---

---

 

---

TABLE OF CONTENTS

ITEM 1A.

RISK FACTORS

                 

The high level of competition in our industry, much of which comes from competitors with greater resources, could adversely affect our business, financial condition and results from operations.

The business of selling brand name consumer products in the over-the-counter healthcare, household cleaning and personal care categories is highly competitive.  These markets include numerous manufacturers, distributors, marketers and retailers that actively compete for consumers’ business both in the United States and abroad.  Many of these competitors are larger and have substantially greater resources than we do, and may therefore have the ability to spend more aggressively on research and development, advertising and marketing, and to respond more effectively to changing business and economic conditions.  If this were to occur, it could have a material adverse effect on our business, financial condition and results from operations.

Certain of our product lines that account for a large percentage of our sales have a small market share relative to our competitors.  For example, while Clear Eyes has a number two market share position of 16.0% within the allergy/redness eye drop segment, its top competitor, Visine®, has a market share of 34.7% in the same segment.  In contrast, certain of our brands with number two market positions have a similar market share relative to our competitors.  For example, Compound W has a number two market position of 32.9% and its top competitor, Dr. Scholl’s, has a market position of 42.5% in the same category.  Also, while Cutex is the number one brand name nail polish remover with a market share of 24.2%, non-branded, private label nail polish removers account, in the aggregate, for 58.7% of the market.  Finally, while our New-Skin liquid bandage product has a number one market position of 54.4%, the size of the liquid bandage market is relatively small, particularly when compared to the much larger bandage category.  See “Part I, Item 1. Business” section on page 1 of this Annual Report on Form 10-K for information regarding market share calculations.

We compete for customers’ attention based on a number of factors, including brand recognition, product quality, performance, price and product availability at the retail level.  Advertising, promotion, merchandising and packaging, the timing of new product introductions and line extensions also have a significant impact on consumer buying decisions and, as a result, on our sales.  The structure and quality of our sales force, as well as sell-through of our products affect in-store position, wall display space and inventory levels in retail stores.  If we are unable to maintain our current distribution network, inventory levels and in-store positioning of our products at our customers, our sales and operating results will be adversely affected.  Our markets also are highly sensitive to the introduction of new products, which may rapidly capture a significant share of the market.  An increase in the number of product innovations by our competitors or the failure of a new product launch by the Company could have a material adverse effect on our business, financial condition and results from operations.

In addition, competitors may attempt to gain market share by offering products at prices at or below those typically offered by us.  Competitive pricing may require us to reduce prices which may result in lost sales or a reduction of our profit margins.  Future price adjustments, product changes or new product introductions by our competitors or our inability to react with price adjustments, product changes or new product introductions of our own could result in a loss of market share which could have a material adverse effect on our business, financial condition and results from operations.

We depend on a limited number of customers with whom we have no long-term agreements for a large portion of our gross sales and the loss of one or more of these customers could reduce our gross sales and have a material adverse effect on our business, financial condition and results of operations.

For 2010, our top five and ten customers accounted for approximately 45.7% and 58.4%, respectively, of our sales, compared with approximately 48.2% and 60.1% and 46.2% and 57.2% during 2009 and 2008, respectively.  Wal-Mart, which itself accounted for approximately 24.6%, 25.9% and 23.1% of our sales in 2010, 2009 and 2008, respectively, is our only customer that accounted for 10% or more of our sales.  We expect that for future periods, our top five and ten customers, including Wal-Mart, will, in the aggregate, continue to account for a large portion of our sales.  The loss of one or more of our top customers, any significant decrease in sales to these customers, or a significant decrease in our retail display space in any of these customers’ stores, could reduce our sales and have a material adverse effect on our business, financial condition and results from operations.

-15-

---

In addition, our business is based primarily upon individual sales orders.  We typically do not enter into long-term contracts with our customers.  Accordingly, our customers could cease buying products from us at any time and for any reason.  The fact that we do not have long-term contracts with our customers means that we have no recourse in the event a customer no longer wants to purchase products from us.  If a significant number of our smaller customers, or any of our significant customers, elect not to purchase products from us, our business, financial condition and results from operations could be adversely affected.

Our business has been and could continue to be adversely affected by a prolonged recession in the United States.

The economic uncertainty surrounding the current United States recession has affected and could continue to materially affect our business because such economic challenges could adversely affect consumers, our customers and suppliers.  Specifically:

·	Consumer spending may continue to be curtailed resulting in downward pressure on our sales,

·	Our customers may continue to rationalize the number of products that reach store shelves resulting in a reduction of the number of products that are carried at retail, particularly those that are not number one or two in their category,

·	Our customers may continue to reduce overall inventory levels to strengthen their working capital positions which could result in additional sales reductions for us during those periods that our customers implement such strategies,

·	Our customers may continue to increase the number and breadth of products that are sold via their “private label” to the detriment of our branded products,

·	Our customers may continue to rationalize store count, closing additional marginally performing stores resulting in sales reductions, potential working capital reductions, and an inability to repay amounts owed to us, and

·	Our suppliers may suffer from sales reductions which could diminish their working capital and impede their ability to provide product to us in a timely manner.

We depend on third-party manufacturers to produce the products we sell.  If we are unable to maintain these manufacturing relationships or fail to enter into additional relationships, as necessary, we may be unable to meet customer demand and our sales and profitability could suffer as a result.

All of our products are produced by third-party manufacturers.  Our ability to retain our current manufacturing relationships and engage in and successfully transition to new relationships is critical to our ability to deliver quality products to our customers in a timely manner.  Without adequate supplies of quality merchandise, sales would decrease materially and our business would suffer.  In the event that our primary third-party manufacturers are unable or unwilling to ship products to us in a timely manner, we would have to rely on secondary manufacturing relationships or identify and qualify new manufacturing relationships.  We might not be able to identify or qualify such manufacturers for existing or new products in a timely manner and such manufacturers may not allocate sufficient capacity to us in order that we may meet our commitments to customers.  In addition, identifying alternative manufacturers without adequate lead times can compromise required product validation and stability protocol, which may involve additional manufacturing expense, delay in production or product disadvantage in the marketplace.  The consequences of not securing adequate and timely supplies of merchandise would negatively impact inventory levels, sales and gross margins, and could have a material adverse effect on our business, financial condition and results from operations.

These manufacturers may also increase the cost of the products we purchase which could adversely affect our margins in the event we are unable to pass along these increased costs to our customers.  A situation such as this could also have a material adverse effect on our business, financial condition and results from operations.

At March 31, 2010, we had relationships with over 40 third-party manufacturers.  Of those, we had long-term contracts with 20 manufacturers that produced items that accounted for approximately 68.7% of our gross sales for 2010 compared to 18 manufacturers with long-term contracts that produced approximately 64.0% of gross sales in 2009.  The fact that we do not have long-term contracts with certain manufacturers means that they could cease manufacturing these 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.

 

-16-

---

Price increases for raw materials, energy and transportation costs could have an adverse impact on our margins.

Increases in commodity and energy costs in the markets for resins, package materials and diesel fuel could have a significant impact on our 2011 results from operations.  Consequently, if the Company is unable to increase the price for its products or continue to achieve cost savings in a rising cost environment, such cost increases could have a material adverse effect on our results from operations.

Disruption in our St. Louis distribution center may prevent us from meeting customer demand and our sales and profitability may suffer as a result.

We manage our product distribution in the continental United States through one primary distribution center in St. Louis, Missouri.  A serious disruption, such as a flood or fire, to our primary distribution center could damage our inventory and could materially impair our ability to distribute our products to customers in a timely manner or at a reasonable cost.  We could incur significantly higher costs and experience longer lead times during the time required to reopen or replace our primary distribution center.  As a result, any serious disruption could have a material adverse effect on our business, financial condition and results from operations.

Achievement of our strategic objectives requires the acquisition, or potentially the disposition, of certain brands or product lines.  Efforts to effect and integrate such acquisitions or dispositions may divert our managerial resources away from our business operations.

The majority of our growth has been driven by acquiring other brands and companies.  At any given time, we may be engaged in discussions with respect to possible acquisitions that are intended to enhance our product portfolio, enable us to realize cost savings and further diversify our category, customer and channel focus.  Our ability to successfully grow through acquisitions depends on our ability to identify, negotiate, complete and integrate suitable acquisition candidates and to obtain any necessary financing.  These efforts could divert the attention of our management and key personnel from our business operations.  If we complete acquisitions, we may also experience:

·	Difficulties achieving, or an inability to achieve, our expected returns,

·	Difficulties in integrating any acquired companies, personnel and products into our existing business,

·	Delays in realizing the benefits of the acquired company or products,

·	Higher costs of integration than we anticipated,

·	Difficulties in retaining key employees of the acquired business who are necessary to manage the business,

·	Difficulties in maintaining uniform standards, controls, procedures and policies throughout our acquired companies, or

·	Adverse customer or shareholder reaction to the acquisition.

In addition, any acquisition could adversely affect our operating results as a result of higher interest costs from the acquisition related debt and higher amortization expenses related to the acquired intangible assets.  The diversion of management’s attention to pursue acquisitions, or our failure to successfully integrate acquired companies into our business, could have a material adverse effect on our business, financial condition and results from operations.

In the event that we decide to sell a brand or product line, we may encounter difficulty finding, or be unable to find, a buyer on acceptable terms in a timely manner.  This could cause a delay in our efforts to achieve our strategic objectives.

 

-17-

---

Our risks associated with doing business internationally increase as we expand our international footprint.

During 2010, 2009 and 2008, approximately 4.2%, 3.6% and 4.1%, respectively, of our total revenues were attributable to our international business.  We generally rely on brokers and distributors for the sale of our products in foreign countries.  In addition to the risks associated with political instability, changes in the outlook for economic prosperity in these countries could adversely affect the sales of our products in these countries.  Other risks of doing business internationally include:

·	Changes in the legislative or regulatory requirements of the countries or regions where we do business,

·	Currency controls which restrict or prohibit the payment of funds or the repatriation of earnings to the United States,

·	Fluctuating foreign exchange rates could result in unfavorable increases in the price of our products or cause increases in the cost of certain products purchased from our foreign third-party manufacturers,

·	Regulatory oversight and its impact on our ability to get products registered for sale in certain markets,

·	Potential trade restrictions and exchange controls,

·	Inability to protect our intellectual property rights in these markets, and

·	Increased costs of compliance with general business and tax regulations in these countries or regions.

Regulatory matters governing our industry could have a significant negative effect on our sales and operating costs.

In both our United States and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints.  Such laws, regulations and other constraints exist at the federal, state or local levels in the United States and at analogous levels of government in foreign jurisdictions.

The formulation, manufacturing, packaging, labeling, distribution, importation, sale and storage of our products are subject to extensive regulation by various federal agencies, including (i) the FDA, (ii) the FTC, (iii) the CPSC, (iv) the EPA, and by (v) various agencies of the states, localities and foreign countries in which our products are manufactured, distributed, stored and sold.  If we or our third-party manufacturers fail to comply with those regulations, we could become subject to enforcement actions, significant penalties or claims, which could materially adversely affect our business, financial condition and results from operations.  In addition, the adoption of new regulations or changes in the interpretations of existing regulations may result in significant compliance costs or the cessation of product sales and may adversely affect the marketing of our products, resulting in a significant loss of revenues which could have a material adverse effect on our business, financial condition and results from operations.

The FDC Act and FDA regulations require that the manufacturing processes of our third-party manufacturers must also comply with the FDA’s cGMPs.  The FDA inspects our facilities and those of our third-party manufacturers periodically to determine if we and our third-party manufacturers are complying with cGMPs.  A history of past compliance is not a guarantee that future cGMPs will not mandate other compliance steps and associated expense.

If we or our third-party manufacturers fail to comply with federal, state, local or foreign regulations, we could be required to:

·	Suspend manufacturing operations,

·	Modify product formulations or processes,

·	Suspend the sale of products with non-complying specifications,

·	Initiate product recalls, or

·	Change product labeling, packaging or advertising or take other corrective action.

 

-18-

---

Any of the foregoing actions could have a material adverse effect on our business, financial condition and results from operations.

In addition, our failure to comply with FTC or any other federal and state regulations, or with similar regulations in foreign markets, that cover our product claims and advertising, including direct claims and advertising by us, may result in enforcement actions and imposition of penalties or otherwise materially adversely affect the distribution and sale of our products, which could have a material adverse effect on our business, financial condition and results from operations.

Product liability claims and related negative publicity could adversely affect our sales and operating results.

We may be required to pay for losses or injuries purportedly caused by our products.  From time-to-time we have been and may again be subjected to various product liability claims.  Claims could be based on allegations that, among other things, our products contain contaminants, include inadequate instructions or warnings regarding their use or inadequate warnings concerning side effects and interactions with other substances.  Any product liability claims may result in negative publicity that may adversely affect our sales and operating results.  Also, if one of our products is found to be defective we may be required to recall it.  This may result in substantial costs and negative publicity which may adversely affect our sales and operating results.  Although we maintain, and require our suppliers and third-party manufacturers to maintain, product liability insurance coverage, potential product liability claims may exceed the amount of insurance coverage or potential product liability claims may be excluded under the terms of the policy, which could have a material adverse effect on our business, financial condition and results from operations.  In addition, in the future we may not be able to obtain adequate insurance coverage or we may be required to pay higher premiums and accept higher deductibles in order to secure adequate insurance coverage.

If we are unable to protect our intellectual property rights our ability to compete effectively in the market for our products could be negatively impacted.

The market for our products depends to a significant extent upon the goodwill associated with our trademarks, trade names and patents.  Our trademarks and trade names convey that the products we sell are “brand name” products.  We believe consumers ascribe value to our brands, some of which are over 100 years old.  We own or license the material trademark, trade names and patents used in connection with the packaging, marketing and sale of our products.  These rights prevent our competitors or new entrants to the market from using our valuable brand names and technologies.  Therefore, trademark, trade name and patent protection is critical to our business.  Although most of our material intellectual property is registered in the United States and in applicable foreign countries, we may not be successful in asserting protection.  If we were to lose the exclusive right to use one or more of our intellectual property rights, the loss of such exclusive right could have a material adverse effect on our business, financial condition and results from operations.

Other parties may infringe on our intellectual property rights and may thereby dilute the value of our brands in the marketplace.  Brand dilution or the introduction of competitive brands could cause confusion in the marketplace and adversely affect the value that consumers associate with our brands, and thereby negatively impact our sales.  Any such infringement of our intellectual property rights would also likely result in a commitment of our time and resources, financial or otherwise, to protect these rights through litigation or other means.  In addition, third parties may assert claims against our intellectual property rights and we may not be able to successfully resolve those claims causing us to lose our ability to use our intellectual property that is the subject of those claims.  Such loss could have a material adverse effect on our business, financial condition and results from operations.  Furthermore, from time-to-time, we may be involved in litigation in which we are enforcing or defending our intellectual property rights which could require us to incur substantial fees and expenses and have a material adverse effect on our business, financial condition and results from operations.

 

We license certain of our trademarks to third party licensees, who are bound by their respective license agreement to protect our trademarks from infringement and adhere to defined quality requirements.  If one of the third party licensees of our trademarks fails to adhere to the contractually defined quality requirements, our results could be negatively impacted if one of our brands suffers a substantial impairment to its reputation due to real or perceived quality issues.  Further, if one of the third party licensees fails to protect the licensed trademark from infringement, we might be required to take action.

 

-19-

---

Virtually all of our assets consist of goodwill and intangibles.

As our financial statements indicate, virtually all of our assets consist of goodwill and intangibles, principally the trademarks, trade names and patents that we have acquired.  We recorded charges in 2010 and 2009 for impairment of those assets and in the event that the value of those assets become further impaired or our business is materially adversely affected in any way, we would not have tangible assets that could be sold to repay our liabilities.  As a result, our creditors and investors may not be able to recoup the amount of the indebtedness that they have extended to us or the amount they have invested in us.

We depend on third parties for intellectual property relating to some of the products we sell, and our inability to maintain or enter into future license agreements may result in our failure to meet customer demand, which would adversely affect our operating results.

We have licenses or manufacturing agreements with third parties that own intellectual property (e.g., formulae, copyrights, trademarks, trade dress, patents and other technology) used in the manufacture and sale of certain of our products.  In the event that any such license or manufacturing agreement expires or is otherwise terminated, we will lose the right to use the intellectual property covered by such license or agreement and will have to develop or obtain rights to use other intellectual property.  Similarly, our rights could be reduced if the applicable licensor or third-party manufacturer fails to maintain or protect the licensed intellectual property because, in such event, our competitors could obtain the right to use the intellectual property without restriction.  If this were to occur, we might not be able to develop or obtain replacement intellectual property in a timely or cost effective manner.  Additionally, any modified products may not be well-received by customers.  The consequences of losing the right to use or having reduced rights to such intellectual property could negatively impact our sales due to our failure to meet consumer demand for the affected products or require us to incur costs for development of new or different intellectual property, either of which could have a material adverse effect on our business, financial condition and results from operations.  In addition, development of replacement products may be time-consuming and ultimately may not be feasible.

We depend on our key personnel and the loss of the services provided by any of our executive officers or other key employees could harm our business and results of operations.

Our success depends to a significant degree upon the continued contributions of our senior management, many of whom would be difficult to replace.  These employees may voluntarily terminate their employment with us at any time.  We may not be able to successfully retain existing personnel or identify, hire and integrate new personnel.  While we believe we have developed depth and experience among our key personnel, our business may be adversely affected if one or more of these key individuals were to leave.  We do not maintain any key-man or similar insurance policies covering any of our senior management or key personnel.

Our indebtedness could adversely affect our financial condition and the significant amount of cash we need to service our debt will not be available to reinvest in our business.

At March 31, 2010, our total indebtedness, including current maturities, is approximately $328.1 million.

Our indebtedness could:

·	Increase our vulnerability to general adverse economic and industry conditions,

·	Limit our ability to engage in strategic acquisitions,

·	Require us to dedicate a substantial portion of our cash flow from operations toward repayment of our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes,

·	Limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate,

·	Place us at a competitive disadvantage compared to our competitors that have less debt, and

·	Limit, among other things, our ability to borrow additional funds on favorable terms or at all.

-20-

---

The terms of the indenture governing the 8.25% senior notes and the credit agreement governing the senior credit facility allow us to issue and incur additional debt upon satisfaction of conditions set forth in the respective agreements.  If new debt is added to current debt levels, the related risks described above could increase.

At March 31, 2010, we had $30.0 million of borrowing capacity available under the Revolving Credit Facility to support our operating activities. We also have the ability to borrow up to an additional $200.0 million for acquisitions pursuant to our senior credit facility.

Our operating flexibility is limited in significant respects by the restrictive covenants in our senior credit facility and the indenture governing our senior notes.

 

Our senior credit facility and the indenture governing our senior notes impose restrictions that could impede our ability to enter into certain corporate transactions, as well as increase our vulnerability to adverse economic and industry conditions by limiting our flexibility in planning for, and reacting to, changes in our business and industry.  These restrictions limit our ability to, among other things:

·	Borrow money or issue guarantees,

·	Pay dividends, repurchase stock from or make other restricted payments to stockholders,

·	Make investments or acquisitions,

·	Use assets as security in other transactions,

·	Sell assets or merge with or into other companies,

·	Enter into transactions with affiliates,

·	Sell stock in our subsidiaries, and

·	Direct our subsidiaries to pay dividends or make other payments to our Company.

Our ability to engage in these types of transactions is generally limited by the terms of the senior credit facility and the indenture governing the senior notes, even if we believe that a specific transaction would positively contribute to our future growth, operating results or profitability.  However, if we are able to enter into these types of transactions under the terms of the senior credit facility and the indenture, or if we obtain a waiver with respect to any specific transaction, that transaction may cause our indebtedness to increase, may not result in the benefits we anticipate or may cause us to incur greater costs or suffer greater disruptions in our business than we anticipate, and could therefore, have a material adverse effect on our business, financial condition and results from operations.

 

-21-

---

In addition, the senior credit facility requires us to maintain certain leverage and interest coverage ratios and not to exceed annual capital expenditures of $3.0 million.  Although we believe we can continue to meet and/or maintain the financial covenants contained in our credit agreement, our ability to do so may be affected by events outside our control.  Covenants in our senior credit facility also require us to use 100% of the proceeds we receive from debt issuances to repay outstanding borrowings under our senior credit facility.  Any failure by us to comply with the terms and conditions of the credit agreement and the indenture governing the senior notes could have a material adverse effect on our business, financial condition and results from operations.

The senior credit facility and the indenture governing the senior notes contain cross-default provisions that could result in the acceleration of all of our indebtedness.

The senior credit facility and the indenture governing the senior notes contain provisions that allow the respective creditors to declare all outstanding borrowings under one agreement to be immediately due and payable as a result of a default under the other agreement.  Consequently, under the senior credit facility, failure to make a payment required by the indenture governing the senior  notes, among other things, may lead to an event of default under the senior credit facility.  Similarly, an event of default or failure to make a required payment at maturity under the senior credit facility, among other things, may lead to an event of default under the indenture governing the senior notes.  If the debt under the senior credit facility and indenture governing the senior notes were to both be accelerated, the aggregate amount immediately due and payable as of March 31, 2010 would have been approximately $328.1 million.  We presently do not have sufficient liquidity to repay these borrowings in the event they were to be accelerated, and we may not have sufficient liquidity in the future to do so.  Additionally, we may not be able to borrow money from other lenders to enable us to refinance the indebtedness.  At March 31, 2010, the book value of our current assets was $112.2 million.  Although the book value of our total assets was $791.4 million, approximately $670.7 million was in the form of intangible assets, including goodwill of $111.5 million, a significant portion of which is illiquid and may not be available to satisfy our creditors in the event our debt is accelerated.

Any failure to comply with the restrictions of the senior credit facility, the indenture governing the senior notes or any other subsequent financing agreements may result in an event of default.  Such default may allow the creditors to accelerate the related debt, as well as any other debt to which the cross-acceleration or cross-default provisions apply.  In addition, the lenders may be able to terminate any commitments they had made to supply us with additional funding.  As a result, any default by us under our credit agreement, indenture governing the senior notes or any other financing agreement, could have a material adverse effect on our business, financial condition and results from operations.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

 

None.

 

 

ITEM 2.

PROPERTIES

                    

Our corporate headquarters are located in Irvington, New York, a suburb of New York City.  Primary functions undertaken at the Irvington facility include senior management, marketing, sales, operations, quality control and regulatory affairs, finance and legal.  The lease on our Irvington facility expires on April 30, 2014.  We also have an administrative center in Jackson, Wyoming.  Primary functions undertaken at the Jackson facility include back office functions, such as invoicing, credit and collection, general ledger and customer service.  The lease on the Jackson facility expires on December 31, 2010; however, we have the option to renew this lease on an annual basis.  We conduct business regarding all of our business segments at each of the Irvington, New York and Jackson, Wyoming facilities.

 

 

ITEM 3.

LEGAL PROCEEDINGS

                    

DenTek Oral Care, Inc. Litigation

Reference is made to the DenTek Oral Care Inc. (“DenTek”) litigation disclosure contained in (i) Part I, Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009 filed with the Commission on June 15, 2009, and (ii) Part II, Item 1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2009 and filed with the Commission on February 9, 2010, both of which are incorporated herein by this reference.

On March 25, 2010, Medtech Products Inc. (“Medtech”), a wholly-owned subsidiary of the Company and plaintiff in the pending law suit against DenTek and others in the U.S. District Court for the Southern District of New York, settled all of the claims and counterclaims involving DenTek in the law suit on terms mutually agreeable to Medtech and DenTek.  No payment by Medtech or the Company is required as part of the settlement.

San Francisco Technology Inc. Litigation

On April 5, 2010, Medtech 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.  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 has filed a Motion to Dismiss or Stay and a Motion to Sever and Transfer Venue to the Southern District of New York and is awaiting decisions on the pending Motions.  Medtech intends to vigorously defend against the Complaint.

In addition to the matters described above, the Company is involved from time to time in other routine legal matters and other claims incidental to its business.  The Company reviews outstanding claims and proceedings internally and with external counsel as necessary to assess probability and amount of potential loss.  These assessments are re-evaluated at each reporting period and as new information becomes available to determine whether a reserve should be established or if any existing reserve should be adjusted.  The actual cost of resolving a claim or proceeding ultimately may be substantially different than the amount of the recorded reserve.  In addition, because it is not permissible under GAAP to establish a litigation reserve until the loss is both probable and estimable, in some cases there may be insufficient time to establish a reserve prior to the actual incurrence of the loss (upon verdict and judgment at trial, for example, or in the case of a quickly negotiated settlement).  The Company believes the resolution of routine matters and other incidental claims, taking into account reserves and insurance, will not have a material adverse effect on its business, financial condition or results from operations.

ITEM 4.

[REMOVED AND RESERVED]

-25-

---

ITEM 6.

SELECTED FINANCIAL DATA

                   

Prestige Brands Holdings, Inc.

(In thousands, except per share data)		Year Ended March 31,
		2010				2009				2008				2007				2006
Income Statement Data
Total revenues		$	302,023			$	303,147			$	315,107			$	306,127			$	282,577
Cost of sales (1)			144,587				144,196				151,811				146,570				132,218
Gross profit			157,436				158,951				163,296				159,557				150,359
Advertising and promotion expenses			31,236				37,777				34,243				31,500				31,278
Depreciation and amortization			10,552				9,423				9,219				8,589				8,053
General and administrative			34,195				31,888				31,414				28,417				21,137
Impairment of goodwill and intangibles			2,751				249,285				--				--				1,892
Interest expense, net			22,935				28,436				37,393				39,536				36,387
Other (income) expense			2,656				--				(187)				(30)				(41)
Income (loss) from continuing operations before income taxes			53,111				(197,858)				51,214				51,545				51,653
Provision (benefit) for income taxes			21,849				(9,905)				19,168				17,841				23,114
Income (loss) from continuing operations			31,262				(187,953)				32,046				33,704				28,539
Discontinued Operations
Income (loss) from discontinued operations, net of income tax			696				1,177				1,873				2,375				(2,262)
Gain on sale of discontinued operations, net of income tax			157				--				--				--				--
Cumulative preferred dividends			--				--				--				--				--
Net income (loss) available to common stockholders		$	32,115			$	(186,776)			$	33,919			$	36,079			$	26,277
Basic earnings per share:
Income (loss) from continuing operations		$	0.63			$	(3.76)			$	0.64			$	0.68			$	0.58
Net income (loss)		$	0.64			$	(3.74)			$	0.68			$	0.73			$	0.54
Diluted earnings per share:
Income (loss) from continuing operations		$	0.62			$	(3.76)			$	0.64			$	0.67			$	0.57
Net income (loss)		$	0.64			$	(3.74)			$	0.68			$	0.72			$	0.53
Weighted average shares outstanding:
Basic			50,013				49,935				49,751				49,460				48,908
Diluted			50,085				49,935				50,039				50,020				50,008

 

		Year Ended March 31,
Other Financial Data		2010				2009				2008				2007				2006
Capital expenditures		$	673			$	481			$	488			$	540			$	519
Cash provided by (used in):
Operating activities			59,427				66,679				44,989				71,899				53,861
Investing activities			7,320				(4,672	)			(537	)			(31,051	)			(54,163	)
Financing activities			(60,831	)			(32,904	)			(52,132	)			(35,290	)			3,168
		March 31,
Balance Sheet Data		2010				2009				2008				2007				2006
Cash and cash equivalents		$	41,097			$	35,181			$	6,078			$	13,758			$	8,200
Total assets			791,412				801,381				1,049,156				1,063,416				1,038,645
Total long-term debt, including current maturities			328,087				378,337				411,225				463,350				498,630
Stockholders’ equity			329,059				294,385				479,073				445,334				409,407

---

(1)	For 2006 and 2007, cost of sales included $248,000 and $276,000, respectively, of charges related to the step-up of inventory.

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion of our financial condition and results of operations should be read together with the “Selected Financial Data” and the consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.  This discussion and analysis may contain forward-looking statements that involve certain risks, assumptions and uncertainties.  Future results could differ materially from the discussion that follows for many reasons, including the factors described in Item 1A., “Risk Factors” in this Annual Report on Form 10-K, as well as those described in future reports filed with the SEC.

General

We are engaged in the marketing, sales and distribution of brand name over-the-counter healthcare, household cleaning and personal care products to mass merchandisers, drug stores, supermarkets and club stores primarily in the United States and Canada.  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 have 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.

Discontinued Operations and Sale of Certain Assets

In October 2009, the Company sold certain assets related to the shampoo brands previously included in its Personal Care products segment to an unrelated third party.  In accordance with the Discontinued Operations Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), the Company reclassified the related assets as held for sale in the consolidated balance sheets as of March 31, 2009 and reclassified the related operating results as discontinued in the consolidated financial statements and related notes for all periods presented.  The Company recognized a gain of $253,000 on a pre-tax basis and $157,000 net of tax effects on the sale in the quarter ended December 31, 2009.

The following table presents the assets related to the discontinued operations as of March 31, 2009 (in thousands):

Inventory		$	1,038
Intangible assets			8,472
Total assets held for sale		$	9,510

The following table summarizes the results of discontinued operations (in thousands):

		Year Ended March 31,
		2010				2009				2008
Components of Income
Revenues		$	5,053			$	9,568			$	11,496
Income before income taxes			1,121				1,896				2,994

The total sale price for the assets was $9 million, subject to adjustments for inventory, with $8 million received upon closing, and the remaining $1 million to be received on the first anniversary of the closing.

-29-

---

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are described in the notes to the audited financial statements included elsewhere in this Annual Report on Form 10-K.  While all significant accounting policies are important to our consolidated financial statements, certain of these policies may be viewed as being critical.  Such policies are those that are both most important to the portrayal of our financial condition and results from operations and require our most difficult, subjective and complex estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses or the related disclosure of contingent assets and liabilities.  These estimates are based 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 policies are as follows:

Revenue Recognition

We recognize revenue when the following revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the product has been shipped and the customer takes ownership and assumes the risk of loss; (iii) the selling price is fixed or determinable; and (iv) collection of the resulting receivable is reasonably assured.  We have determined that the transfer of risk of loss generally occurs when product is received by the customer, and, accordingly recognize revenue at that time.  Provision is made for estimated discounts related to customer payment terms and estimated product returns at the time of sale based on our historical experience.

As is customary in the consumer products industry, we participate in the promotional programs of our customers to enhance the sale of our products.  The cost of these promotional programs is recorded as advertising and promotional expenses or as a reduction of sales.  Such costs vary from period-to-period based on the actual number of units sold during a finite period of time.  We estimate the cost of such promotional programs at their inception based on historical experience and current market conditions and reduce sales by such estimates.  These promotional programs consist of direct to consumer incentives such as coupons and temporary price reductions, as well as incentives to our customers, such as 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 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 year ended March 31, 2010 was $18.3 million. We participated in 5,570 promotional campaigns, resulting in an average cost of $3,300 per campaign.  Of such amount, only 738 payments were in excess of $5,000.  We believe that the estimation methodologies employed, combined with the nature of the promotional campaigns, make the likelihood remote that our obligation would be misstated by a material amount.  However, for illustrative purposes, had we underestimated the promotional program rate by 10% for the year ended March 31, 2010, our sales and operating income would have been adversely affected by approximately $1.8 million.  Net income would have been adversely affected by approximately $1.1 million.

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 2010, we had 25 coupon events.  The amount recorded against revenues and accrued for these events during the year was $1.3 million. Cash settlement of coupon redemptions during the year was $1.3 million.

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 years ended March 31, 2010, 2009 and 2008, returns represented 3.9%, 3.8% and 4.4%, respectively, of gross sales.  The 2008 rate of 4.4% included costs associated with the voluntary withdrawal from the marketplace of Little Remedies medicated pediatric cough and cold products in October 2007. Had the voluntary withdrawal not occurred, the actual returns rate would have been 3.9%.  At March 31, 2010 and 2009, the allowance for sales returns was $5.9 million and $2.2 million, respectively. The 2010 increase in the allowance for sales returns was primarily due to slow moving retail inventory of our Allergen Block product.

 

-30-

---

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 in a manner similar to the Little Remedies voluntary withdrawal discussed above.  Based upon the methodology described above and our actual returns’ experience, management believes the likelihood of such an event remains remote.  As noted, over the last three years our actual product return rate has stayed within a range of 3.8% to 4.4% of gross sales.  An increase of 0.1% in our estimated return rate as a percentage of gross sales would have adversely affected our reported sales and operating income for the year ended March 31, 2010 by approximately $358,000.  Net income would have been adversely affected by approximately $222,000.

Allowances for Obsolete and Damaged Inventory

We value our inventory at the lower of cost or market value.  Accordingly, we reduce our inventories for the diminution of value resulting from product obsolescence, damage or other issues affecting marketability equal to the difference between the cost of the inventory and its estimated market value.  Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and packaging obsolescence.

Many of our products are subject to expiration dating.  As a general rule our customers will not accept goods with expiration dating of less than 12 months from the date of delivery.  To monitor this risk, management utilizes a detailed compilation of inventory with expiration dating between zero and 15 months and reserves for 100% of the cost of any item with expiration dating of 12 months or less.  At March 31, 2010 and 2009, the allowance for obsolete and slow moving inventory was $2.0 million and $1.4 million, respectively, representing 6.4% and 5.1%, respectively, of total inventory.  The year-over-year percentage increase was the result of an increase of $598,000 in slow moving inventory at March 31, 2010 compared to March 31, 2009.  Inventory obsolescence costs charged to operations for 2010, 2009, and 2008 were $1.7 million, $2.2 million and $1.4 million, respectively, or 0.6%, 0.7% and 0.4%, respectively, of net sales.  A 1.0% increase in our allowance for obsolescence at March 31, 2010 would have adversely affected our reported operating income and net income for the year ended March 31, 2010 by approximately $312,000 and $194,000, 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 collectibility of the accounts receivable.  In an effort to reduce our credit risk, we (i) establish credit limits for all of our customer relationships, (ii) perform ongoing credit evaluations of our customers’ financial condition, (iii) monitor the payment history and aging of our customers’ receivables, and (iv) monitor open orders against an individual customer’s outstanding receivable balance.

We establish specific reserves for those accounts which file for bankruptcy, have no payment activity for 180 days or have reported major negative changes to their financial condition.  The allowance for bad debts amounted to 0.7% and 0.3% of accounts receivable at March 31, 2010 and 2009, respectively.  Bad debt expense for 2010, 2009 and 2008 was $200,000, $130,000, and $124,000, respectively, representing 0.1% of net sales for 2010 and 0.0% of net sales for 2009 and 2008.

While management believes that it is diligent in its evaluation of the adequacy of the allowance for doubtful accounts, an unexpected event, such as the bankruptcy filing of a major customer, could have an adverse effect on our future financial results.  A 0.1% increase in our bad debt expense as a percentage of sales in 2010 would have resulted in a decrease in reported operating income of approximately $302,000, and a decrease in our reported net income of approximately $188,000.

-31-

---

 

Valuation of Intangible Assets and Goodwill

Goodwill and intangible assets amounted to $670.7 and $683.4 million at March 31, 2010 and 2009, respectively.  At March 31, 2010, goodwill and intangible assets were apportioned among our three operating segments as follows:

		Over-the- Counter Healthcare				Household Cleaning				Personal Care				Consolidated
(In thousands)
Goodwill		$	104,100			$	7,389			$	--			$	111,489
Intangible assets
Indefinite lived			334,750				119,821				--				454,571
Finite lived			65,961				33,143				5,554				104,658
			400,711				152,964				5,554				559,229
		$	504,811			$	160,353			$	5,554			$	670,718

 

-32-

---

Our Clear Eyes, New-Skin, Chloraseptic, Compound W and Wartner brands comprise the majority of the value of the intangible assets within the Over-the-Counter Healthcare segment.  The Comet, Spic and Span and Chore Boy brands comprise substantially all of the intangible asset value within the Household Cleaning segment. Cutex comprises substantially all of the intangible asset value within the Personal Care 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 the Company acquires or continues 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’s value and useful life based on its analysis.  Under accounting guidelines goodwill is not amortized, but must be tested for impairment annually, or more frequently if an event 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.

On an annual basis, during the fourth fiscal quarter, or more frequently if conditions indicate that the carrying value of the asset may not be recovered, management performs a review of both the values and useful lives assigned to goodwill and intangible assets and tests for impairment.

We report Goodwill and Indefinite-Lived Intangible Assets in three operating segments; Over-the-Counter Healthcare, Household Cleaning, and Personal Care.  We identify our reporting units in accordance with the FASB Accounting Standards Codification 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.

-33-

---

 

Goodwill

(In thousands)

Operating Segment		March 31, 2010				Percent by which Fair Value Exceeded Carrying Value in Annual Test
Over-the-Counter Healthcare		$	104,100				26.9
Household Cleaning			7,389				8.6
Personal Care			--				n/a
		$	111,489

As of March 31, 2010, the Over-the-Counter Healthcare segment had four reporting units with goodwill and their aggregate fair value exceeded the carrying value by 26.9%.  No individual reporting unit’s fair value in the Over-the-Counter Healthcare segment exceeded its carrying value by less than 5%. The Household Cleaning segment had one operating unit and the fair value exceeded its carrying value by 8.6%.

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 above 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.  In a manner similar to indefinite-lived assets, 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 thousands)

Operating Segment		March 31, 2010				Percent by which Fair Value Exceeded Carrying Value in Annual Test
Over-the-Counter Healthcare		$	334,750				63.7
Household Cleaning			119,821				20.2
Personal Care			--				n/a
		$	454,571

As of March 31, 2010, the Over-the-Counter Healthcare segment had five reporting units with indefinite-lived classification and their aggregate fair value exceeded the carrying value by 63.7%.  No individual reporting unit’s fair value in the Over-the-Counter Healthcare segment exceeded its carrying value by less than 9%.  The Household Cleaning segment had one reporting unit and the fair value exceeded its carrying value by 20.2%.

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.  Should circumstance warrant a finite life, the carrying value of the intangible asset would then be amortized prospectively over the estimated remaining useful life.

The economic events experienced during the year ended March 31, 2009, as well as the Company’s plans and projections for its brands, indicated that several of our brands could no longer support indefinite useful lives.  Each of these brands incurred an impairment charge during the three month period ended March 31, 2009 and has been adversely affected by increased competition.  Consequently, at April 1, 2009, management reclassified $45.6 million of previously indefinite-lived intangibles to intangibles with definite lives.  Management estimates the useful lives of these intangibles to be 20 years.

-34-

---

The fair values and the annual amortization charges of the reclassified intangibles are as follows (in thousands):

		Fair Value as of March 31, 2009				Annual Amortization
Household Trademarks		$	34,888			$	1,745
Over-the-Counter Healthcare Trademark			10,717				536
		$	45,605			$	2,281

 

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 above in regards to finite-lived intangible assets.  Once that analysis is completed, a discount rate is applied to the cash flows to estimate fair value.  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,

·	Analyzes gross margins,

·	Reviews contractual benefits or limitations,

·	Monitors competitors’ advertising spend and product innovation,

·	Prepares projections to measure brand viability over the estimated useful life of the intangible asset, and

·	Considers the regulatory environment, as well as industry litigation.

Should analysis of any of the aforementioned factors warrant a change in the estimated useful life of the intangible asset, management will reduce the estimated useful life and amortize the carrying value prospectively over the shorter remaining useful life.  Management’s projections are utilized to assimilate all of the facts, circumstances and expectations related to the trademark or trade name and estimate the cash flows over its useful life.  In the event that the long-term projections indicate that the carrying value is in excess of the undiscounted cash flows expected to result from the use of the intangible assets, management is required to record an impairment charge.  Once that analysis is completed, a discount rate is applied to the cash flows to estimate fair value.  The impairment charge is measured as the excess of the carrying amount of the intangible asset over fair value as calculated using the discounted cash flow analysis.  Future events, such as competition, technological advances and reductions in advertising support for our trademarks and trade names could cause subsequent evaluations to utilize different assumptions.

-35-

---

Impairment Analysis

We estimate the fair value of our intangible assets and goodwill using a discounted cash flow method.  This discounted cash flow methodology is a widely-accepted valuation technique utilized by market participants in the valuation process and has been applied consistently with prior periods.  In addition, we considered our market capitalization at March 31, 2010, as compared to the aggregate fair values of our reporting units to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology.

During the three month period ended March 31, 2010, we recorded a $2.8 million non-cash impairment charge of goodwill of a brand in the Personal Care segment. The impairment was a result of distribution losses and increased competition from private label store brands.

During the three month period ended March 31, 2009, as a direct consequence of the challenging economic environment, the dislocation of the debt and equity markets, and contracting consumer demand for our branded products, we recorded a non-cash charge in the amount of $249.3 million related to the impairment of intangible assets and goodwill across the entire product line because the carrying amount of these “branded” assets exceeded their respective fair values.  A summary of the impairment activity by segment for the year ended March 31, 2009 is as follows:

		Over-the- Counter Healthcare				Household Cleaning				Personal Care				Consolidated
(In thousands)
Goodwill		$	125,527			$	65,160			$	--			$	190,687
Intangible assets
Indefinite lived			28,603				16,184				--				44,787
Finite lived			12,420				--				1,391				13,811
			41,023				16,184				1,391				58,598
		$	166,550			$	81,344			$	1,391			$	249,285

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, the Company may be required to record additional impairment charges in the future.

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 the 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:

·	Type of instrument (i.e.: restricted shares vs. an option, warrant or performance shares),

·	Strike price of the instrument,

·	Market price of our common stock on the date of grant,

·	Discount rates,

·	Duration of the instrument, and

·	Volatility of our common stock in the public market.

Additionally, management must estimate the expected attrition rate of the recipients to enable it to estimate the amount of non-cash compensation expense to be recorded in our financial statements.  While management 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 net non-cash compensation expense of $2.1 million, $2.4 million and $1.1 million during 2010, 2009 and 2008, respectively.  During 2010, performance goals related to certain restricted stock grants were met and recorded accordingly.  However, during the year ended March 31, 2009, management was required to reverse previously recorded stock-based compensation costs of $193,000 and $705,000

-36-

---

related to the May 2008 and 2007 grants, respectively, as it was determined that we would not meet the performance goals associated with such grants of restricted stock.  During the year ended March 31, 2008, management for the same reasons was required to reverse previously recorded stock-based compensation costs of $538,000, $394,000 and $166,000 related to the October 2005, July 2006 and May 2007 grants, respectively.  Assuming no changes in assumptions and no new awards authorized by the Compensation Committee of the Board of Directors, we will record non-cash compensation expense of approximately $2.2 million during 2011.  We issued additional stock-based compensation grants in April 2011, which will be accounted for in the first quarter of 2011.

Loss Contingencies

Loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of such loss is reasonably estimable.  Contingent losses are often resolved over longer periods of time and involve many factors including:

·	Rules and regulations promulgated by regulatory agencies,

·	Sufficiency of the evidence in support of our position,

·	Anticipated costs to support our position, and

·	Likelihood of a positive outcome.

Recent Accounting Pronouncements

In April 2010, the FASB issued authoritative guidance to provide clarification regarding the classification requirements of a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade. The guidance states that such an award should not be considered to contain a market, performance, or service condition and should not be classified as a liability if it otherwise qualifies as an equity classification. This guidance is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In May 2009, the FASB issued guidance regarding subsequent events, which was subsequently updated in February 2010. This guidance established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  In particular, this guidance set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009, and was therefore adopted by the Company for the second quarter 2009 reporting.  The adoption did not have a significant impact on the subsequent events that the Company reports, either through recognition or disclosure, in the consolidated financial statements.  In February 2010, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance.  This amendment was effective immediately and the Company therefore removed the disclosure in this Annual Report.

In January 2010, the FASB issued authoritative guidance requiring new disclosures and clarifying some existing disclosure requirements about fair value measurement.  Under the new guidance, a reporting entity should (a) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers, and (b) present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs.  This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The new guidance requires only enhanced disclosures and the Company does not expect this guidance to have a material impact on its consolidated financial statements.

In August 2009, the FASB issued authoritative guidance to provide clarification on measuring liabilities at fair value when a quoted price in an active market is not available.  In these circumstances, a valuation technique should be applied that uses either the quote of the liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance, such as an income approach or a market approach.  The new guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  This guidance became effective beginning with the third quarter of the Company’s 2010 fiscal year; however, the adoption of the new guidance did not have a material impact on the Company’s financial position, results from operations or cash flows.

-37-

---

In June 2009, the FASB issued authoritative guidance to eliminate the exception to consolidate a qualifying special-purpose entity, change the approach to determining the primary beneficiary of a variable interest entity and require companies to more frequently re-assess whether they must consolidate variable interest entities.  Under the new guidance, the primary beneficiary of a variable interest entity is identified qualitatively as the enterprise that has both (a) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity.  This guidance becomes effective for the Company’s fiscal 2011 year-end and interim reporting periods.  The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In June 2009, the FASB established the FASB ASC as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with generally accepted accounting principles.  The new guidance explicitly recognizes rules and interpretive releases of the SEC under federal securities laws as authoritative accounting principles generally accepted in the United States of America (“GAAP”) for SEC registrants.  The new guidance became effective for our financial statements issued for the three and six month periods ending on September 30, 2009.

The Derivatives and Hedging Topic of the FASB ASC was amended to require a company with derivative instruments to disclose information to enable users of the financial statements to understand (i) how and why the company uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  Accordingly, the new guidance now requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.  The implementation of the new guidance at January 1, 2009 required enhanced disclosures of derivative instruments and the Company’s hedging activities and did not have any impact on the Company’s financial position, results from operations or cash flows.

Management has reviewed and continues to monitor the actions of the various financial and regulatory reporting agencies and is currently not aware of any other pronouncement that could have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

-38-

---

 

Fiscal 2010 compared to Fiscal 2009

Revenues

		2010 Revenues				%				2009 Revenues				%				Increase (Decrease)				%
OTC Healthcare		$	180,463				59.8			$	176,975				58.4			$	3,488				2.0
Household Cleaning			110,696				36.6				116,015				38.3				(5,319	)			(4.6	)
Personal Care			10,864				3.6				10,157				3.3				707				7.0
		$	302,023				100.0			$	303,147				100.0			$	(1,124	)			(0.4	)

Revenues for fiscal 2010 were $302.0 million, a decrease of $1.1 million, or 0.4%, versus 2009.  Revenues for both the Over-the-Counter Healthcare and Personal Care segments increased versus the comparable period. Revenues for the Household Cleaning segment declined during the period.  Revenues from customers outside of North America, which represent 4.2% of total revenues, increased by $1.9 million, or 17.5%, during 2010 versus 2009.

Over-the-Counter Healthcare Segment

Revenues for the Over-the-Counter Healthcare segment increased $3.5 million, or 2.0%, during 2010 versus 2009. Revenue increases for Clear Eyes, Chloraseptic, Compound W, Dermoplast, Little Remedies, Murine Tears and The Doctor's were partially offset by revenue decreases on Allergen Block, Murine Ear, and Wartner.  Clear Eyes revenues increased primarily due to the launch of a new line of Clear Eyes Tears products and stronger shipments of the traditional and convenience size items.  Chloraseptic revenues increased as the result of a stronger spring flu season driving consumer consumption. Compound W revenues increased due to increased consumer consumption, particularly behind the non-cryogenic products.  Dermoplast revenues increased as a result of customers buying in advance of a scheduled price increase of our institutional item. Little Remedies revenues increased as the result of distribution gains and increased consumer consumption of its non-medicated pediatric products. Murine Tears revenues increased as the result of higher shipments to markets outside North America. The Doctor's revenues increased due to royalty revenue ($3.1 million) received as a result of a legal settlement, and a favorable response due to an increase in advertising compared to 2009. Allergen Block revenues decreased as current year sales did not equal the pipeline orders that existed in 2009 as a result of promotions during the introductory period for the product and allowances for returns and markdowns for slow moving inventory at retail. Murine Ear's revenues decreased primarily as the result of slowing consumer consumption, particularly on Earigate.  Wartner's revenues decreased as the result of lost distribution and softness in the cryogenic segment of the wart treatment category.

In early February 2010, the Company was notified that its largest customer intended to discontinue the sale of The Doctor’s NightGuard and The Doctor’s Brushpicks due to that customer’s initiative to reduce the number of vendors in the Oral Care category.  Subsequent to that notification, the Company conducted a formal review of the products’ performance with the customer in an effort to reverse the customer’s decision. As a result of that review, the customer decided to continue to sell The Doctor’s Nightguard in approximately one-half of its stores. Both products are included in our Over-the-Counter Healthcare Segment. Revenue and gross profit from The Doctor’s Nightguard product during fiscal 2010 at this customer were approximately $3.7 million and $2.7 million, respectively. Revenue and gross profit from The Doctor’s Brushpicks product during fiscal 2010 were approximately $2.2 million and $1.4 million, respectively.

Household Cleaning Segment

Revenues for the Household Cleaning segment decreased $5.3 million, or 4.6%, during 2010 versus 2009. Comet's revenues decreased primarily due to softer consumer consumption of bathroom spray. Chore Boy revenues declined as a result of weaker consumer consumption and lost distribution. Spic and Span revenues were up slightly versus 2009 as a result of increased shipments to the dollar store class of trade.

Personal Care Segment

Revenues for the Personal Care segment increased $707,000, or 7.0%, during 2010 versus 2009.  The revenue increase was driven by Cutex and was due to improving consumption in the nail polish remover category.  Cutex, however, experienced distribution losses late in 2010 due to increased pressure from private label brands.

-39-

---

 

Gross Profit

		2010 Gross Profit				%				2009 Gross Profit				%				Increase (Decrease)				%
OTC Healthcare		$	114,414				63.4			$	113,516				64.1			$	898				0.8
Household Cleaning			38,578				34.9				41,558				35.8				(2,980	)			(7.2	)
Personal Care			4,444				40.9				3,877				38.2				567				14.6
		$	157,436				52.1			$	158,951				52.4			$	(1,515	)			(1.0	)

Gross profit during 2010 decreased $1.5 million, or 1.0%, versus 2009. As a percent of total revenue, gross profit decreased from 52.4% in 2009 to 52.1% in 2010. The decrease in gross profit as a percent of revenues was primarily due to higher promotional allowances, unfavorable sales mix and supplier transitional costs, partially offset by decreases in distribution costs.

Over-the-Counter Healthcare Segment

Gross profit for the Over-the-Counter Healthcare segment increased $898,000, or 0.8%, during 2010 versus 2009.  As a percent of Over-the-Counter Healthcare revenues, gross profit decreased from 64.1% during 2009 to 63.4% during 2010. The decrease in gross profit percentage was primarily the result of higher returns reserves, promotional allowances and product costs, partially offset by increased royalty revenue and lower distribution costs. The increase in returns reserves was for slow moving Allergen Block products. The increase in promotional allowances was primarily the result of an increase in trade promotion activity behind the Chloraseptic, Little Remedies and Allergen Block products. The increase in product costs was primarily the result of a change in supplier for certain Clear Eyes products. The increase in royalty revenue was the result of royalties received as part of a legal settlement related to our oral care business.

Household Cleaning Segment

Gross profit for the Household Cleaning segment decreased $3.0 million, or 7.2%, during 2010 versus 2009.  As a percent of Household Cleaning revenues, gross profit decreased from 35.8% during 2009 to 34.9% during 2010. The decrease in gross profit percentage was the result of higher promotional allowances across the segment and costs associated with the transition to a new Comet powder supplier, partially offset by decreased product costs for Chore Boy and Comet.

Personal Care Segment

Gross profit for the Personal Care segment increased $567,000, or 14.6%, during 2010 versus 2009.  As a percent of Personal Care revenues, gross profit increased from 38.2% during 2009 to 40.9% during 2010.  The increase in gross profit percentage was due to lower promotional allowances and obsolescence costs for Cutex.

Contribution Margin

		2010 Contribution Margin				%				2009 Contribution Margin				%				Increase (Decrease)				%
OTC Healthcare		$	90,194				50.0			$	83,821				47.4			$	6,373				7.6
Household Cleaning			31,919				28.8				33,933				29.2				(2,014	)			(5.9	)
Personal Care			4,087				37.6				3,420				33.7				667				19.5
		$	126,200				41.8			$	121,174				40.0			$	5,026				4.1

Contribution Margin, defined as gross profit less advertising and promotional expenses, for 2010 increased $5.0 million, or 4.1%, versus 2009. The contribution margin increase was the result of a $6.5 million, or 17.3%, decrease in advertising and promotional spending, partially offset by the decrease in gross profit as previously discussed.  The decrease in advertising and promotional spending was primarily attributable to decreases in media support for both the Over-the-Counter Healthcare and Household Cleaning segments, and market research for the Over-the-Counter Healthcare segment.

Over-the-Counter Healthcare Segment

Contribution margin for the Over-the-Counter Healthcare segment increased $6.4 million, or 7.6%, during 2010 versus 2009.  The contribution margin increase was the result of the increase in gross margin as previously discussed and a $5.5 million, or 18.4%, decrease in advertising and promotional spending. The decrease in advertising and promotional spending was primarily attributable to a decrease in media support for the Allergen Block and Murine Earigate products, partially offset by increased media support behind The Doctor’s Nightguard.

 

-40-

---

Household Cleaning Segment

Contribution margin for the Household Cleaning segment decreased $2.0 million, or 5.9%, during 2010 versus 2009. The contribution margin decrease was the result of the decrease in gross profit as previously discussed, partially offset by a decrease in media support for Comet Mildew Spray Gel.

Personal Care Segment

Contribution margin for the Personal Care segment increased $667,000, or 19.5%, during 2010 versus 2009.  The contribution margin increase was the result of the increase in gross profit as previously discussed and a modest reduction in trade promotion and broker commissions for Cutex.

General and Administrative

General and administrative expenses were $34.2 million for 2010 versus $31.9 million for 2009. The increase in expense was due to a $2.5 million net charge associated with the reduction in workforce and the CEO transition, which took place in our second fiscal quarter, and increased employee incentive compensation expenses, partially offset by a reduction in legal expenses and favorable currency translation costs.

 

Depreciation and Amortization

Depreciation and amortization expense was $10.5 million for 2010 versus $9.4 million for 2009.  Amortization was affected by the transfer of two trademarks in the Household Cleaning segment and one trademark in the Over-the-Counter Healthcare segment, aggregating $45.6 million, from indefinite-lived status to intangibles with finite lives. Commencing April 1, 2009, these intangibles are being amortized to operations over a 20 year estimated useful life.  This increase in amortization expense was partially offset by a reduction in amortization resulting from a trademark that became fully amortized at March 31, 2009, resulting in a net increase in depreciation and amortization expense of $1.1 million for the period.

Impairment of Intangible Assets and Goodwill

During the fourth quarter of 2010, an impairment analysis of intangible assets and goodwill was performed. As a result, a non-cash charge of $2.8 million was recorded in 2010 related to the impairment of goodwill for one of the brands in the Personal Care segment. The impairment charge related to goodwill was the result of the carrying value exceeding the fair market value as a result of distribution losses to private label brands. During 2009, a similar impairment analysis of intangible assets and goodwill was performed.  As a result, non-cash charges were recorded in 2009 related to the impairment of certain intangible assets and goodwill of $58.6 million and $190.7 million, respectively.  The impairment charges related to intangible assets and goodwill were the result of their carrying value exceeding their fair market value as a result of declining sales and current market conditions.  The impairment charges for Over-the-Counter, Household and Personal Care segments were $166.6 million, $81.3 million and $1.4 million, respectively.  No impairment charges were recorded in 2008.

Interest Expense

Net interest expense was $22.9 million during 2010 versus $28.4 million during 2009.  The reduction in interest expense was primarily the result of a lower level of indebtedness combined with a reduction of interest rates on our senior debt.  The average cost of funds decreased from 7.2% for 2009 to 6.5% for 2010 while the average indebtedness decreased from $394.8 million during 2009 to $353.2 million during 2010.

Loss on Extinguishment of Debt

During 2010, the Company refinanced its long-term debt with a new senior credit facility and senior notes.  As a result of the refinancing, the Company incurred $2.7 million of expense related to the extinguished debt.  The expense consisted of a $2.2 million non-cash charge and a $500,000 premium paid to tender bonds.

Income Taxes

The provision for income taxes during 2010 was $21.8 million versus a benefit for income taxes of $9.9 million in 2009.  The effective tax rate was 41.1% during 2010 versus (5.0)% during 2009. The 2010 tax rate reflects the impact of a non-deductible impairment charge to goodwill for one of the brands in the Personal Care segment. In addition, the tax rate reflects the impact of a $930,000 non-cash charge to deferred tax liability as a result of increasing the Company’s future effective tax rate from 37.9% to 38.2%.  The increase in the future effective tax rate is a result of the divestiture of the shampoo business which increases the overall effective state tax rate on continuing operations.  The new effective rate is applicable for tax years starting after March 31, 2010.  The 2009 tax rate includes a tax benefit of $29.4 million related to the impairment charges of intangible assets and goodwill recorded during the period.

-41-

---

 

Fiscal 2009 compared to Fiscal 2008

Revenues

		2009 Revenues				%				2008 Revenues				%				Increase (Decrease)				%
OTC Healthcare		$	176,975				58.4			$	183,692				58.3			$	(6,717	)			(3.7	)
Household Cleaning			116,015				38.3				121,127				38.4				(5,112	)			(4.2	)
Personal Care			10,157				3.3				10,288				3.3				(131	)			(1.3	)
		$	303,147				100.0			$	315,107				100			$	(11,960	)			(3.8	)

Revenues decreased across all reporting segments during fiscal 2009 by an aggregate $12.0 million, or 3.8% compared to 2008.  Revenues from customers outside of North America, which represents 3.6% of total revenues, decreased 16.6% in 2009 compared to 2008.

Over-the-Counter Healthcare Segment

Revenues of the Over-the-Counter Healthcare segment decreased $6.7 million, or 3.7%, during 2009 versus 2008.  Revenue from the launch of the new Allergen Block products, marketed under the Chloraseptic and Little Allergies  trademarks, and revenue increases for Clear Eyes, Little Remedies and New-Skin were more than offset by revenue decreases on our wart care brands, as well as the  Murine Ear, The Doctor’s and Dermoplast brands.   Allergen Block is a new, innovative and non-medicated allergy product targeted toward allergy sufferers looking for an alternative to medicated products.   Clear Eyes revenue increased as a result of increased consumer consumption while Little Remedies revenue increased as a result of the introduction of the Saline Nasal Mist spray, as well as distribution gains and increased consumer consumption of its non-medicated pediatric products.   New-Skin revenue increased as a result of new distribution and pipeline shipments of a new Poison Ivy skin treatment product.  Revenues for the wart care brands, Compound W and Wartner, decreased primarily due to a price reduction taken on the cryogenic products.  This pricing reduction, along with a down-sizing of Compound W Freeze-off, was in response to price reductions taken by a major competitor in the category.  Murine Ear’s revenue decreased as a result of slowing consumer consumption.  Increased competition in the bruxism category resulted in lower sales of The Doctor’s NightGuard Dental Protector while Dermoplast revenue decreased due to timing of shipments of the institutional spray item and discontinuation of a skin treatment product which had limited distribution.

Household Cleaning Segment

Revenues for the Household Cleaning segment decreased $5.1 million, or 4.2%, during 2009 versus 2008.  Revenues for the Comet brand increased slightly during the period primarily as a result of increased sales of Comet Mildew SprayGel.  Comet’s revenue increase was offset by lower revenues from the other two brands in this segment –Spic and Span and Chore Boy.  The decline in Spic and Span’s revenue reflected a decline in consumer consumption while Chore Boy sales declined as a result of weaker consumption and lower shipments to small grocery wholesale accounts.

Personal Care Segment

Revenues of the Personal Care segment decreased $131,000, or 1.3%, during 2009 versus 2008.  Increased revenues for Cutex were offset by declines on all other brands in this segment.  The increase in revenue for Cutex was the result of improving consumer consumption.  The decreases in revenues for the other smaller brands in this segment resulted from lower consumption and distribution losses.

-42-

---

 

Gross Profit

		2009 Gross Profit				%				2008 Gross Profit				%				Increase (Decrease)				%
OTC Healthcare		$	113,516				64.1			$	114,348				62.2			$	(832	)			(0.7	)
Household Cleaning			41,558				35.8				45,668				37.7				(4,110	)			(9.0	)
Personal Care			3,877				38.2				3,280				31.9				597				18.2
		$	158,951				52.4			$	163,296				51.8			$	(4,345	)			(2.7	)

Gross profit for 2009 decreased by $4.3 million, or 2.7%, versus 2008.  As a percent of total revenue, gross profit increased from 51.8% in 2008 to 52.4% in 2009.  The increase in gross profit as a percent of revenues was the result of favorable sales mix, the absence of costs related to the voluntary recall of pediatric cough/cold products, price increases taken on select items, and the benefits of our cost reduction program that was initiated in 2008, partially offset by an increase in promotional allowances and unfavorable foreign currency exchange rates.

Over-the-Counter Healthcare Segment

Gross profit for the Over-the-Counter Healthcare segment decreased $832,000, or 0.7%, during 2009 versus 2008.  As a percent of Over-the-Counter Healthcare revenue, gross profit increased from 62.2% during 2008 to 64.1% during 2009.  The increase in gross profit as a percent of revenues was the result of favorable sales mix toward higher gross margin brands, selling price increases implemented at the end of March 2008, the absence of costs related to the 2008 Little Remedies voluntary recall of medicated pediatric cough/cold products and cost reductions, partially offset by higher promotional allowances.

Household Cleaning Segment

Gross profit for the Household Cleaning segment decreased by $4.1 million, or 9.0%, during 2009 versus 2008.  As a percent of Household Cleaning revenue, gross profit decreased from 37.7% during 2008 to 35.8% during 2009.  The decrease in gross profit percentage was a result of an increase in promotional allowances and higher product costs related to Comet and Spic and Span.

Personal Care Segment

Gross profit for the Personal Care segment increased $597,000, or 18.2%, during 2009 versus 2008.  As a percent of Personal Care revenue, gross profit increased from 31.9% during 2008 to 38.2% during 2009.  The increase in gross profit percentage was due to product cost savings and lower inventory obsolescence costs related to Cutex.

Contribution Margin

		2009 Contribution Margin				%				2008 Contribution Margin				%				Increase (Decrease)				%
OTC Healthcare		$	83,821				47.4			$	88,160				48.0			$	(4,339	)			(4.9	)
Household Cleaning			33,933				29.2				38,185				31.5				(4,252	)			(11.1	)
Personal Care			3,420				33.7				2,708				26.3				712				26.3
		$	121,174				40.0			$	129,053				41.0			$	(7,879	)			(6.1	)

Contribution margin, defined as gross profit less advertising and promotional expenses, decreased by $7.9 million, or 6.1%, for 2009 versus 2008.  The contribution margin decrease was the result of the decrease in gross profit as previously discussed, and an increase of $3.5 million, or 10.3%, in advertising and promotional spending.  The increase in advertising and promotional spending was primarily attributable to introductory media support behind the launch of the two new Allergen Block products in the Over-the-Counter Healthcare segment.

Over-the-Counter Healthcare Segment

Contribution margin for the Over-the-Counter Healthcare segment decreased $4.3 million, or 4.9% during 2009 versus 2008.  The decrease in contribution margin was the result of a decrease in gross profit as previously discussed, coupled with an increase in advertising and promotional spending of $3.5 million, or 13.4%.  An increase in television media support behind the launch of Allergen Block was offset by a decrease in media support for The Doctor’s NightGuard Dental Protector and  Chloraseptic  sore throat products.

-43-

---

Household Cleaning Segment

Contribution margin for the Household Cleaning segment decreased $4.3 million, or 11.1%, during 2009 versus 2008.  The contribution margin decrease was the result of the decrease in gross profit as previously discussed, and an increase in advertising and promotional spending of $142,000 or 1.9%.  The increase was the result of increased television media support behind Comet Mildew SprayGel.

Personal Care Segment

Contribution margin for the Personal Care segment increased $712,000, or 26.3%, during 2009 versus 2008.  The contribution margin increase was primarily the result of the gross profit increase previously discussed and a $115,000, or 20.1%, decrease in advertising and promotional expenses.

General and Administrative

General and administrative expenses were $31.9 million for 2009 versus $31.4 million for 2008.  The increase in G&A was primarily related to an increase in stock-based compensation costs and unfavorable currency translation costs, partially offset by a decrease in legal expenses and elimination of certain employee incentive compensation expenses.  The increase in stock-based compensation resulted from the issuance of options to purchase common stock to members of management in 2009.  While the Company reversed performance-based compensation in each of 2008 and 2009, the vesting of options is not subject to performance measurements, being subject only to time vesting.  The increase in currency translation costs resulted from the strengthening of the Canadian dollar against the United States dollar.  The decrease in legal expenses is due to the absence of arbitration costs in 2009 versus 2008 and a decrease in legal costs related to the defense of certain intellectual property.

Depreciation and Amortization

Depreciation and amortization expense was $9.4 million for 2009 versus $9.2 million for 2008.  The slight increase in amortization of intangible assets is related to licensing rights related to the Allergen Block trademark.

Impairment of Intangible Assets and Goodwill

During 2009, an impairment analysis of intangible assets and goodwill was performed.  As a result, non-cash charges were recorded in 2009 related to the impairment of certain intangible assets and goodwill of $58.6 million and $190.7 million, respectively.  The impairment charges related to intangible assets and goodwill were the result of their carrying value exceeding their fair market value as a result of declining sales and current market conditions.  The impairment charges for Over-the-Counter, Household and Personal Care segments were $166.6 million, $81.3 million and $1.4 million respectively.  No impairment charges were recorded in 2008.

Interest Expense

Net interest expense was $28.4 million during 2009 versus $37.4 million in 2008.  The reduction in interest expense was primarily the result of a lower level of indebtedness combined with a reduction of interest rates on our senior debt.  The average cost of funds decreased from 8.6% for 2008 to 7.2% for 2009, while the average indebtedness decreased from $437.3 million during 2008 to $394.8 million for 2009.

Income Taxes

The benefit for income taxes during 2009 was $9.9 million versus a provision for income taxes of $19.2 million in 2008.  The effective income tax rates were (5.0%) and 37.4% for 2009 and 2008, respectively.  The 2009 tax rate includes a tax benefit of $29.4 million related the impairment charges of intangible assets and goodwill recorded during the period.

-44-

---

 

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, brand acquisitions, working capital and capital expenditures.  During the year ended March 31, 2010, the Company issued $150.0 million of 8.25% senior notes due 2018 and entered into a senior secured term loan facility of $150.0 million maturing 2016. A portion of the proceeds from the preceding transactions were used to purchase, redeem or otherwise retire all of the previously issued senior subordinated notes and to repay all amounts under our former credit facility and terminate the associated credit agreement.

		Year Ended March 31,
(In thousands)		2010				2009				2008
Net cash provided by (used in):
Operating activities		$	59,427			$	66,679			$	44,989
Investing activities			7,320				(4,672	)			(537	)
Financing activities			(60,831	)			(32,904	)			(52,132	)

 

---

Fiscal 2010 compared to Fiscal 2009

Operating Activities

Net cash provided by operating activities was $59.4 million for 2010 compared to $66.7 million for 2009.  The $7.3 million decrease in net cash provided by operating activities was primarily the result of the following:

·	A net cash outflow of $3.8 million related to working capital in 2010 compared to a net cash inflow of $7.9 million related to working capital in 2009 resulted in a $11.7 million decrease in working capital, partially offset by

·

A net increase of $4.5 million in net income plus non-cash expenses in 2010 compared to 2009.

 

The increase in working capital in 2010 was primarily the result of an increase in inventory, due to supplier transitions, and an increase in prepaid taxes.

Consistent with 2009, our cash flow from operations exceeded net income due to the substantial non-cash charges related to depreciation and amortization of intangibles, increases in deferred income tax liabilities resulting from differences in the amortization of intangible assets and goodwill for income tax and financial reporting purposes, the amortization of certain deferred financing costs, stock-based compensation costs, as well as the 2010 loss on extinguishment of debt.

Investing Activities

Net cash provided by investing activities was $7.3 million for 2010 compared to net cash used for investing activities of $4.7 million for 2009.  The net cash provided by investing activities during the year ended March 31, 2010 was primarily due to the divestiture of the shampoo business partially offset by the acquisition of property and equipment.  Net cash used for investing activities during the year ended March 31, 2009 was primarily due to the $4.2 million settlement of a purchase price adjustment associated with the Wartner USA BV acquisition in 2006.  The remainder was for the acquisition of property and equipment.

Financing Activities

Net cash used for financing activities was $60.8 million for 2010 compared to $32.9 million for 2009.  During the year ended March 31, 2010, we repaid $60.8 million of indebtedness with cash generated from operations and the proceeds from the sale of the shampoo business.  On March 24, 2010, we used the proceeds from the issuance of new debt of $296.0 million less $6.6 million of deferred financing costs to retire all of the existing debt, with the exception of $28.1 million which was subsequently retired in April, 2010.  We recorded a loss on the extinguishment of debt in the amount of $2.7 million.  At March 31, 2010, our outstanding indebtedness was $328.1 million compared to $378.3 million at March 31, 2009.

-45-

---

 

Fiscal 2009 compared to Fiscal 2008

Operating Activities

Net cash provided by operating activities was $66.7 million for 2009 compared to $45.0 million for 2008.  The $21.7 million increase in net cash provided by operating activities was primarily the result of the following:

·	A decrease of net income, net of adjustments for the impact of the charge for the impairment of goodwill and intangible assets of $600,000 from $33.9 million for 2008 to $33.3 million for 2009,

·	A change in the components of operating assets and liabilities of $22.1 million as a result of net operating assets and liabilities decreasing by $7.9 million in 2009 compared to an increase of $14.2 million in 2008, and

·	An increase in non-cash expenses of $731,000 from $15.2 million for 2008 to $15.9 million for 2009.

As a result of the late cough/cold season and the timing of our March 2008 price increase, accounts receivable increased $9.1 million at March 31, 2008 versus March 31, 2007, while at March 31, 2009, accounts receivable were $8.2 million less than those reported at March 31, 2008.

Consistent with 2008, our cash flow from operations exceeded net income due to the substantial non-cash charges related to depreciation and amortization of intangibles, increases in deferred income tax liabilities resulting from differences in the amortization of intangible assets and goodwill for income tax and financial reporting purposes, the amortization of certain deferred financing costs and stock-based compensation, as well as the 2009 goodwill and intangible impairments.

Investing Activities

Net cash used for investing activities was $4.7 million for 2009 compared to $537,000 for 2008.  The net cash used for investing activities in 2009 was primarily for the settlement of purchase price contingencies associated with the 2006 acquisition of Wartner USA, B.V., while during 2008, net cash used for investing activities was for the acquisition of property and equipment.

Financing Activities

Net cash used for financing activities was $32.9 million for 2009 compared to $52.1 million for 2008.  Due to the expiration of our prior revolving line of credit, general economic conditions and the state of the credit markets, we limited our debt repayments during the latter half of 2009 to only scheduled maturities until we accumulated an additional $30.0 million in operating funds.  During 2009, the Company repaid $29.3 million of indebtedness in excess of normal maturities with cash generated from operations, while during 2008 such repayments amounted to $48.6 million.  This reduced our outstanding indebtedness to $378.3 million at March 31, 2009 from $463.3 million at March 31, 2007.

Capital Resources

In March and April 2010, the Company retired its Senior Secured Term Loan facility with a maturity date of April 6, 2011 and Senior Subordinated Notes that bore interest at 9.25% with a maturity date of April 15, 2012, and replaced them with Senior Secured Credit Facility with a maturity of April 1, 2016, a Senior Revolving Credit facility with a maturity of April 1, 2015 and Senior Notes that bear interest at 8.25% with a maturity of April 15, 2018.  This debt refinancing improved our liquidity position due to the ability to increase the amount of the Senior Secured Credit Facility, obtaining a revolving line of credit and extending the maturities of our indebtedness.  The new debt also better positions the Company to pursue acquisitions as part of its growth strategy.

We entered into a $150.0 million Senior Secured Credit Facility with a discount to the lenders of $1.8 million and net proceeds of $148.2 million.  The Senior Notes were issued at a aggregate face value of $150.0 million with a discount to bondholders 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 bank arrangers fee and legal advisors of which $6.6 million was capitalized as deferred financing costs and $0.7 million expensed.  The deferred financing costs are being amortized over the term of the loan and notes.

As of March 31, 2010, we had an aggregate of $328.1 million of outstanding indebtedness, which consisted of the following:

·	$150.0 million of borrowings under the Senior Secured Credit Facility;

 

·	$28.1 million of 9.25% Senior Subordinated Notes due 2012, which were redeemed in full on April 15, 2010; and
·	$150.0 million of 8.25% Senior Notes due 2018.

-46-

---

 

The Company had $30.0 million of borrowing capacity under the revolving credit facility at such time, as well as $200.0 million under the Senior Credit Facility.

All loans under the Senior Secured Credit Facility bear interest at floating rates, based on either the prime rate, or at our option, the LIBOR rate, plus an applicable margin.  The LIBOR rate option contains a floor rate of 1.5%.  At March 31, 2010, an aggregate of $150.0 million was outstanding under the Senior Secured Credit Facility at an interest rate of 4.75%.

We use derivative financial instruments to mitigate the impact of changing interest rates associated with our long-term debt obligations.  Although we do not enter into derivative financial instruments for trading purposes, all of our derivatives are straightforward over-the-counter instruments with liquid markets.  The notional, or contractual, amount of our derivative financial instruments is used to measure the amount of interest to be paid or received and does not represent an actual liability.  We account for these financial instruments as cash flow hedges.

In March 2005, we purchased interest rate cap agreements with a total notional amount of $180.0 million, the terms of which were as follows:

Notional Amount				Interest Rate Cap Percentage			Expiration Date
(In millions)
$	50.0				3.25	%	May 31, 2006
	80.0				3.50		May 30, 2007
	50.0				3.75		May 30, 2008

In February 2008, we entered into an interest rate swap agreement in the notional amount of $175.0 million, decreasing to $125.0 million at March 26, 2009 to replace and supplement the interest rate cap agreement that expired on May 30, 2008.  Under that swap agreement, we agreed to pay a fixed rate of 2.88% while receiving a variable rate based on LIBOR.  The agreement terminated and was settled in full on March 26, 2010.  The fair value of the interest rate swap agreement is included in either other assets or current liabilities at the balance sheet date.  At March 31, 2010, the Company did not participate in an interest rate swap and at March 31, 2009 the fair value of the interest rate swap was $2.2 million, which was included in other current liabilities.

The Senior Secured Credit Facility 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, as well as the Indenture governing the Senior Notes, contain provisions that accelerate our indebtedness on certain changes in control and restrict us from undertaking specified corporate actions, including asset dispositions, acquisitions, payment of dividends and other specified payments, repurchasing our equity securities in the public markets, incurrence of indebtedness, creation of liens, making loans and investments and transactions with affiliates.  Specifically, we must:

·

Have a leverage ratio of less than 4.30 to 1.0 for the quarter ended March 31, 2010, decreasing over time to 3.50 to 1.0 for the quarter ending March 31, 2014, and remaining level thereafter, and

·

Have an interest coverage ratio of greater than 2.75 to 1.0 for the quarter ended March 31, 2010, increasing over time to 3.25 to 1.0 for the quarter ending March 31, 2013, and remaining level thereafter.

At March 31, 2010, we were in compliance with the applicable financial and restrictive covenants under the Senior Credit Facility and the Indenture governing the Senior Notes. Additionally, management anticipates that in the normal course of operations, the Company will be in compliance with the financial and restrictive covenants during the ensuing year.

At March 31, 2010, we had $150.0 million outstanding under the Senior Secured Credit Facility which matures in April 2016.  We are obligated to make quarterly principal payments on the loan equal to $375,000, representing 0.25% of the initial principal amount of the term loan.  We also have the ability to borrow an additional $30.0 million under a revolving credit facility and $200.0 million pursuant to the Senior Secured Credit Facility pursuant to an “accordion” feature.

We made repayments against outstanding indebtedness of $60.5 million in excess of scheduled maturities through March 31, 2010 compared to $29.3 million during 2009.  During 2009, we built a cash reserve in excess of $30.0 million to provide adequate liquidity given the expiration of our prior revolving credit facility.  

 

-47-

---

Commitments

As of March 31, 2010, we had ongoing commitments under various contractual and commercial obligations as follows:

 

		Payments Due by Period
(In Millions)						Less than				1 to 3				4 to 5				After 5
Contractual Obligations		Total				1 Year				Years				Years				Years
Long-term debt		$	328.1			$	29.6			$	3.0			$	3.0			$	292.5
Interest on long-term debt (1)			141.5				19.7				39.0				38.8				44.0
Purchase obligations:
Inventory costs (2)			53.0				38.2				7.9				2.2				4.7
Other costs (3)			1.3				1.3				--				--				--
Operating leases			2.7				0.7				1.2				0.8				--
Total contractual cash obligations		$	526.6			$	89.5			$	51.1			$	44.8			$	341.2

 

---

(1)

Represents the estimated interest obligations on the outstanding balances of the Term Loan Facility and Senior Notes, together, assuming scheduled principal payments (based on the terms of the loan agreements) are made and assuming a weighted average interest rate of 6.5%.  Estimated interest obligations would be different under different assumptions regarding interest rates or timing of principal payments.  If interest rates on borrowings with variable rates increased by 1%, interest expense would increase approximately $1.5 million, in the first year.

(2)	Purchase obligations for inventory costs are legally binding commitments for projected inventory requirements to be utilized during the normal course of our operations.

(3)

Purchase obligations for other costs are legally binding commitments for marketing, advertising and capital expenditures.  Activity costs for molds and equipment to be paid, based solely on a per unit basis without any deadlines for final payment, have been excluded from the table because we are unable to determine the time period over which such activity costs will be paid.

 

-48-

---

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 the Company takes 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.

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), including, without limitation, information within Management’s Discussion and Analysis of Financial Condition and Results of Operations.  The following cautionary statements are being made pursuant to the provisions of the PSLRA and with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA.  Although we believe that our expectations are based on reasonable assumptions, actual results may differ materially from those in the forward-looking statements.

Forward-looking statements speak only as of the date of this Annual Report on Form 10-K.  Except as required under federal securities laws and the rules and regulations of the SEC, we do not intend to update any forward-looking statements to reflect events or circumstances arising after the date of this Annual Report on Form 10-K, whether as a result of new information, future events or otherwise.  As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements included in this Annual Report on Form 10-K or that may be made elsewhere from time to time by, or on behalf of, us.  All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

These forward-looking statements generally can be identified by the use of words or phrases such as “believe,” “anticipate,” “expect,” “estimate,” “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 Item 1A. of this Annual Report on Form 10-K.  In addition, our expectations or beliefs concerning future events involve risks and uncertainties, including, without limitation:

·	General economic conditions affecting our products and their respective markets,

 

·	Our ability to increase organic growth via new product introductions or line extensions,

 

·	The high level of competition in our industry and markets (including, without limitation, vendor and SKU rationalization and expansion of private label of product offerings),

 

·	Our ability to invest in research and development,

 

·	Our dependence on a limited number of customers for a large portion of our sales,

 

·	Disruptions in our distribution center,

 

·	Acquisitions, dispositions or other strategic transactions diverting managerial resources, or incurrence of additional liabilities or integration problems associated with such transactions,

 

·	Changing consumer trends or pricing pressures which may cause us to lower our prices,

 

·	Increases in supplier prices and transportation and fuel charges,

 

-49-

---

 

·	Our ability to protect our intellectual property rights,

 

·	Shortages of supply of sourced goods or interruptions in the manufacturing of our products,

 

·

Our level of indebtedness, and ability to service our debt,

 

·

Any adverse judgments rendered in any pending litigation or arbitration,

 

·

Our ability to obtain additional financing, and

·	The restrictions imposed by our Senior Credit Facility and the indenture on our operations.

 

 

ITEM 7A.

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 March 31, 2010, we had variable rate debt of approximately $150.0 million under 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 year ending March 31, 2011 of approximately $1.5 million.

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   

The financial statements and supplementary data required by this Item are described in Part IV, Item 15 of this Annual Report on Form 10-K and are presented beginning on page F-1.

ITEM 9A.

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 (the “Exchange Act”) as of March 31, 2010.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2010, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Management’s Annual Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act).  Internal control over financial reporting is a process designed by, or under the supervision of the Chief Executive Officer and Chief Financial Officer and effected by the Board of Directors, Management and other personnel, to provide reasonable assurance regarding reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable, not absolute, assurance that the control objectives will be met.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate over time.

Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2010.  In making its assessment, management has used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (the “COSO Criteria”).

Based on our assessment utilizing the COSO Criteria, management has concluded that the Company’s internal control over financial reporting was effective as of March 31, 2010.

 

PricewaterhouseCoopers LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting, which appears at page F-1 and is incorporated in Part IV, Item 15 of this Annual Report on Form 10-K.

 

Changes in Internal Control over Financial Reporting

There have been no changes during the quarter ended March 31, 2010 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

ITEM 9B.

OTHER INFORMATION

                  

None.

-51-

---

Part III

 

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

                     

 

ITEM 11.

EXECUTIVE COMPENSATION

                    

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required to be disclosed by this Item will be contained in the Company’s 2010 Proxy Statement, which is incorporated herein by reference.

 

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

                     

Information required to be disclosed by this Item will be contained in the Company’s 2010 Proxy Statement, which is incorporated herein by reference.

 

-52-

---

 

 

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

                                      

(a) (1)

Financial Statements

 

The financial statements and financial statement schedules listed below are set forth at pages F-1 through F-33 of this Annual Report on Form 10-K, which are incorporated herein to this Item as if copied verbatim.

Prestige Brands Holdings, Inc.

Report of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP

Consolidated Statements of Operations for each of the three years in the period ended March 31, 2010

Consolidated Balance Sheets at March 31, 2010 and 2009

Consolidated Statements of Stockholders’ Equity and Comprehensive Income for each of the three years in the period ended March 31, 2010

Consolidated Statements of Cash Flows for each of the three years in the period ended March 31, 2010

Notes to Consolidated Financial Statements

Schedule II—Valuation and Qualifying Accounts

                  

(a) (2)

Financial Statement Schedules

 

Schedule II - Valuation and Qualifying Accounts listed in (a)(1) above is incorporated herein by reference as if copied verbatim.  Schedules other than those listed in the preceding sentence have been omitted as they are either not required, not applicable, or the information has otherwise been shown in the consolidated financial statements or notes thereto.

 

(b)

Exhibits

         

See Exhibit Index immediately following the financial statements and financial statement schedules of this Annual Report on Form 10-K.

 

-53-

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	PRESTIGE BRANDS HOLDINGS, INC.
	By:	/s/ PETER J. ANDERSON
	Name:    Peter J. Anderson
	Title:      Chief Financial Officer
	Date:      June 11, 2010

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature		Title		Date
/s/ MATTHEW M. MANNELLY		President and Chief Executive Officer		June 11, 2010
Matthew M. Mannelly		(Principal Executive Officer)
/s/ PETER J. ANDERSON		Chief Financial Officer		June 11, 2010
Peter J. Anderson		(Principal Financial Officer and
		Principal Accounting Officer)
/s/ JOHN E. BYOM		Director		June 11, 2010
John E. Byom
/s/ GARY E. COSTLEY		Director		June 11, 2010
Gary E. Costley
/s/ CHARLES J. HINKATY		Director		June 11, 2010
Charles J. Hinkaty
/s/ PATRICK M. LONERGAN		Director		June 11, 2010
Patrick M. Lonergan

-54-

---

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Prestige Brands Holdings, Inc.

Audited Financial Statements

March 31, 2010

Report of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP		F-1
Consolidated Statements of Operations for each of the three years in the period ended March 31, 2010		F-2
Consolidated Balance Sheets at March 31, 2010 and 2009		F-3
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for each of the three years in the period ended March 31, 2010		F-4
Consolidated Statements of Cash Flows for each of the three years in the period ended March 31, 2010		F-6
Notes to Consolidated Financial Statements		F-7
Schedule II—Valuation and Qualifying Accounts		F-33

-55-

---

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders

Prestige Brands Holdings, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and comprehensive income and of cash flows present fairly, in all material respects, the financial position of Prestige Brands Holdings, Inc. and its subsidiaries at March 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2010 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A.  Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Salt Lake City, Utah

June 11, 2010

 

F-1

---

 

Prestige Brands Holdings, Inc.

Consolidated Statements of Operations

		Year Ended March 31,
(In thousands, except per share data)		2010				2009				2008
Revenues
Net sales		$	296,922			$	300,937			$	313,125
Other revenues			5,101				2,210				1,982
Total revenues			302,023				303,147				315,107
Cost of Sales
Cost of sales (exclusive of depreciation shown below)			144,587				144,196				151,811
Gross profit			157,436				158,951				163,296
Operating Expenses
Advertising and promotion			31,236				37,777				34,243
General and administrative			34,195				31,888				31,414
Depreciation and amortization			10,552				9,423				9,219
Impairment of goodwill and intangible assets			2,751				249,285				--
Total operating expenses			78,734				328,373				74,876
Operating income (loss)			78,702				(169,422)				88,420
Other (income) expense
Interest income			(1	)			(143	)			(675	)
Interest expense			22,936				28,579				38,068
Loss on extinguishment of debt			2,656				--				--
Miscellaneous			--				--				(187)
Total other (income) expense			25,591				28,436				37,206
Income (loss) from continuing operations before income taxes			53,111				(197,858)				51,214
Provision (benefit) for income taxes			21,849				(9,905)				19,168
Income (loss) from continuing operations			31,262				(187,953)				32,046
Discontinued Operations
Income from discontinued operations, net of income tax			696				1,177				1,873
Gain on sale of discontinued operations, net of income tax			157				--				--
Net income (loss)		$	32,115			$	(186,776)			$	33,919
Basic earnings (loss) per share
Income (loss) from continuing operations		$	0.63			$	(3.76	)		$	0.64
Net Income (Loss)		$	0.64			$	(3.74	)		$	0.68
Diluted earnings (loss) per share
Income (loss) from continuing operations		$	0.62			$	(3.76	)		$	0.64
Net Income (Loss)		$	0.64			$	(3.74	)		$	0.68
Weighted average shares outstanding:
Basic			50,013				49,935				49,751
Diluted			50,085				49,935				50,039

See accompanying notes.

 

F-2

---

 

Prestige Brands Holdings, Inc.

Consolidated Balance Sheets

(In thousands)		March 31,
Assets		2010				2009
Current assets
Cash and cash equivalents		$	41,097			$	35,181
Accounts receivable			30,621				36,025
Inventories			29,162				25,939
Deferred income tax assets			6,353				4,022
Prepaid expenses and other current assets			4,917				1,358
Current assets of discontinued operations			--				1,038
Total current assets			112,150				103,563
Property and equipment			1,396				1,367
Goodwill			111,489				114,240
Intangible assets			559,229				569,137
Other long-term assets			7,148				4,602
Long-term assets of discontinued operations			--				8,472
Total Assets		$	791,412			$	801,381
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	12,771			$	15,898
Accrued interest payable			1,561				5,371
Other accrued liabilities			11,733				9,407
Current portion of long-term debt			29,587				3,550
Total current liabilities			55,652				34,226
Long-term debt
Principal amount			298,500				374,787
Less unamortized discount			(3,943)				--
Long-term debt, net of unamortized discount			294,557				374,787
Deferred income tax liabilities			112,144				97,983
Total Liabilities			462,353				506,996
Commitments and Contingencies – Note 16
Stockholders’ Equity
Preferred stock - $0.01 par value
Authorized – 5,000 shares
Issued and outstanding – None
Common stock - $0.01 par value
Authorized – 250,000 shares
Issued – 50,154 shares at March 31, 2010 and 50,060 at March 31, 2009			502				501
Additional paid-in capital			384,027				382,803
Treasury stock, at cost – 124 shares at March 31, 2010 and 2009, respectively			(63)				(63)
Accumulated other comprehensive income (loss)			--				(1,334)
Retained earnings (accumulated deficit)			(55,407)				(87,522)
Total Stockholders’ Equity			329,059				294,385
Total Liabilities and Stockholders’ Equity		$	791,412			$	801,381

 

See accompanying notes.

 

F-3

---

Prestige Brands Holdings, Inc.

Consolidated Statement of Changes in Stockholders’

Equity and Comprehensive Income

		Common Stock                                         Par     Shares                          Value								Additional Paid-in Capital				Treasury Stock       Shares              Amount								Accumulated Other Comprehensive Income				Retained Earnings				Totals
(In thousands)
Balances at March 31, 2007			50,060			$	501			$	379,225				55			$	(40	)		$	313		$		65,335			$	445,334
Stock-based compensation			--				--				1,139				--				--				--				--				1,139
Purchase of common stock for treasury			--				--				--				4				(7	)			--				--				(7	)
Components of comprehensive income
Net income			--				--				--				--				--				--				33,919				33,919
Amortization of interest rate caps reclassified into earnings, net of income tax expense of $228			--				--				--				--				--				373				--				373
Unrealized loss on interest rate caps, net of income tax benefit of $458			--				--				--				--				--				(738	)			--				(738	)
Unrealized loss on interest rate swap, net of income tax benefit of $580			--				--				--				--				--				(947	)			--				(947)
Total comprehensive income			--				--				--				--				--				--				--				32,607
Balances at March 31, 2008			50,060			$	501			$	380,364				59			$	(47	)		$	(999	)		$	99,254			$	479,073
Stock-based compensation			--				--				2,439				--				--				--				--				2,439
Purchase of common stock for treasury			--				--				--				65				(16	)			--				--				(16	)
Components of comprehensive income
Net income			--				--				--				--				--				--				(186,776	)			(186,776	)
Amortization of interest rate caps reclassified into earnings, net of income tax expense of $32			--				--				--				--				--				53				--				53
Unrealized loss on interest rate caps, net of income tax benefit of $238			--				--				--				--				--				(388	)			--				(388)
Total comprehensive income			--				--				--				--				--				--				--				(187,111)
Balances at March 31, 2009			50,060			$	501			$	382,803				124		$		(63)			$	(1,334	)		$	(87,522	)		$	294,385

 

See accompanying notes.

 

F-4

---

Prestige Brands Holdings, Inc.

Consolidated Statement of Changes in Stockholders’

Equity and Comprehensive Income

		Common Stock                                      Par Shares                       Value								Additional Paid-in Capital				Treasury Stock     Shares                   Amount								Accumulated Other Comprehensive Income				Retained Earnings				Totals
Balances at March 31, 2009			50,060			$	501			$	382,803				124			$	(63	)		$	(1,334	)		$	(87,522	)		$	294,385
Stock-based compensation			94				1				1,224				--				--				--				--				1,225
Components of comprehensive income
Net Income			--				--				--				--				--				--				32,115				32,115
Amortization of interest rate caps reclassified into earnings, net of income tax expense of $818			--				--				--				--				--				1,334				--				1,334
Total comprehensive income			--				--				--				--				--				--				--				33,449
Balances at March 31, 2010			50,154			$	502			$	384,027				124			$	(63	)		$	--			$	(55,407	)		$	329,059

See accompanying notes.

 

F-5

---

 

Prestige Brands Holdings, Inc.

Consolidated Statements of Cash Flows

		Year Ended March 31,
		2010				2009				2008
(In thousands)
Operating Activities
Net income (loss)		$	32,115			$	(186,776)			$	33,919
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			11,450				11,219				11,014
Gain on sale of discontinued operations			(253	)			--				--
Deferred income taxes			11,012				(19,955	)			10,096
Amortization of deferred financing costs			1,926				2,233				3,007
Impairment of goodwill and intangible assets			2,751				249,590				--
Stock-based compensation costs			2,085				2,439				1,139
Loss on extinguishment of debt			2,166				--				--
Changes in operating assets and liabilities, net of effects of purchases of businesses
Accounts receivable			6,404				8,193				(9,052	)
Inventories			(3,351)				2,719				477
Prepaid expenses and other current assets			(3,559)				458				(381)
Accounts payable			(3,127)				(2,265)				(975)
Accrued liabilities			(192)				(1,176)				(4,255)
Net cash provided by operating activities			59,427				66,679				44,989
Investing Activities
Purchases of equipment			(673	)			(481	)			(488	)
Proceeds from sale of discontinued operations			7,993				--				--
Purchases of intangible assets			--				--				(33)
Business acquisition purchase price adjustments			--				(4,191)				(16)
Net cash provided by (used for) investing activities			7,320				(4,672)				(537)
Financing Activities
Proceeds from issuance of debt			296,046				--				--
Payment of deferred financing costs			(6,627	)			--				--
Repayment of long-term debt			(350,250	)			(32,888)				(52,125)
Purchase of common stock for treasury			--				(16)				(7)
Net cash used for financing activities			(60,831)				(32,904)				(52,132)
Increase (decrease) in cash			5,916				29,103				(7,680	)
Cash - beginning of year			35,181				6,078				13,758
Cash - end of year		$	41,097			$	35,181			$	6,078
Interest paid		$	24,820			$	26,745			$	36,840
Income taxes paid		$	15,494			$	9,844			$	9,490

 

See accompanying notes.

 

F-6

---

Prestige Brands Holdings, Inc.

1.	Business and Basis of Presentation

Nature of Business

Prestige Brands Holdings, Inc. (referred to herein as the “Company” which reference shall, unless the context requires otherwise, be deemed to refer to Prestige Brands Holdings, Inc. and all of its direct or indirect wholly-owned subsidiaries on a consolidated basis) is engaged in the marketing, sales and distribution of over-the-counter healthcare, personal care and household cleaning brands to mass merchandisers, drug stores, supermarkets, club and dollar stores primarily in the United States, Canada and certain other international markets.  Prestige Brands Holdings, Inc. is a holding company with no assets or operations and is also the parent guarantor of the senior credit facility and the senior notes more fully described in Note 10 to the consolidated financial statements.

Basis of Presentation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States.  All significant intercompany transactions and balances have been eliminated in consolidation.  The Company’s fiscal year ends on March 31st of each year.  References in these consolidated financial statements or notes to a year (e.g., “2010”) mean the Company’s fiscal year ended on March 31st of that year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.  Although these estimates are based on the Company’s knowledge of current events and actions that the Company may undertake in the future, actual results could differ from those estimates.  As discussed below, the Company’s most significant estimates include those made in connection with the valuation of intangible assets, sales returns and allowances, trade promotional allowances and inventory obsolescence.

 

Cash and Cash Equivalents

The Company considers all short-term deposits and investments with original maturities of three months or less to be cash equivalents.  Substantially all of the Company’s cash is held by a large regional bank with headquarters in California.  The Company does not believe that, as a result of this concentration, it is subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships.

Accounts Receivable

The Company extends non-interest-bearing trade credit to its customers in the ordinary course of business.  The Company maintains an allowance for doubtful accounts receivable based upon historical collection experience and expected collectability of the accounts receivable.  In an effort to reduce credit risk, the Company (i) has established credit limits for all of its customer relationships, (ii) performs ongoing credit evaluations of customers’ financial condition, (iii) monitors the payment history and aging of customers’ receivables, and (iv) monitors open orders against an individual customer’s outstanding receivable balance.

Inventories

Inventories are stated at the lower of cost or fair value, where cost is determined by using the first-in, first-out method.  The Company provides an allowance for slow moving and obsolete inventory, whereby it reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value.  Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and packaging obsolescence.

 

F-7

---

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:

		Years
Machinery		5
Computer equipment		3
Furniture and fixtures		7

Leasehold improvements are amortized over the lesser of the term of the lease or 5 years.

Expenditures for maintenance and repairs are charged to expense as incurred.  When an asset is sold or otherwise disposed of, the cost and associated accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized in the consolidated statement of operations.

 

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  An impairment loss is recognized if the carrying amount of the asset exceeds its fair value.

Goodwill

The excess of the purchase price over the fair market value of assets acquired and liabilities assumed in purchase business combinations is classified as goodwill.  The Company does not amortize goodwill, but performs impairment tests of the carrying value at least annually in the fourth fiscal quarter of each year.  The Company tests goodwill for impairment at the reporting unit “brand” level which is one level below the operating segment level.

Intangible Assets

Intangible assets, which are composed primarily of trademarks, are stated at cost less accumulated amortization.  For intangible assets with finite lives, amortization is computed on the straight-line method over estimated useful lives ranging from 3 to 30 years.

Indefinite-lived intangible assets are tested for impairment at least annually in the fourth fiscal quarter; however, at each reporting period an evaluation is made to determine whether events and circumstances continue to support an indefinite useful life.  Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts exceed their fair values and may not be recoverable.  An impairment loss is recognized if the carrying amount of the asset exceeds its fair value.

Deferred Financing Costs

The Company has incurred debt origination costs in connection with the issuance of long-term debt.  These costs are capitalized as deferred financing costs and amortized using the straight-line method, which approximates the effective interest method, over the term of the related debt.

Revenue Recognition

Revenues are recognized when the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the selling price is fixed or determinable; (iii) the product has been shipped and the customer takes ownership and assumes the risk of loss; and (iv) collection of the resulting receivable is reasonably assured.  The Company has determined that these criteria are met and the transfer of the risk of loss generally occurs when product is received by the customer and, accordingly, recognizes revenue at that time.  Provision is made for estimated discounts related to customer payment terms and estimated product returns at the time of sale based on the Company’s historical experience.

As is customary in the consumer products industry, the Company participates in the promotional programs of its customers to enhance the sale of its products.  The cost of these promotional programs varies based on the actual number of units sold during a finite period of time.  These promotional programs consist of direct-to-consumer incentives such as coupons and temporary price reductions, as well as incentives to the Company’s customers, such as slotting fees and cooperative advertising.  Estimates of the costs of these promotional programs are based on (i) historical sales experience, (ii) the current offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel.  At the completion of the promotional program, the estimated amounts are adjusted to actual results.

F-8

---

Due to the nature of the consumer products industry, the Company is required to estimate future product returns.  Accordingly, the Company records an estimate of product returns concurrent with recording sales which is made after analyzing (i) historical return rates, (ii) current economic trends, (iii) changes in customer demand, (iv) product acceptance, (v) seasonality of the Company’s product offerings, and (vi) the impact of changes in product formulation, packaging and advertising.

Cost of Sales

Cost of sales includes product costs, warehousing costs, inbound and outbound shipping costs, and handling and storage costs.  Shipping, warehousing and handling costs were $21.4 million for 2010, $22.5 million for 2009 and $23.2 for 2008.

Advertising and Promotion Costs

Advertising and promotion costs are expensed as incurred.  Slotting fees associated with products are recognized as a reduction of sales.  Under slotting arrangements, the retailers allow the Company’s products to be placed on the stores’ shelves in exchange for such fees.  

Stock-based Compensation

The Company recognizes stock-based compensation by measuring the cost of services to be rendered based on the grant-date fair value of the equity award.  Compensation expense is to be recognized over the period an employee is required to provide service in exchange for the award, generally referred to as the requisite service period.

Income Taxes

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.

The Taxes Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  As a result, the Company has applied a more-likely-than-not recognition threshold for all tax uncertainties.  The guidance only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the various taxing authorities.

The Company is subject to taxation in the United States and various state and foreign jurisdictions.  

The Company classifies penalties and interest related to unrecognized tax benefits as income tax expense in the Statements of Operations.

Derivative Instruments

Companies are required to recognize derivative instruments as either assets or liabilities in the consolidated Balance Sheets at fair value.  The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.  For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign operation.

The Company has designated its derivative financial instruments as cash flow hedges because they hedge exposure to variability in expected future cash flows that are attributable to interest rate risk.  For these hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same line item (principally interest expense) associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings.  Any ineffective portion of the gain or loss on the derivative instruments is recorded in results of operations immediately.  Cash flows from these instruments are classified as operating activities.

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.

F-9

---

 

Reclassifications

Certain prior period financial statement amounts have been reclassified to conform to the current period presentation.

Recently Issued Accounting Standards

In April 2010, the FASB issued authoritative guidance to provide clarification regarding the classification requirements of a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade. The guidance states that such an award should not be considered to contain a market, performance, or service condition and should not be classified as a liability if it otherwise qualifies as an equity classification. This guidance is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In May 2009, the FASB issued guidance regarding subsequent events, which was subsequently updated in February 2010. This guidance established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  In particular, this guidance set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009, and was therefore adopted by the Company for the second quarter 2009 reporting.  The adoption did not have a significant impact on the subsequent events that the Company reports, either through recognition or disclosure, in the consolidated financial statements.  In February 2010, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance.  This amendment was effective immediately and the Company therefore removed the disclosure in this Annual Report.

In January 2010, the FASB issued authoritative guidance requiring new disclosures and clarifying some existing disclosure requirements about fair value measurement.  Under the new guidance, a reporting entity should (a) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers, and (b) present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs.  This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The new guidance requires only enhanced disclosures and the Company does not expect this guidance to have a material impact on its consolidated financial statements.

In August 2009, the FASB issued authoritative guidance to provide clarification on measuring liabilities at fair value when a quoted price in an active market is not available.  In these circumstances, a valuation technique should be applied that uses either the quote of the liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance, such as an income approach or a market approach.  The new guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  This guidance became effective beginning with the third quarter of the Company’s 2010 fiscal year; however, the adoption of the new guidance did not have a material impact on the Company’s financial position, results from operations or cash flows.

In June 2009, the FASB issued authoritative guidance to eliminate the exception to consolidate a qualifying special-purpose entity, change the approach to determining the primary beneficiary of a variable interest entity and require companies to more frequently re-assess whether they must consolidate variable interest entities.  Under the new guidance, the primary beneficiary of a variable interest entity is identified qualitatively as the enterprise that has both (a) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity.  This guidance becomes effective for the Company’s fiscal 2011 year-end and interim reporting periods.  The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In June 2009, the FASB established the FASB ASC as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with generally accepted accounting principles.  The new guidance explicitly recognizes rules and interpretive releases of the SEC under federal securities laws as authoritative GAAP for SEC registrants.  The new guidance became effective for our financial statements issued for the three and six month periods ending on September 30, 2009.

F-10

---

The Derivatives and Hedging Topic of the FASB ASC was amended to require a company with derivative instruments to disclose information to enable users of the financial statements to understand (i) how and why the company uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  Accordingly, the Derivatives and Hedging Topic now requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.  The amendments to the Derivatives and Hedging Topic were effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  The implementation of the Derivatives and Hedging guidance required enhanced disclosures of derivative instruments and the Company’s hedging activities and did not have any impact on the Company’s financial position, results from operations or cash flows.

Management has reviewed and continues to monitor the actions of the various financial and regulatory reporting agencies and is currently not aware of any other pronouncement that could have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 2.           Discontinued Operations and Sale of Certain of Assets

In October 2009, the Company sold certain assets related to the shampoo brands previously included in its Personal Care products segment to an unrelated third party.  In accordance with the Discontinued Operations Topic of the ASC, the Company reclassified the related assets as held for sale in the consolidated balance sheets as of March 31, 2009 and reclassified the related operating results as discontinued in the consolidated financial statements and related notes for all periods presented.  The Company recognized a gain of $253,000 on a pre-tax basis and $157,000 net of tax effects on the sale in the quarter ended December 31, 2009.

The following table presents the assets related to the discontinued operations as of March 31, 2009 (in thousands):

Inventory		$	1,038
Intangible assets			8,472
Total assets held for sale		$	9,510

The following table summarizes the results of discontinued operations (in thousands):

		Year Ended March 31,
		2010				2009				2008
Components of Income
Revenues		$	5,053			$	9,568			$	11,496
Income before income taxes			1,121				1,896				2,994

 

The total sale price for the assets was $9 million, with $8 million received upon closing, and the remaining $1 million to be received on the first anniversary of the closing.

3.	Acquisition of Businesses

Acquisition of Wartner USA B.V.

On September 21, 2006, the Company completed the acquisition of the ownership interests of Wartner USA B.V., the owner of the Wartner brand of over-the-counter wart treatment products.  The Company expects that the Wartner brand, which is the #3 brand in the United States over-the-counter wart treatment category, along with the acquired technology, will continue to enhance the Company’s leadership in the category.  Additionally, the Company believes that the brand will continue to benefit from a targeted advertising and marketing program, as well as the Company’s business model of outsourcing manufacturing and the elimination of redundant operations.  The results from operations of the Wartner brand have been included within the Company’s consolidated financial statements as a component of the Over-the-Counter Healthcare segment commencing September 21, 2006.

F-11

---

 

The purchase price of the ownership interests was approximately $31.2 million, including fees and expenses of the acquisition of $216,000 and the assumption of approximately $5.0 million of contingent payments, with an originally estimated fair value of $3.8 million, owed to the former owner of Wartner through 2011.  The Company funded the cash acquisition price from operating cash flows.  During 2009, the Company paid the former owner $4.0 million in full satisfaction of all obligations due to such former owner.

The following table summarizes the fair values of the assets acquired and the liabilities assumed at the date of acquisition.

(In thousands)
Inventory		$	769
Intangible assets			29,600
Goodwill			11,746
Accrued liabilities			(3,854	)
Deferred tax liabilities			(7,000	)
		$	31,261

The amount allocated to intangible assets of $29.6 million includes $17.8 million related to the Wartner brand trademark which the Company estimates to have a useful life of 20 years, as well as $11.8 million related to a patent estimated to have a useful life of 14 years.  Goodwill resulting from this transaction was $11.7 million, inclusive of a deferred income tax liability recorded for the difference between the assigned values of assets acquired and liabilities assumed, and their respective taxes bases.  It is estimated that of such amount, approximately $4.7 million will be deductible for income tax purposes.

4.	Accounts Receivable

Accounts receivable consist of the following (in thousands):

		March 31,
		2010				2009
Trade accounts receivable		$	35,527			$	37,521
Other receivables			1,588				1,081
			37,115				38,602
Less allowances for discounts, returns and     uncollectible accounts			(6,494	)			(2,577	)
		$	30,621			$	36,025

5.	Inventories

Inventories consist of the following (in thousands):

		March 31,
		2010				2009
Packaging and raw materials		$	2,037			$	1,955
Finished goods			27,125				23,984
		$	29,162			$	25,939

Inventories are shown net of allowances for obsolete and slow moving inventory of $2.0 million and $1.4 million at March 31, 2010 and 2009, respectively.

 

F-12

---

6.	Property and Equipment

Property and equipment consist of the following (in thousands):

		March 31,
		2010				2009
Machinery		$	1,620			$	1,556
Computer equipment			1,570				1,021
Furniture and fixtures			239				239
Leasehold improvements			418				357
			3,847				3,173
Accumulated depreciation			(2,451	)			(1,806	)
		$	1,396			$	1,367

At March 31, 2010, we had relationships with over 40 third-party manufacturers.  Of those, we had long-term contracts with 20 manufacturers that produced items that accounted for approximately 68.7% of our gross sales for 2010 compared to 18 manufacturers with long-term contracts that produced approximately 64.0% of gross sales in 2009.  The fact that we do not have long-term contracts with certain manufacturers means that they could cease manufacturing these 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.

F-28

---

 

18.	Business Segments

Segment information has been prepared in accordance with Segment Topic of the FASB ASC. The Company’s operating and reportable segments consist of (i) Over-the-Counter Healthcare, (ii) Household Cleaning and (iii) Personal Care.

There were no inter-segment sales or transfers during any of the periods presented.  The Company evaluates the performance of its operating segments and allocates resources to them based primarily on contribution margin.  

The table below summarizes information about the Company’s operating and reportable segments.

		Year Ended March 31, 2010
		Over-the- Counter				Household				Personal
		Healthcare				Cleaning				Care				Consolidated
(In thousands)
Net sales		$	177,313			$	108,797			$	10,812			$	296,922
Other revenues			3,150				1,899				52				5,101
Total revenues			180,463				110,696				10,864				302,023
Cost of sales			66,049				72,118				6,420				144,587
Gross profit			114,414				38,578				4,444				157,436
Advertising and promotion			24,220				6,659				357				31,236
Contribution margin		$	90,194			$	31,919			$	4,087				126,200
Other operating expenses															44,747
Impairment of goodwill															2,751
Operating income															78,702
Other expenses															25,591
Provision for income taxes															21,849
Income from continuing operations															31,262
Income from discontinued operations, net of income tax															696
Gain on sale of discontinued operations, net of income tax															157
Net income														$	32,115

		Year Ended March 31, 2009
		Over-the- Counter				Household				Personal
		Healthcare				Cleaning				Care				Consolidated
(In thousands)
Net sales		$	176,878			$	113,923			$	10,136			$	300,937
Other revenues			97				2,092				21				2,210
Total revenues			176,975				116,015				10,157				303,147
Cost of sales			63,459				74,457				6,280				144,196
Gross profit			113,516				41,558				3,877				158,951
Advertising and promotion			29,695				7,625				457				37,777
Contribution margin		$	83,821			$	33,933			$	3,420				121,174
Other operating expenses															41,311
Impairment of goodwill and intangibles															249,285
Operating loss															(169,422)
Other expenses															28,436
Income tax benefit															(9,905)
Loss from continuing operations															(187,953)
Income from discontinued operations, net of tax															1,177
Net loss														$	(186,776)

F-29

---

 

		Year Ended March 31, 2008
		Over-the- Counter				Household				Personal
		Healthcare				Cleaning				Care				Consolidated
(In thousands)
Net sales		$	183,641			$	119,224			$	10,260			$	313,125
Other revenues			51				1,903				28				1,982
Total revenues			183,692				121,127				10,288				315,107
Cost of sales			69,344				75,459				7,008				151,811
Gross profit			114,348				45,668				3,280				163,296
Advertising and promotion			26,188				7,483				572				34,243
Contribution margin		$	88,160			$	38,185			$	2,708				129,053
Other operating expenses															40,633
Operating income															88,420
Other expenses															37,206
Provision for income taxes															19,168
Income from continuing operations															32,046
Income from discontinued operations, net of income tax															1,873
Net income														$	33,919

During 2010, 2009 and 2008, approximately 95.8%, 96.4% and 95.9% of the Company’s sales were made to customers in the United States and Canada, respectively.  Other than the United States, no individual geographical area accounted for more than 10% of net sales in any of the periods presented.  At March 31, 2010, substantially all of the Company’s long-term assets were located in the United States of America and have been allocated to the operating segments as follows:

		Over-the- Counter				Household				Personal
(In thousands)		Healthcare				Cleaning				Care				Consolidated
Goodwill		$	104,100			$	7,389			$	--			$	111,489
Intangible assets
Indefinite lived			334,750				119,821				--				454,571
Finite lived			65,961				33,143				5,554				104,658
			400,711				152,964				5,554				559,229
		$	504,811			$	160,353			$	5,554			$	670,718

F-30

---

19.	Unaudited Quarterly Financial Information

Unaudited quarterly financial information for 2010 and 2009 is as follows:

Year Ended March 31, 2010

		Quarterly Period Ended
(In thousands, except for per share data)		June 30, 2009				September 30, 2009				December 31, 2009				March 31, 2010
Total revenues		$	71,012			$	84,181			$	75,448			$	71,382
Cost of sales			33,181				39,847				35,641				35,918
Gross profit			37,831				44,334				39,807				35,464
Operating expenses
Advertising and promotion			8,765				9,782				6,099				6,590
General and administrative			8,195				10,481				7,411				8,108
Depreciation and amortization			2,345				2,841				2,596				2,770
Impairment of goodwill			--				--				--				2,751
			19,305				23,104				16,106				20,219
Operating income			18,526				21,230				23,701				15,245
Net interest expense			5,653				5,642				5,558				6,082
Loss on extinguishment of debt			--				--				--				2,656
Income from continuing operations before income taxes			12,873				15,588				18,143				6,507
Provision for income taxes			4,879				5,908				7,807				3,255
Income from continuing operations			7,994				9,680				10,336				3,252
Discontinued Operations
Income from discontinued operations, net of income tax			331				243				87				35
Gain on sale of discontinued operations, net of income tax			--				--				157				--
Net income		$	8,325			$	9,923			$	10,580			$	3,287
Basic earnings per share:
Income from continuing operations		$	0.16			$	0.19			$	0.21			$	0.07
Net income		$	0.17			$	0.20			$	0.21			$	0.07
Diluted earnings per share:
Income from continuing operations		$	0.16			$	0.19			$	0.21			$	0.06
Net income		$	0.17			$	0.20			$	0.21			$	0.07
Weighted average shares outstanding:
Basic			49,982				50,012				50,030				50,030
Diluted			50,095				50,055				50,074				50,105

F-31

---

 

Year Ended March 31, 2009

		Quarterly Period Ended
(In thousands, except for per share data)		June 30, 2008				September 30, 2008				December 31, 2008				March 31, 2009
Total revenues		$	70,997			$	85,540			$	77,966			$	68,644
Cost of sales			32,907				40,402				36,480				34,407
Gross profit			38,090				45,138				41,486				34,237
Operating expenses
Advertising and promotion			7,236				13,543				11,349				5,649
General and administrative			7,973				9,363				8,311				6,241
Depreciation and amortization			2,308				2,308				2,311				2,496
Impairment of goodwill and intangible assets			--				--				--				249,285
			17,517				25,214				21,971				263,671
Operating income (loss)			20,573				19,924				19,515				(229,434)
Net interest expense			8,683				6,779				7,051				5,923
Income (loss) from continuing operations before income taxes			11,890				13,145				12,464				(235,357)
Provision (benefit) for income taxes			4,506				4,982				4,724				(24,117)
Income (loss) from continuing operations			7,384				8,163				7,740				(211,240)
Discontinued Operations
Income from discontinued operations, net of income tax			397				359				278				143
Net income (loss)			7,781				8,522				8,018				(211,097)
Basic earnings (loss) per share:
Income (loss) from continuing operations		$	0.15			$	0.16			$	0.15			$	(4.23)
Net income (loss)		$	0.16			$	0.17			$	0.16			$	(4.22)
Diluted earnings (loss) per share:
Income (loss) from continuing operations		$	0.15			$	0.16			$	0.15			$	(4.23)
Net income (loss)		$	0.16			$	0.17			$	0.16			$	(4.22)
Weighted average shares outstanding:
Basic			49,880				49,924				49,960				49,976
Diluted			50,035				50,037				50,040				49,976

 

F-32

---

 

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)		Balance at Beginning of Year				Amounts Charged to Expense								Deductions				Other					Balance at End of Year
Year Ended March 31, 2010
Reserves for sales returns and allowance		$	2,457			$	20,042							$	(16,278	)		$	--				$	6,221
Reserves for trade promotions			2,440				20,362								(20,751	)			--					2,051
Reserves for consumer coupon redemptions			297				1,281								(1,315	)			--					263
Allowance for doubtful accounts			120				200								(47	)			--					273
Allowance for inventory obsolescence			1,392				1,743								(1,125	)			--					2,010
Year Ended March 31, 2009
Reserves for sales returns and allowance		$	2,052			$	14,086							$	(13,681	)		$	--				$	2,457
Reserves for trade promotions			1,867				18,277								(17,704	)			--					2,440
Reserves for consumer coupon redemptions			215				1,480								(1,398	)			--					297
Allowance for doubtful accounts			25				130								(35	)			--					120
Allowance for inventory obsolescence			1,445				2,215								(2,268	)			--					1,392
Year Ended March 31, 2008
Reserves for sales returns and allowance		$	1,753			$	18,785		(1)					$	(18,486	)		$	--				$	2,052
Reserves for trade promotions			2,161				3,074								(3,368	)			--					1,867
Reserves for consumer coupon redemptions			401				1,926								(2,112	)			--					215
Allowance for doubtful accounts			35				124								(134	)			--					25
Allowance for inventory obsolescence			1,854				1,404								(1,813	)			--					1,445

---

(1)

The Company increased its allowance for sales returns by $2.2 million as a result of the voluntary withdrawal from the marketplace of two medicated pediatric cough and cold products marketed under the  Little Remedies  brand.  This action was part of an industry-wide voluntary withdrawal of these items pending the final results of an FDA safety and efficacy review.

F-33

---

 

EXHIBIT INDEX

                               

Exhibit No.		Description
3.1		Amended and Restated Certificate of Incorporation of Prestige Brands Holdings, Inc. (filed as Exhibit 3.1 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on February 8, 2005).+
3.2		Amended and Restated Bylaws of Prestige Brands Holdings, Inc., as amended  (filed as Exhibit 3.2 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on November 6, 2009).+
4.1		Form of stock certificate for common stock (filed as Exhibit 4.1 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on January 26, 2005).+
4.2		Indenture, dated as of March 24, 2010, by and among Prestige Brands, Inc., each Guarantor listed on the signature pages thereto, and U.S. Bank National Association, as trustee.*
4.3		Form of 8¼% Senior Note due 2018 (contained in Exhibit 4.2 to this Annual Report on Form 10-K).*
4.4		Indenture, dated April 6, 2004, among Prestige Brands, Inc., each Guarantor thereto and U.S. Bank National Association, as Trustee (filed as Exhibit 4.1 to Prestige Brands, Inc.’s Form S-4 filed on July 6, 2004).+
4.5		Form of 9¼% Senior Subordinated Note due 2012 (contained in Exhibit 4.4 to this Annual Report on Form 10-K).+
4.6		Supplemental Indenture, dated as of October 6, 2004, among Vetco, Inc., Prestige Brands, Inc. and U.S. Bank, National Association (filed as Exhibit 4.1 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on February 9, 2007).+
4.7		Second Supplemental Indenture, dated as of December 19, 2006, by and among Prestige Brands, Inc., U.S. Bank, National Association, Prestige Brands Holdings, Inc., Dental Concepts LLC and Prestige International Holdings, LLC (filed as Exhibit 4.2 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on February 9, 2007).+
4.8		Third Supplemental Indenture, dated as of February 22, 2008, by and among Prestige Brands, Inc., U.S. Bank, National Association and Prestige Services Corp.*
4.9		Fourth Supplemental Indenture, dated as of March 24, 2010, by and among Prestige Brands, Inc., the Guarantors party thereto and U.S. Bank, National Association.*
10.1		Credit Agreement, dated as of March 24, 2010, among Prestige Brands, Inc., Prestige Brands Holdings, Inc., the Lenders and Issuers parties thereto, Bank of America, N.A., as administrative agent for the Lenders and the Issuers and collateral agent for the Secured Parties, and Deutsche Bank Securities Inc., as syndication agent.*
10.2		Pledge and Security Agreement, dated as of March 24, 2010, by Prestige Brands, Inc. and each of the other entities listed on the signature pages thereof in favor of Bank of America, N.A., as administrative agent for the Lenders and the Issuers and collateral agent for the Secured Parties.*
10.3		Guaranty, dated as of March 24, 2010, by Prestige Brands Holdings, Inc., and each of the other entities listed on the signature pages thereof in favor of the Administrative Agent, and each other Agent, Lender, Issuer and each other holder of an Obligation.*
10.4		Purchase Agreement, dated as of March 10, 2010, by and among Prestige Brands, Inc., each Guarantor listed on the signature pages thereto, Banc of America Securities LLC and Deutsche Bank Securities Inc.*
10.5		Registration Rights Agreement, dated as of March 24, 2010, by and among Prestige Brands, Inc., each of the other entities listed on the signature pages thereof, Banc of America Securities LLC and Deutsche Bank Securities Inc.*
10.6		Executive Employment Agreement, dated as of September 2, 2009, by and between Prestige Brands Holdings, Inc. and Matthew M. Mannelly (filed as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on November 6, 2009).+@

 

---

10.7		Amended and Restated Employment Agreement, dated as of January 1, 2009, by and between Prestige Brands Holdings, Inc. and Mark Pettie (amended and restated solely for IRC 409A compliance purposes which amendments were not material to the prior employment agreement) (filed as Exhibit 10.13 to Prestige Brands Holdings, Inc.’s Form 10-K filed on June 15, 2009).+@
10.8		Form of Amended and Restated Senior Management Agreement, dated as of January 28, 2005, by and among Prestige International Holdings, LLC, Prestige Brands Holdings, Inc., Prestige Brands, Inc., and Peter J. Anderson (filed as Exhibit 10.29.7 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on January 26, 2005).+@

10.9		Executive Employment Agreement, dated as of January 17, 2006, between Prestige Brands Holdings, Inc. and Charles N. Jolly (filed as Exhibit 10.35 to Prestige Brands Holdings, Inc.’s Form 10-K filed on June 14, 2006).+@
10.10		Letter Agreement between Prestige Brands Holdings, Inc. and James E. Kelly (filed as Exhibit 10.17 to Prestige Brands Holdings, Inc.’s Form 10-K filed on June 14, 2007).+@
10.11		Executive Employment Agreement, dated as of August 21, 2006, between Prestige Brands Holdings, Inc. and Jean A. Boyko (filed as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on November 9, 2006).+@
10.12		Executive Employment Agreement, dated as of October 1, 2007, between Prestige Brands Holdings, Inc. and John Parkinson (filed as Exhibit 10.3 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on February 8, 2008).+@
10.13		Executive Employment Agreement, dated as of October 1, 2007, between Prestige Brands Holdings, Inc. and David Talbert.*@
10.14		Executive Employment Agreement, dated as of October 1, 2007, between Prestige Brands Holdings, Inc. and Lieven Nuyttens.*@
10.15		Executive Employment Agreement, dated as of March 31, 2010, between Prestige Brands Holdings, Inc. and Eric S. Klee.*@
10.16		Executive Employment Agreement, dated as of April 19, 2010, between Prestige Brands Holdings, Inc. and Timothy Connors.*@
10.17		Prestige Brands Holdings, Inc. 2005 Long-Term Equity Incentive Plan (filed as Exhibit 10.38 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on January 26, 2005).+#
10.18		Form of Restricted Stock Grant Agreement (filed as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on August 9, 2005).+#
10.19		Form of Nonqualified Stock Option Agreement (filed as Exhibit 10.28 to Prestige Brands Holdings, Inc.’s Form 10-K filed on June 14, 2007).+#
10.20		Form of Award Agreement for Restricted Stock Units (filed as Exhibit 10.24 to Prestige Brands Holdings, Inc.’s Form 10-K filed on June 15, 2009).+#
10.21		Form of Director Indemnification Agreement (filed as Exhibit 10.25 to Prestige Brands Holdings, Inc.’s Form 10-K filed on June 15, 2009).+@
10.22		Form of Officer Indemnification Agreement (filed as Exhibit 10.26 to Prestige Brands Holdings, Inc.’s Form 10-K filed on June 15, 2009).+@
10.23		Contract Manufacturing Agreement, dated February 1, 2001, among The Procter & Gamble Manufacturing Company, P&G International Operations SA, Prestige Brands International, Inc. and Prestige Brands International (Canada) Corp. (filed as Exhibit 10.31 to Prestige Brands, Inc.’s Form S-4/A filed on August 4, 2004).+ †
10.24		Patent and Technology License Agreement, dated October 2, 2001, between The Procter & Gamble Company and Prestige Brands International, Inc. (filed as Exhibit 10.29 to Prestige Brands, Inc.’s Form S-4/A filed on August 19, 2004).+ †
10.25		Amendment No. 4 and Restatement of Contract Manufacturing Agreement, dated May 1, 2002, by and between The Procter & Gamble Company and Prestige Brands International, Inc. (filed as Exhibit 10.33 to Prestige Brands, Inc.’s Form S-4/A filed on August 4, 2004).+ †

 

---

10.26		Amendment No. 1 dated April 30, 2003 to the Patent and Technology License Agreement, dated October 2, 2001, between The Procter & Gamble Company and Prestige Brands International, Inc. (filed as Exhibit 10.30 to Prestige Brands, Inc.’s Form S-4/A filed on August 19, 2004).+
10.27		Trademark License and Option to Purchase Agreement, dated September 8, 2005, by and among The Procter & Gamble Company and Prestige Brands Holdings, Inc. (filed as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 8-K filed on September 12, 2005).+
10.28		Exclusive Supply Agreement, dated as of September 18, 2006, among Medtech Products Inc., Pharmacare Limited, Prestige Brands Holdings, Inc. and Aspen Pharmacare Holdings Limited (filed as Exhibit 10.2 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on November 9, 2006).+

10.29			Contract Manufacturing Agreement, dated December 21, 2007, between Medtech Products Inc. and Pharmaspray B.V. (filed as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on February 8, 2008).+
10.30			Contract Manufacturing Agreement, dated December 21, 2007, between Medtech Products Inc. and Pharmaspray B.V. (filed as Exhibit 10.2 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on February 8, 2008).+
10.31			Supply Agreement, dated May 15, 2008, by and between Fitzpatrick Bros., Inc. and The Spic and Span Company (filed as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on August 11, 2008).+†
21.1			Subsidiaries of the Registrant.*
23.1			Consent of PricewaterhouseCoopers LLP.*
31.1			Certification of Principal Executive Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2			Certification of Principal Financial Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1			Certification of Principal Executive Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2

Certification of Principal Financial Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

*	Filed herewith.
†	Certain confidential portions have been omitted pursuant to a confidential treatment request separately filed with the Securities and Exchange Commission.
+	Incorporated herein by reference.
@	Represents a management contract.
#	Represents a compensatory plan.

 

Option of Holder to Elect Purchase

 

If you want to elect to have this Note purchased by the Company pursuant to Section 4.12 or 4.18 of the Indenture, check the box below:

 

o           Section 4.12

 

o           Section 4.18

 

If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.12 or Section 4.18 of the Indenture, state the amount you elect to have purchased:  $_____________________

 

Date:_______________________________

Your Signature:________________________________

(Sign exactly as your name appears on the Note)

 

Tax Identification No.:  

____________________________________________

 

 

SIGNATURE GUARANTEE:

________________________________________

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

 

A-9

---

Assignment Form

 

To assign this Note, fill in the form below:

 

(I) or (we) assign and transfer this Note to

 

---

(Insert assignee’s social security or other tax I.D. no.)

---

---

---

---

(Print or type assignee’s name, address and zip code)

 

and irrevocably appoint

as agent to transfer this Note on the books of the Company.  The agent may substitute another to act for him.

 

---

 

Date:  ______________

 

	Your Signature:
	(Sign exactly as your name appears on the face of this Note)
	Signature Guarantee:

                                                                

 

 

A-10

---

                                                               

SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE

 

The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

 

Date of Exchange		Amount of decrease in Principal Amount of this Global Note		Amount of increase in Principal Amount of this Global Note		Principal Amount of this Global Note following such decrease (or increase)		Signature of authorized signatory of Trustee or Note Custodian

A-11

---

EXHIBIT B

 

FORM OF CERTIFICATE OF TRANSFER

 

Prestige Brands, Inc.

90 North Broadway

Irvington, New York  10533

Attention:  Peter Anderson

Telecopier No.:  (914) 524-6821

 

U.S. Bank National Association

60 Livingston Avenue

St. Paul, Minnesota  55107

Attention:  Raymond S. Haverstock

Telecopier No.:  (651) 495-8097

 

Re:           8.25% Senior Notes due 2018

 

Reference is hereby made to the Indenture, dated as of March 24, 2010 (the “Indenture”), among Prestige Brands, Inc., as issuer (the “Company”), the Guarantors party thereto and U.S. Bank National Association, as trustee.  Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.

 

___________________ (the “Transferor”) owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the “Transfer”), to  ___________________________ (the “Transferee”), as further specified in Annex A hereto.  In connection with the Transfer, the Transferor hereby certifies that:

 

[CHECK ALL THAT APPLY]

 

 

 

 

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-123487) of Prestige Brands Holdings, Inc. of our report dated June 11, 2010 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Annual Report on Form 10-K.

 

/s/ PricewaterhouseCoopers LLP

Salt Lake City, Utah

June 11, 2010