receivables
|
1,198
|
|
||
|
Income taxes receivable
|
5
|
|
||
|
Inventories
|
22,155
|
|
||
|
Prepaids and other current assets
|
44
|
|
||
|
Property, plant and equipment, net
|
226
|
|
||
|
Goodwill
|
43,407
|
|
||
|
Trademarks
|
165,346
|
|
||
|
Other long-term assets
|
19
|
|
||
|
Total assets acquired
|
252,380
|
|
||
|
Accounts payable
|
7,060
|
|
||
|
Accrued expenses
|
5,212
|
|
||
|
Income taxes payable
|
2,031
|
|
||
|
Deferred income taxes
|
33,526
|
|
||
|
Total liabilities assumed
|
47,829
|
|
||
|
Total purchase price
|
$
|
204,551
|
|
|
We recorded goodwill based on the amount by which the purchase price exceeded the fair value of net assets acquired. The amount of goodwill deductible for tax purposes is $4.6 million.
The fair value of the trademarks is comprised of $158.0 million of non-amortizable intangible assets and $7.3 million of amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of 15 years. The weighted average remaining life for amortizable intangible assets at June 30, 2011 was 14.3 years.
The operating results of Blacksmith have been included in our Consolidated Financial Statements from November 1, 2010, the date of acquisition. Revenues of the acquired operations for the three months ended June 30, 2011 were $19.1 million.
Dramamine Acquisition
On January 6, 2011, we acquired certain assets comprising the
Dramamine®
brand in the United States. The purchase price was
$77.1 million in cash, after a $0.1 million post-closing inventory adjustment and including transaction costs incurred in the
acquisition of $1.2 million. The purchase price was funded by cash on hand.
The acquisition was accounted for in accordance with the Business Combinations Topic of the ASC. Accordingly, as the
Dramamine
assets acquired do not constitute a business, as defined in the ASC, we have accounted for the transaction as an asset acquisition. The total consideration paid, including transaction costs, have been allocated to the tangible and intangible assets acquired based upon their relative fair values at the date of acquisition.
The allocation of the purchase price to assets acquired and liabilities assumed is based on valuations which we performed to
determine the fair value of such assets as of the acquisition date. The following table summarizes our allocation of the $77.1
million purchase price to the assets we acquired comprising the
Dramamine
brand:
|
(In thousands)
|
||||
|
Inventories
|
$
|
1,249
|
|
|
|
Trademark
|
75,866
|
|
||
|
Total purchase price
|
$
|
77,115
|
|
|
The $75.9 million fair value of the acquired
Dramamine
trademark was comprised solely of non-amortizable intangible assets.
-
33
-
Discontinued Operations and Sale of Certain Assets
On September 1, 2010, we sold certain assets related to the
Cutex®
nail polish remover brand for $4.1 million. In accordance with the Discontinued Operations Topic of the ASC, we 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 second quarter of 2011. As a result of the divestiture of
Cutex,
which comprised a substantial majority of the assets in our previously reported Personal Care segment, we reclassified the then remaining assets to the OTC Healthcare segment for all periods presented.
The following table summarizes the results of discontinued operations (in thousands):
|
|
Three Months Ended June 30,
|
||||||
|
|
2011
|
|
2010
|
||||
|
Components of Income
|
|
||||||
|
Revenues
|
$
|
—
|
|
|
$
|
2,174
|
|
|
Income from discontinued operations, net of income tax
|
—
|
|
|
397
|
|
||
Three Months Ended
June 30, 2011
compared to the Three Months Ended
June 30, 2010
Revenues (in thousands)
|
Three Months Ended June 30,
|
||||||||||||||||||
|
2011
|
2010
|
Increase
|
||||||||||||||||
|
|
Revenues
|
%
|
|
Revenues
|
%
|
|
(Decrease)
|
%
|
||||||||||
|
|
|
|
|
|
|
|||||||||||||
|
OTC Healthcare
|
$
|
71,202
|
|
|
74.7
|
|
$
|
44,721
|
|
|
62.8
|
|
$
|
26,481
|
|
|
59.2
|
|
|
Household Cleaning
|
24,093
|
|
|
25.3
|
|
26,515
|
|
|
37.2
|
|
(2,422
|
)
|
|
(9.1
|
)
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
95,295
|
|
|
100.0
|
|
$
|
71,236
|
|
|
100.0
|
|
$
|
24,059
|
|
|
33.8
|
|
Revenues for the three months ended
June 30, 2011
were
$95.3 million
, an increase of
$24.1 million
, or
33.8%
, versus the three months ended
June 30, 2010
. Revenues for the OTC Healthcare segment increased, primarily due to revenues of $24.4 million from sales of the acquired Blacksmith and
Dramamine
products, while revenues for the Household Cleaning segment decreased by 9.1%, versus the comparable period in the prior year. Revenues from customers outside of North America, which represent 3.5% of total revenues, increased by $0.5 million, or 17.2%, during the three months ended June 30,
2011
compared to the three months ended June 30,
2010
.
OTC Healthcare Segment
Revenues for the OTC Healthcare segment increased
$26.5 million
, or
59.2%
, during the three months ended June 30,
2011
versus the three months ended June 30,
2010
. The increase in revenues was primarily due to revenues of $24.4 million from sales of the acquired Blacksmith and
Dramamine
products. Additionally, we increased advertising and promotional activities for our legacy OTC Healthcare brands which resulted in increased shipments to retailers. Revenue increases for
Chloraseptic®
,
Little Remedies®
,
Compound W®
and
The Doctor's®
were partially offset by revenue decreases for
Clear Eyes®
.
Chloraseptic
revenues increased primarily due to increased demand for spray product due to a late cough cold season.
Little Remedies
revenue increased as the result of the launch of the new
Little Remedies
Honey Elixir and Little Fevers products.
Compound W
revenues increased as the result of an increase in consumer demand for both cryogenic and non-cryogenic products, and the continued sell-in of the new
Compound W
Skin Tag Remover in Canada.
The Doctor's
revenue increase was primarily the result of the recovery of distribution at our largest customer.
Clear Eyes
revenues decreased primarily due to a new product launch that occurred in 2010 that resulted in a temporary one-time increase in sales.
Household Cleaning Segment
Revenues for the Household Cleaning segment decreased
$2.4 million
, or
9.1%
, during the three months ended June 30,
2011
versus the three months ended June 30,
2010
. Stronger performance with
Chore Boy®
and
Spic and Span®
was offset by weaker
Comet®
sales.
Comet
revenues decreased primarily due to lower consumer demand for bathroom spray and powder.
Spic and Span
and
Chore Boy
revenues benefited from increased online promotional activity and consumer demand for Spray and Copper Scrubbers in the three months ended June 30, 2011 versus the three months ended June 30, 2010.
-
34
-
Gross Profit (in thousands)
|
Three Months Ended June 30,
|
||||||||||||||||||
|
2011
|
2010
|
Increase
|
||||||||||||||||
|
|
Gross Profit
|
%
|
|
Gross Profit
|
%
|
|
(Decrease)
|
%
|
||||||||||
|
|
|
|
|
|
|
|||||||||||||
|
OTC Healthcare
|
$
|
42,418
|
|
|
59.6
|
|
$
|
28,869
|
|
|
64.6
|
|
$
|
13,549
|
|
|
46.9
|
|
|
Household Cleaning
|
7,450
|
|
|
30.9
|
|
9,102
|
|
|
34.3
|
|
(1,652
|
)
|
|
(18.1
|
)
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
49,868
|
|
|
52.3
|
|
$
|
37,971
|
|
|
53.3
|
|
$
|
11,897
|
|
|
31.3
|
|
Gross profit for three months ended June 30,
2011
increased
$11.9 million
, or
31.3%
, when compared with the three months ended June 30,
2010
. As a percent of total revenues, gross profit decreased from
53.3%
in the three months ended June 30,
2010
to
52.3%
in the three months ended June 30,
2011
. The acquisitions of Blacksmith and
Dramamine
increased gross profit by $12.1 million, while the remainder of the increase resulted from higher sales volume of our legacy OTC Healthcare brands. The decrease in gross profit as a percent of revenues was primarily due to the realization of lower margins from the acquired Blacksmith products and increased promotional activity in the Household Cleaning segment.
OTC Healthcare Segment
Gross profit for the OTC Healthcare segment increased
$13.5 million
, or
46.9%
, during the three months ended June 30,
2011
versus the three months ended June 30,
2010
. As a percent of OTC Healthcare revenues, gross profit decreased from
64.6%
during the three months ended June 30,
2010
to
59.6%
during the three months ended June 30,
2011
. The decrease in gross profit percentage was primarily the result of 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
$1.7 million
, or
18.1%
, during the three months ended June 30,
2011
versus the three months ended June 30,
2010
. As a percent of Household Cleaning revenue, gross profit decreased from
34.3%
during the three months ended June 30,
2010
to
30.9%
during the three months ended June 30,
2011
. The decrease in gross profit percentage was primarily the result of higher promotional activity.
Contribution Margin (in thousands)
|
Three Months Ended June 30,
|
||||||||||||||||||
|
2011
|
2010
|
|||||||||||||||||
|
|
Contribution
Margin
|
%
|
|
Contribution
Margin
|
%
|
|
Increase
(Decrease)
|
%
|
||||||||||
|
|
|
|
|
|
|
|||||||||||||
|
OTC Healthcare
|
$
|
33,997
|
|
|
47.7
|
|
$
|
23,706
|
|
|
53.0
|
|
$
|
10,291
|
|
|
43.4
|
|
|
Household Cleaning
|
5,638
|
|
|
23.4
|
|
6,779
|
|
|
25.6
|
|
(1,141
|
)
|
|
(16.8
|
)
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
39,635
|
|
|
41.6
|
|
$
|
30,485
|
|
|
42.8
|
|
$
|
9,150
|
|
|
30.0
|
|
Contribution Margin, defined as gross profit less advertising and promotional expenses, increased
$9.2 million
, or
30.0%
, during the three months ended June 30,
2011
versus the three months ended June 30,
2010
. The contribution margin increase was primarily the result of the higher gross profit previously discussed, offset by higher advertising and promotional spending and lower Household Cleaning sales. The acquired Blacksmith and
Dramamine
brands added $9.7 million to the contribution margin, while the remainder of the increase resulted from our legacy OTC Healthcare brands. Increased contribution margin in OTC Healthcare was offset by a $1.1 million decline in Household Cleaning due to lower sales.
OTC Healthcare Segment
Contribution margin for the OTC Healthcare segment increased
$10.3 million
, or
43.4%
, during the three months ended June 30,
2011
versus the three months ended June 30,
2010
. The contribution margin increase was the result of the $9.7 million contribution margin increase primarily related to increased sales from the acquired Blacksmith and
Dramamine
products. Advertising and promotional spending increased $3.3 million, or 63.1% primarily due the acquired Blacksmith and
Dramamine
products and investment in the legacy OTC Healthcare brands.
-
35
-
Household Cleaning Segment
Contribution margin for the Household Cleaning segment decreased
$1.1 million
, or
16.8%
, during the three months ended June 30,
2011
versus the three months ended June 30,
2010
. The contribution margin decrease was the result of the decrease in gross profit as previously discussed, partially offset by a $0.5 million, or 22.0%, decrease in advertising and promotional spending. The decrease in advertising and promotional spending primarily related to the timing of
Comet
promotional activities that occurred in 2010.
General and Administrative
General and administrative expenses were
$9.9 million
for the three months ended June 30,
2011
versus
$7.4 million
for the three months ended June 30,
2010
. The increase in expense was primarily due to the acquired Blacksmith and
Dramamine
brands and $0.8 million of non-recurring professional fees.
Depreciation and Amortization
Depreciation and amortization expense was
$2.6 million
for the three months ended June 30,
2011
and
$2.4 million
for the three months ended June 30,
2010
.
Interest Expense
Net interest expense was
$8.6 million
during the three months ended June 30,
2011
versus
$5.5 million
during the three months ended June 30,
2010
. The increase in interest expense was primarily the result of a higher level of indebtedness outstanding related to the Blacksmith and
Dramamine
acquisitions. The average cost of funds increased from 7.0% for the three months ended June 30,
2010
to 7.1% for the three months ended June 30,
2011
, while the average indebtedness outstanding increased from $313.8 million during the three months ended June 30,
2010
to $480.5 million during the three months ended June 30,
2011
due to increased debt issued for the Blacksmith and
Dramamine
acquisitions.
Gain on Settlement
On June 15, 2011, we received a settlement payment of $7.9 million in the resolution of a pending litigation matter. We incurred costs of $2.9 million in pursuing this matter. Therefore, during the three months ended June 30, 2011, we recorded a pre-tax gain on settlement of $5.1 million net of costs incurred, which is included in other (income) expense as this gain did not relate to our ongoing operations.
Income Taxes
The provision for income taxes during the three months ended June 30,
2011
was
$9.0 million
versus
$5.7 million
during the three months ended June 30,
2010
. The effective tax rate during the three months ended June 30,
2011
was 37.7% versus 38.2% during the three months ended June 30,
2010
. The decrease in the effective rate is primarily due to a discrete reduction in deferred state taxes. The estimated effective tax rate for the remaining quarters of the year ending March 31, 2012 is 38.7%, excluding the impact of discrete items that may occur.
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. In March 2010, we issued $150.0 million of 8.25% Senior Notes due in 2018, entered into a senior secured term loan facility of $150.0 million maturing in 2016 and entered into a $30.0 million senior secured revolving credit facility maturing in 2015. In November 2010, we issued an additional $100.0 million of 8.25% Senior Notes due in 2018, and borrowed an additional $115.0 million under our existing Credit Agreement. In addition, in November 2010, we amended our Credit Agreement to increase our borrowing capacity under our Senior Secured Revolving Credit Facility by $10.0 million to $40.0 million. 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.
Operating Activities
Net cash provided by operating activities was
$15.4 million
for the
three
months ended
June 30, 2011
compared to
$20.7 million
for the three months ended June 30, 2010. The
$5.3 million
decrease in net cash provided by operating activities was primarily due to higher interest payments following our refinancing in 2011, higher incentive compensation payments in the current year period due to increased company performance in 2011 and higher working capital requirements, primarily related to higher inventory levels associated with the recent acquisitions. These decreases were partially offset by a one-time gain associated with the legal settlement as discussed in Note 20.
-
36
-
Consistent with the
three
months ended
June 30, 2010
, our cash flow from operations exceeded net income due to the substantial non-cash charges related to depreciation and amortization, increases in deferred income tax liabilities resulting from differences in the amortization of intangible assets and goodwill for income tax purposes, the amortization of certain deferred financing costs and debt discount, and stock-based compensation costs.
Investing Activities
Net cash used in investing activities was
$0.1 million
for each of the
three
months ended
June 30, 2011
and
June 30, 2010
. Net cash used in investing activities for each of these periods was primarily the result of equipment purchases.
Financing Activities
Net cash used in financing activities was
$22.7 million
for the
three
months ended
June 30, 2011
compared to
$28.6 million
for the three months ended June 30, 2010. During the
three
months ended
June 30, 2011
, we used cash from operating activities and cash on hand to repay $23.0 million of our outstanding debt. This decreased our outstanding indebtedness to
$469.0 million
at
June 30, 2011
from
$492.0 million
at
March 31, 2011
.
|
|
Three Months Ended June 30,
|
||||||
|
(In thousands)
|
2011
|
2010
|
|||||
|
Cash provided by (used in):
|
|
||||||
|
Operating Activities
|
$
|
15,443
|
|
$
|
20,713
|
|
|
|
Investing Activities
|
(76
|
)
|
|
(130
|
)
|
||
|
Financing Activities
|
(22,708
|
)
|
|
(28,574
|
)
|
||
Capital Resources
On March 24, 2010, we retired our existing Senior Secured Term Loan Facility, which had 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 new $150.0 million Senior Secured Term Loan Facility with a maturity date of March 24, 2016 (the "2010 Senior Term Loan"), a $30.0 million Senior Secured Revolving Credit Facility with a maturity date of March 24, 2015 (the "2010 Revolving Credit Facility") and issued Senior Notes of $150.0 million that bear interest at 8.25% with a maturity date of April 1, 2018 (the "2010 Senior Notes"). This debt refinancing improved our liquidity position by increasing our borrowing capacity under our Senior Secured Term Loan and Revolving Credit Facilities and extending the maturities of our indebtedness. The new debt also better positions us to pursue acquisitions as part of our growth strategy.
The 2010 Senior Term Loan included a discount to the lenders of $1.8 million resulting in our receipt of net proceeds of $148.2 million. The 2010 Senior Notes were issued at an aggregate face value of $150.0 million with a discount to noteholders of $2.2 million and net proceeds to us of $147.8 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 $7.3 million of costs primarily related to fees of bank arrangers and legal advisors of which $6.6 million was capitalized as deferred financing costs and $0.7 million was 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, with the same maturity date and other terms and conditions as the 2010 Senior Term Loan (hereinafter all references to the 2010 Senior Term Loan shall also include the $115.0 incremental term loan) under our Senior Secured Term Loan Facility and (ii) increase our borrowing capacity under our 2010 Revolving Credit Facility by $10.0 million to $40.0 million. On November 1, 2010, we also issued an additional $100.0 million of 8.25% Senior Notes due in 2018 (hereinafter all references to the 2010 Senior Notes shall also include the $100.0 million issuance of 8.25% Senior Notes due 2018).
As of
June 30, 2011
, we had an aggregate of
$469.0 million
of outstanding indebtedness, which consisted of the following:
|
•
|
$219.0 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 our 2010 Revolving Credit Facility as of
June 30, 2011
, as well as incremental borrowing capacity of $75.0 million under our Senior Secured Credit Facility.
-
37
-
The 2010 Senior Term Loan bears 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
June 30, 2011
, an aggregate of
$219.0 million
was outstanding under the Senior Secured Credit Facility, of which $215.0 million carried an interest rate of 4.75% and $4.0 million carried an interest rate of 5.5%.
The Senior Secured Credit Facility, including 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 Senior Secured Credit Facility and the Indenture governing the 2010 Senior Notes contain provisions that accelerate our indebtedness upon the occurrence of certain events 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 4.00 to 1.0 for the quarter ended
June 30, 2011
(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 3.00 to 1.0 for the quarter ended
June 30, 2011
(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
June 30, 2011
, we were in compliance with the applicable financial and restrictive covenants under the Senior Secured 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. During the three months ended June 30, 2011, we made voluntary principal payments against outstanding indebtedness of $23.0 million in excess of required payments under the Credit Agreement governing the 2010 Senior Term Loan. In accordance with the Credit Agreement governing the 2010 Senior Term Loan, such payment was applied against the first four required principal payments, and any remaining principal payment is applied ratably toward the remaining required principal payments. As such, we do not have a required principal payment until the 2010 Senior Term Loan matures in 2016.
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, 2011
. 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:
-
38
-
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 these criteria are met and 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 based upon the nature of such items and the applicable accounting guidance. 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. Direct reimbursements of advertising costs are reflected as a reduction of advertising costs in the periods in which the reimbursement criteria are achieved. 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 promotional 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, 2011
was $21.3 million and for the three months ended June 30, 2011 was $5.7 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, 2011
, our sales and operating income would have been adversely affected by approximately $2.1 million. Net income would have been adversely affected by approximately $1.3 million. Similarly, had we underestimated the promotional program rate by 10% for the
three
months ended
June 30, 2011
, our sales and operating income would have been adversely affected by approximately $0.6 million. Net income would have been adversely affected by approximately $0.4 million for the
three
months ended
June 30, 2011
.
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, 2011
, we had 46 coupon events. The amount recorded against revenues and accrued for these events during the year was $3.9 million. Cash settlement of coupon redemptions during the year was $3.1 million. During the
three
months ended
June 30, 2011
, we had 44 coupon events. The amount recorded against revenue and accrued for these events during the
three
months ended
June 30, 2011
was $1.7 million. Cash settlement of coupon redemptions during the
three
months ended
June 30, 2011
was $1.8 million.
Allowances for Product Returns
Due to the nature of the consumer products industry, we are required to estimate future product returns. Accordingly, we record an estimate of product returns concurrent with 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, 2011
, 2010 and 2009, returns represented 2.7%, 3.8% and 3.7%, respectively, of gross sales. For the
three
months ended
June 30, 2011
, product returns represented 2.7% of gross sales. At
June 30, 2011
and
March 31, 2011
, the allowance for sales returns was $5.0 million and $5.2 million, respectively.
While we utilize the methodology described above to estimate product returns, actual results may differ materially from our estimates, causing our future financial results to be adversely affected. Among the factors that could cause a material change in the estimated return rate would be significant unexpected returns with respect to a product or products that comprise a significant portion of our revenues. Based 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
-
39
-
a range of 2.7% to 3.8% of gross sales. A hypothetical 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, 2011
by approximately $0.4 million. Net income would have been adversely affected by approximately $0.2 million. A hypothetical increase of 0.1% in our estimated return rate as a percentage of gross sales for the
three
months ended
June 30, 2011
would have adversely affected our reported sales and operating income by approximately $0.1 million, while our net income would have been adversely affected by approximately $0.1 million.
Lower of Cost or Market for Obsolete and Damaged Inventory
We value our inventory at the lower of cost or market value. Accordingly, we reduce our inventories for the diminution of value resulting from product obsolescence, damage or other issues affecting marketability equal to the difference between the cost of the inventory and its estimated market value. Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and packaging obsolescence.
Many of our products are subject to expiration dating. As a general rule our customers will not accept goods with expiration dating of less than 12 months from the date of delivery. To monitor this risk, management utilizes a detailed compilation of inventory with expiration dating between zero and 15 months and reserves for 100% of the cost of any item with expiration dating of 12 months or less. Inventory obsolescence costs charged to operations were $0.2 million for the fiscal year ended
March 31, 2011
, while for the three months ended
June 30, 2011
, we recorded obsolescence costs of $1.0 million. A 1.0% increase in our allowance for obsolescence at
March 31, 2011
would have adversely affected our reported operating income and net income for the fiscal year ended
March 31, 2011
by approximately $0.4 million and $0.2 million, respectively. Similarly, a 1.0% increase in our allowance at
June 30, 2011
would have adversely affected our reported operating income and net income for the
three
months ended
June 30, 2011
by approximately $0.5 million and $0.3 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 1.0% and 0.9% of accounts receivable at
June 30, 2011
and
March 31, 2011
, respectively. Bad debt expense for the fiscal year ended
March 31, 2011
was $0.2 million, while during the
three
months ended
June 30, 2011
, we recorded bad debt expense of less than $0.1 million.
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 hypothetical increase of 0.1% in our bad debt expense as a percentage of sales during the fiscal year ended
March 31, 2011
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
months ended
June 30, 2011
would have resulted in a decrease in reported operating income of less than $0.1 million, and a decrease in our reported net income of less than $0.1 million.
Valuation of Intangible Assets and Goodwill
Goodwill and intangible assets amounted to
$938.9 million
and
$941.3 million
at
June 30, 2011
and
March 31, 2011
, respectively. At
June 30, 2011
, goodwill and intangible assets were apportioned among our two operating segments as follows:
-
40
-
|
(In thousands)
|
OTC
Healthcare
|
|
Household
Cleaning
|
|
Consolidated
|
||||||
|
|
|
|
|||||||||
|
Goodwill
|
$
|
147,507
|
|
$
|
7,389
|
|
|
$
|
154,896
|
|
|
|
|
|
|
|
||||||||
|
Intangible assets
|
|
|
|
||||||||
|
Indefinite-lived
|
568,664
|
|
119,820
|
|
|
688,484
|
|
||||
|
Finite-lived
|
64,540
|
|
30,964
|
|
|
95,504
|
|
||||
|
|
633,204
|
|
|
150,784
|
|
|
783,988
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
780,711
|
|
|
$
|
158,173
|
|
|
$
|
938,884
|
|
Our
Chloraseptic, Clear Eyes, Compound W,
Dramamine, Efferdent, Luden's
and
PediaCare
brands comprise the majority of the value of the intangible assets within the OTC Healthcare segment. The
Chore Boy, Comet,
and
Spic and Span
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:
|
•
|
Brand History
|
A brand that has been in existence for a long period of time (
e.g.,
25, 50 or 100 years) generally warrants a higher valuation and longer life (sometimes indefinite) than a brand that has been in existence for a very short period of time. A brand that has been in existence for an extended period of time generally has been the subject of considerable investment by its previous owner(s) to support product innovation and advertising and promotion.
|
•
|
Market Position
|
Consumer products that rank number one or two in their respective market generally have greater name recognition and are known as quality product offerings, which warrant a higher valuation and longer life than products that lag in the marketplace.
|
•
|
Recent and Projected Sales Growth
|
Recent sales results present a snapshot as to how the brand has performed in the most recent time periods and represent another factor in the determination of brand value. In addition, projected sales growth provides information about the strength and potential longevity of the brand. A brand that has both strong current and projected sales generally warrants a higher valuation and a longer life than a brand that has weak or declining sales. Similarly, consideration is given to the potential investment, in the form of advertising and promotion, which is required to reinvigorate a brand that has fallen from favor.
|
•
|
History of and Potential for Product Extensions
|
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 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.
-
41
-
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, if applicable, useful lives assigned to goodwill and intangible assets and tests for impairment.
We report goodwill and indefinite-lived intangible assets in two operating segments: OTC Healthcare and Household Cleaning. We identify our reporting units in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 280-10, 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.
Goodwill
As of March 31, 2011, we had nine reporting units with goodwill. The aggregate fair value exceeded the carrying value by 30.2%. No individual reporting unit's fair value exceeded its carrying value by less than 5.0%, except for two reporting units in the OTC Healthcare segment. One reporting unit's fair value exceeded the carrying value by 2.1% and the associated goodwill amounted to $2.4 million. The second reporting unit exceeded the carrying value by 4.8% and the associated goodwill amounted to $12.6 million.
As part of our annual test for impairment of goodwill, management estimates the discounted cash flows of each reporting unit, which is at the brand level, and one level below the operating segment level, to estimate their respective fair values. In performing this analysis, management considers the same types of information as listed below in regards to finite-lived intangible assets. In the event that the carrying amount of the reporting unit exceeds the fair value, management would then be required to allocate the estimated fair value of the assets and liabilities of the reporting unit as if the unit was acquired in a business combination, thereby revaluing the carrying amount of goodwill. 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.
Indefinite-Lived Intangible Assets
In a manner similar to finite-lived intangible assets, at each reporting period, management analyzes current events and circumstances to determine whether the indefinite life classification for a trademark or trade name continues to be valid. If circumstances warrant a change to a finite life, the carrying value of the intangible asset would then be amortized prospectively over the estimated remaining useful life.
Management tests the indefinite-lived intangible assets for impairment by comparing the carrying value of the intangible asset to its estimated fair value. Since quoted market prices are seldom available for trademarks and trade names such as ours, we utilize present value techniques to estimate fair value. Accordingly, management’s projections are utilized to assimilate all of the facts, circumstances and expectations related to the trademark or trade name and estimate the cash flows over its useful life. In performing this analysis, management considers the same types of information as listed below in regard to finite-lived intangible assets. Once that analysis is completed, a discount rate is applied to the cash flows to estimate fair value. In a manner similar to goodwill, future events, such as competition, technological advances and reductions in advertising support for our trademarks and trade names could cause subsequent evaluations to utilize different assumptions.
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:
|
•
|
Reviews period-to-period sales and profitability by brand,
|
|
•
|
Analyzes industry trends and projects brand growth rates,
|
|
•
|
Prepares annual sales forecasts,
|
|
•
|
Evaluates advertising effectiveness,
|
|
•
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Analyzes gross margins,
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•
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Reviews contractual benefits or limitations,
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•
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Monitors competitors' advertising spend and product innovation,
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•
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Prepares projections to measure brand viability over the estimated useful life of the intangible asset, and
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•
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Considers the regulatory environment, as well as industry litigation.
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If analysis of any of the aforementioned factors warrants a change in the estimated useful life of the intangible asset, management will reduce the estimated useful life and amortize the carrying value prospectively over the shorter remaining useful life. Management's projections are utilized to assimilate all of the facts, circumstances and expectations related to the trademark
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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, 2011
, as compared to the aggregate fair values of our reporting units to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology. As a result of our analysis, we did not record an impairment charge during the three months ended
March 31, 2011
.
The discount rate utilized in the analyses, as well as future cash flows, may be influenced by such factors as changes in interest rates and rates of inflation. Additionally, should the related fair values of goodwill and intangible assets 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, no impairment charge was recorded during the three months ended
June 30, 2011
.
Stock-Based Compensation
The Compensation and Equity Topics 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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•
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Type of instrument (i.e., restricted shares vs. an option, warrant or performance shares),
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•
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Strike price of the instrument,
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•
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Market price of our common stock on the date of grant,
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•
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Discount rates,
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•
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Duration of the instrument, and
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•
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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 $0.9 million during each of the
three
months ended
June 30, 2011
and 2010.
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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•
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Rules and regulations promulgated by regulatory agencies,
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•
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Sufficiency of the evidence in support of our position,
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•
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Anticipated costs to support our position, and
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•
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Likelihood of a positive outcome.
|
Recent Accounting Pronouncements
In June 2011, the FASB issued guidance regarding presentation of comprehensive income. Under the ASC Comprehensive Income
topic, entities are allowed the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. We do not expect that the adoption of this new guidance will have a material impact on our Consolidated Financial
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43
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Statements.
In May 2011, the FASB issued guidance on fair value measurement. Under the ASC Fair Value Measurement topic,
common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value” , have been amended. The new guidance states that the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of non-financial assets (that is, it does not apply to financial assets or any liabilities). The disclosure requirements have been enhanced, with the most significant change requiring entities, for their recurring Level 3 fair value measurements, to disclose quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements. New disclosures are required about the use of a non-financial asset measured or disclosed at fair value if its use differs from its highest and best use. In addition, entities must report the level in the fair value hierarchy of assets and liabilities not recorded at fair value but where fair value is disclosed. This guidance is effective during interim and annual periods beginning after December 15, 2011 and is required to be applied prospectively. We do not expect that the adoption of this new guidance will 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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44
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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, 2011
. In addition, our expectations or beliefs concerning future events involve risks and uncertainties, including, without limitation:
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•
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General economic conditions affecting our products and their respective markets,
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•
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Our ability to increase organic growth via new product introductions or line extensions,
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•
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The high level of competition in our industry and markets (including, without limitation, vendor and stock keeping unit ("SKU") rationalization and expansion of private label product offerings),
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•
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Our ability to invest in research and development,
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•
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Our dependence on a limited number of customers for a large portion of our sales,
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•
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Disruptions in our distribution center,
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•
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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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•
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Changing consumer trends or pricing pressures which may cause us to lower our prices,
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•
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Increases in supplier prices and transportation and fuel charges,
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•
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Our ability to protect our intellectual property rights,
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•
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Shortages of supply of sourced goods or interruptions in the manufacturing of our products,
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•
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Our level of indebtedness, and ability to service our debt,
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•
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Any adverse judgments rendered in any pending litigation or arbitration,
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•
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Our ability to obtain additional financing, and
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•
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The restrictions imposed by our financing agreements on our operations.
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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
June 30, 2011
, we had variable rate debt of approximately
$219.0 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 remaining nine months in the year ending March 31, 2012 by approximately $1.6 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
June 30, 2011
. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of
June 30, 2011
, 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
June 30, 2011
in the Company's internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 1.
LEGAL PROCEEDINGS
Part I, Item 3 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011 is incorporated herein by this reference.
San Francisco Technology Inc. Litigation
In May 2011, the U.S. District Court for the Southern District of New York granted the Motion to Dismiss by Medtech Products Inc. ("Medtech"), a wholly-owned subsidiary of the Company, although San Francisco Technology Inc. ("SFT") was allowed to file an amended Complaint. In August 2011, SFT and Medtech reached an agreement in principle to settle the litigation, which settlement will not have a material impact on the Company. Medtech expects to sign a settlement agreement in August 2011.
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46
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ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
REPURCHASES RELATED TO STOCK COMPENSATION PROGRAMS (a)
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Period
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Total Number of Shares Repurchased
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
|
|||||||
|
April 1 to April 30, 2011
|
—
|
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—
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|
n/a
|
n/a
|
|||||
|
May 1 to May 31, 2011
|
20,999
|
|
$
|
12.86
|
|
n/a
|
n/a
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||||
|
June 1 to June 30, 2011
|
—
|
|
—
|
|
n/a
|
n/a
|
|||||
|
Total
|
20,999
|
|
n/a
|
n/a
|
|||||||
(a) These repurchases are made pursuant to our 2005 Long-Term Equity Incentive Plan which allows for the indirect repurchase of shares through a net-settlement feature upon the vesting of shares in order to satisfy minimum statutory tax-withholding requirements.
ITEM 6.
EXHIBITS
See Exhibit Index immediately following signature page.
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47
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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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August 5, 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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48
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Exhibit Index
|
31.1
|
|
Certification of Principal Executive Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
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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
|
|
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
|
|
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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|
101.INS*
|
XBRL Instance Document
|
||
|
101.SCH*
|
XBRL Taxonomy Extension Schema Document
|
||
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
||
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase Document
|
||
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase Document
|
||
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
||
|
* XBRL information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement, prospectus or other document to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.
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49
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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 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits