10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2015
OR
[    ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____
Commission File Number: 001-32433
 

PRESTIGE BRANDS HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
 
20-1297589
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
660 White Plains Road
Tarrytown, New York 10591
(Address of principal executive offices) (Zip Code)
 
(914) 524-6800
(Registrant's telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  
Large accelerated filer x
 
 
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company o
                                                                     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of January 29, 2016, there were 52,754,256 shares of common stock outstanding.




Prestige Brands Holdings, Inc.
Form 10-Q
Index

PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
Consolidated Statements of Income and Comprehensive Income for the three and nine months ended December 31, 2015 and 2014 (unaudited)
 
Consolidated Balance Sheets as of December 31, 2015 (unaudited) and March 31, 2015
 
Consolidated Statements of Cash Flows for the nine months ended December 31, 2015 and 2014 (unaudited)
 
Notes to Consolidated Financial Statements (unaudited)
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 6.
Exhibits
 
 
 
 
Signatures
 
 
 

Trademarks and Trade Names
Trademarks and trade names used in this Quarterly Report on Form 10-Q are the property of Prestige Brands Holdings, Inc. or its subsidiaries, as the case may be.  We have italicized our trademarks or trade names when they appear in this Quarterly Report on Form 10-Q.

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PART I
FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

Prestige Brands Holdings, Inc.
Consolidated Statements of Income and Comprehensive Income
(Unaudited)
 
Three Months Ended
December 31,
 
Nine Months Ended December 31,
(In thousands, except per share data)
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
Net sales
$
199,485

 
$
196,435

 
$
596,034

 
$
520,981

Other revenues
710

 
1,171

 
2,358

 
3,596

Total revenues
200,195

 
197,606

 
598,392

 
524,577

 
 
 
 
 
 
 
 
Cost of Sales
 

 
 

 
 

 
 

Cost of sales (exclusive of depreciation shown below)
83,411

 
85,861

 
249,432

 
228,424

Gross profit
116,784

 
111,745

 
348,960

 
296,153

 
 
 
 
 
 
 
 
Operating Expenses
 

 
 

 
 

 
 

Advertising and promotion
29,935

 
30,144

 
84,250

 
74,284

General and administrative
18,135

 
19,454

 
52,186

 
63,588

Depreciation and amortization
6,071

 
5,154

 
17,478

 
11,967

Total operating expenses
54,141

 
54,752

 
153,914

 
149,839

Operating income
62,643

 
56,993

 
195,046

 
146,314

 
 
 
 
 
 
 
 
Other (income) expense
 

 
 

 
 

 
 

Interest income
(31
)
 
(20
)
 
(91
)
 
(67
)
Interest expense
19,493

 
24,612

 
62,104

 
57,505

Gain on sale of asset

 
(1,133
)
 

 
(1,133
)
Loss on extinguishment of debt

 

 
451

 

Total other expense
19,462

 
23,459

 
62,464

 
56,305

Income before income taxes
43,181

 
33,534

 
132,582

 
90,009

Provision for income taxes
15,186

 
12,241

 
46,611

 
35,521

Net income
$
27,995

 
$
21,293

 
$
85,971

 
$
54,488

 
 
 
 
 
 
 
 
Earnings per share:
 

 
 

 
 

 
 

Basic
$
0.53

 
$
0.41

 
$
1.63

 
$
1.05

Diluted
$
0.53

 
$
0.40

 
$
1.62

 
$
1.04

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 

 
 

 
 

 
 

Basic
52,824

 
52,278

 
52,727

 
52,110

Diluted
53,203

 
52,730

 
53,106

 
52,622

 
 
 
 
 
 
 
 
Comprehensive income, net of tax:
 
 
 
 
 
 
 
Currency translation adjustments
4,922

 
(8,779
)
 
(6,562
)
 
(16,883
)
Total other comprehensive loss
4,922

 
(8,779
)
 
(6,562
)
 
(16,883
)
Comprehensive income
$
32,917

 
$
12,514

 
$
79,409

 
$
37,605

See accompanying notes.

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Prestige Brands Holdings, Inc.
Consolidated Balance Sheets
(Unaudited)

(In thousands)
December 31,
2015
 
March 31,
2015
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
48,973

 
$
21,318

Accounts receivable, net
85,085

 
87,858

Inventories
80,671

 
74,000

Deferred income tax assets
8,406

 
8,097

Prepaid expenses and other current assets
5,020

 
10,434

Total current assets
228,155

 
201,707

 
 
 
 
Property and equipment, net
12,302

 
13,744

Goodwill
282,679

 
290,651

Intangible assets, net
2,116,511

 
2,134,700

Other long-term assets
1,352

 
1,165

Total Assets
$
2,640,999

 
$
2,641,967

 
 
 
 
Liabilities and Stockholders' Equity
 

 
 

Current liabilities
 

 
 

Accounts payable
$
28,539

 
$
46,115

Accrued interest payable
9,359

 
11,974

Other accrued liabilities
48,823

 
40,948

Total current liabilities
86,721

 
99,037

 
 
 
 
Long-term debt
 
 
 
Principal amount
1,477,500

 
1,593,600

Less unamortized debt costs
(30,468
)
 
(32,327
)
Long-term debt, net
1,447,032

 
1,561,273

 
 
 
 
Deferred income tax liabilities
383,485

 
351,569

Other long-term liabilities
2,823

 
2,464

Total Liabilities
1,920,061

 
2,014,343

 
 
 
 
Commitments and Contingencies — Note 16


 


 
 
 
 
Stockholders' Equity
 

 
 

Preferred stock - $0.01 par value
 

 
 

Authorized - 5,000 shares
 

 
 

Issued and outstanding - None

 

Common stock - $0.01 par value
 

 
 

Authorized - 250,000 shares
 

 
 

Issued - 53,059 shares at December 31, 2015 and 52,562 shares at March 31, 2015
530

 
525

Additional paid-in capital
442,127

 
426,584

Treasury stock, at cost - 306 shares at December 31, 2015 and 266 shares at March 31, 2015
(5,121
)
 
(3,478
)
Accumulated other comprehensive loss, net of tax
(29,974
)
 
(23,412
)
Retained earnings
313,376

 
227,405

Total Stockholders' Equity
720,938

 
627,624

Total Liabilities and Stockholders' Equity
$
2,640,999

 
$
2,641,967

 See accompanying notes.

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Prestige Brands Holdings, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended December 31,
(In thousands)
2015
 
2014
Operating Activities
 
 
 
Net income
$
85,971

 
$
54,488

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 
Depreciation and amortization
17,478

 
11,967

Gain on sale of asset

 
(1,133
)
Deferred income taxes
31,591

 
19,517

Amortization of debt origination costs
5,433

 
5,904

Stock-based compensation costs
7,098

 
4,919

Loss on extinguishment of debt
451

 

Lease termination costs

 
1,125

(Gain) loss on sale or disposal of property and equipment
(36
)
 
321

Changes in operating assets and liabilities, net of effects from acquisitions
 

 
 
Accounts receivable
2,453

 
2,113

Inventories
(7,114
)
 
14,478

Prepaid expenses and other current assets
5,472

 
7,598

Accounts payable
(17,553
)
 
(25,452
)
Accrued liabilities
5,207

 
8,297

Net cash provided by operating activities
136,451

 
104,142

 
 
 
 
Investing Activities
 

 
 

Purchases of property and equipment
(2,540
)
 
(3,700
)
Proceeds from the sale of property and equipment
344

 

Proceeds from sale of business

 
18,500

Proceeds from sale of asset

 
10,000

Proceeds from Insight Pharmaceuticals working capital arbitration settlement
7,237

 

Acquisition of Insight Pharmaceuticals, less cash acquired

 
(749,666
)
Acquisition of the Hydralyte brand

 
(77,991
)
Net cash provided by (used in) investing activities
5,041

 
(802,857
)
 
 
 
 
Financing Activities
 

 
 

Term loan borrowings

 
720,000

Term loan repayments
(50,000
)
 
(80,000
)
Borrowings under revolving credit agreement
15,000

 
124,600

Repayments under revolving credit agreement
(81,100
)
 
(58,500
)
Payments of debt origination costs
(4,211
)
 
(16,072
)
Proceeds from exercise of stock options
6,600

 
3,654

Proceeds from restricted stock exercises
544

 
57

Excess tax benefits from share-based awards
1,850

 
1,030

Fair value of shares surrendered as payment of tax withholding
(2,187
)
 
(1,688
)
Net cash (used in) provided by financing activities
(113,504
)
 
693,081

 
 
 
 
Effects of exchange rate changes on cash and cash equivalents
(333
)
 
(746
)
Increase (decrease) in cash and cash equivalents
27,655

 
(6,380
)
Cash and cash equivalents - beginning of period
21,318

 
28,331

Cash and cash equivalents - end of period
$
48,973

 
$
21,951

 
 
 
 
Interest paid
$
58,867

 
$
49,435

Income taxes paid
$
9,014

 
$
7,135

See accompanying notes.

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Prestige Brands Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)

1.
Business and Basis of Presentation

Nature of Business
Prestige Brands Holdings, Inc. (referred to herein as the “Company” or “we”, which reference shall, unless the context requires otherwise, be deemed to refer to Prestige Brands Holdings, Inc. and all of its direct and indirect 100% owned subsidiaries on a consolidated basis) is engaged in the marketing, sales and distribution of over-the-counter (“OTC”) healthcare and household cleaning products to mass merchandisers, drug stores, supermarkets, and club, convenience, and dollar stores in North America (the United States and Canada) and in Australia and certain other international markets.  Prestige Brands Holdings, Inc. is a holding company with no operations and is also the parent guarantor of the senior credit facility and the senior notes described in Note 9 to these Consolidated Financial Statements.

Basis of Presentation
The unaudited Consolidated Financial Statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  All significant intercompany transactions and balances have been eliminated in these Consolidated Financial Statements.  In the opinion of management, these Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, that are considered necessary for a fair statement of our consolidated financial position, results of operations and cash flows for the interim periods presented.  Our fiscal year ends on March 31st of each year. References in these Consolidated Financial Statements or related notes to a year (e.g., “2016”) mean our fiscal year ending or ended on March 31st of that year. Operating results for the three and nine months ended December 31, 2015 are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2016.  These unaudited Consolidated Financial Statements and related notes should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015.

Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.  Although these estimates are based on our knowledge of current events and actions that we may undertake in the future, actual results could differ materially from those estimates.  As discussed below, our most significant estimates include those made in connection with the valuation of intangible assets, stock-based compensation, fair value of debt, sales returns and allowances, trade promotional allowances, inventory obsolescence, and the recognition of income taxes using an estimated annual effective tax rate.
 
Cash and Cash Equivalents
We consider all short-term deposits and investments with original maturities of three months or less to be cash equivalents.  Substantially all of our cash is held by a large regional bank with headquarters in California.  We do not believe that, as a result of this concentration, we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. The Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation (“SIPC”) insure these balances up to $250,000 and $500,000, with a $250,000 limit for cash, respectively. Substantially all of the Company's cash balances at December 31, 2015 are uninsured.

Accounts Receivable
We extend non-interest-bearing trade credit to our customers in the ordinary course of business.  We maintain an allowance for doubtful accounts receivable based upon historical collection experience and expected collectability of the accounts receivable.  In an effort to reduce credit risk, we (i) have established credit limits for all of our customer relationships, (ii) perform ongoing credit evaluations of customers' financial condition, (iii) monitor the payment history and aging of customers' receivables, and (iv) monitor open orders against an individual customer's outstanding receivable balance.

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

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Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method based on the following estimated useful lives:
 
 
Years
Machinery
5
Computer equipment and software
3
Furniture and fixtures
7
Leasehold improvements
*
* Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful life of the related asset.

Expenditures for maintenance and repairs are charged to expense as incurred.  When an asset is sold or otherwise disposed of, we remove the cost and associated accumulated depreciation from the respective accounts and recognize the resulting gain or loss in the Consolidated Statements of Income and Comprehensive Income.
 
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  An impairment loss is recognized if the carrying amount of the asset exceeds its fair value.

Goodwill
The excess of the purchase price over the fair market value of assets acquired and liabilities assumed in business combinations is classified as goodwill.  Goodwill is not amortized, although the carrying value is tested for impairment at least annually in the fourth fiscal quarter of each year, or more frequently if events or changes in circumstances indicate that the asset may be impaired.  Goodwill is tested for impairment at the product group level, which is one level below the operating segment level.

Intangible Assets
Intangible assets, which are comprised primarily of trademarks, are stated at cost less accumulated amortization.  For intangible assets with finite lives, amortization is computed using the straight-line method over estimated useful lives, typically ranging from 10 to 30 years.

Indefinite-lived intangible assets are tested for impairment at least annually in the fourth fiscal quarter of each year, or more frequently if events or changes in circumstances indicate that the asset may be impaired.  Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may exceed their fair values and may not be recoverable. An impairment loss is recognized if the carrying amount of the asset exceeds its fair value.

Debt Origination Costs
We have incurred debt origination costs in connection with the issuance of long-term debt.  Certain of these costs were recorded as deferred financing costs within long-term assets and others were recorded as a reduction to our long-term debt. These costs are amortized over the term of the related debt, using the effective interest method for our term loan facility and the straight-line method for our revolving credit facility. Effective April 1, 2015, in accordance with new accounting standards discussed below, we began reporting the costs related to our senior notes and the term loan facility as a reduction of debt. We continue to report the costs associated with our revolving credit facility as a long-term asset.

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

As is customary in the consumer products industry, we participate in the promotional programs of our customers to enhance the sale of our products.  The cost of these promotional programs varies based on the actual number of units sold during a finite period of time.  These promotional programs consist of direct-to-consumer incentives, such as coupons and temporary price reductions, as well as incentives to our customers, such as allowances for new distribution, including slotting fees, and cooperative advertising.  Estimates of the costs of these promotional programs are based on (i) historical sales experience, (ii) the current promotional offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/

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marketing personnel. We recognize the cost of such sales incentives by recording an estimate of such cost as a reduction of revenue, at the later of (a) the date the related revenue is recognized, or (b) the date when a particular sales incentive is offered.  At the completion of a promotional program, the estimated amounts are adjusted to actual results.

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

Cost of Sales
Cost of sales includes product costs, warehousing costs, inbound and outbound shipping costs, and handling and storage costs.  Shipping, warehousing and handling costs were $10.1 million and $29.2 million for the three and nine months ended December 31, 2015, respectively, and $9.2 million and $26.3 million for the three and nine months ended December 31, 2014, respectively.

Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred.  Allowances for new distribution costs associated with products, including slotting fees, are recognized as a reduction of sales.  Under these new distribution arrangements, the retailers allow our products to be placed on the stores' shelves in exchange for such fees.

Stock-based Compensation
We recognize stock-based compensation by measuring the cost of services to be rendered based on the grant-date fair value of the equity award.  Compensation expense is recognized over the period a grantee is required to provide service in exchange for the award, generally referred to as the requisite service period.

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

The Income Taxes topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The guidance only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the various taxing authorities. As a result, we have applied such guidance in determining our tax uncertainties.

We are subject to taxation in the United States and various state and foreign jurisdictions.  

We classify penalties and interest related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Income and Comprehensive Income.

Earnings Per Share
Basic earnings per share is calculated based on income available to common stockholders and the weighted-average number of shares outstanding during the reporting period.  Diluted earnings per share is calculated based on income available to common stockholders and the weighted-average number of common and potential common shares outstanding during the reporting period.  Potential common shares, composed of the incremental common shares issuable upon the exercise of outstanding stock options, and unvested restricted stock units, are included in the earnings per share calculation to the extent that they are dilutive.

Recently Issued Accounting Standards
In January 2016, the FASB issued Accounting Standards Update ("ASU") 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. For public business entities, the amendments in this update include the elimination of the requirement to disclose the method(s) and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, the requirement to use the exit price notion when measuring fair value of financial instruments for disclosure purposes, the requirement to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, the requirement for separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or accompanying notes to the financial statements, and the amendments clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-

- 7-



for-sale securities in combination with the entity's other deferred tax assets. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of the amendments in this update is not permitted, except that early application by public business entities to financial statements of fiscal years or interim periods that have not yet been issued or, by all other entities, that have not yet been made available for issuance are permitted as of the beginning of the fiscal year of adoption for the following amendment: An entity should present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. An entity should apply the amendments to this update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
 
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. For public business entities, the amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted for all entities as of the beginning of interim or annual reporting periods. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.

In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. To simplify the accounting for adjustment made to provisional amounts recognized in a business combination, the amendments in this update eliminate the requirement to retrospectively account for those adjustments. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The adoption of ASU 2015-16 is not expected to have a material impact on our Consolidated Financial Statements.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards, under which an entity should measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. As permitted by the guidance, we have early adopted these provisions, as of the beginning of our first quarter of 2016. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, in August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, stating that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. As a result, we reclassified $27.4 million of deferred financing costs as of March 31, 2015 from other long-term assets, and such costs are now presented as a direct deduction from the long-term debt liability.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. Update 2015-02 amended the process that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material impact on our Consolidated Financial Statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items. The amendments in this update eliminate the concept of extraordinary items in Subtopic 225-20, which required entities to consider whether an underlying event or transaction is extraordinary. However, the amendments retain the presentation and disclosure guidance for items that are unusual in nature or occur infrequently. The amendments in this update are effective for fiscal years, and interim periods within

- 8-



those years, beginning after December 15, 2015. The adoption of ASU 2015-01 is not expected to have a material impact on our Consolidated Financial Statements.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This amendment states that in connection with preparing financial statements for each annual and interim reporting period, an entity's management should evaluate whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued, when applicable). The amendments in this update are effective for the annual reporting period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on our Consolidated Financial Statements.

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could Be Achieved after the Requisite Service Period, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the new guidance does not allow for a performance target that affects vesting to be reflected in estimating the fair value of the award at the grant date. The amendments to this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this update either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. We currently do not have any outstanding share-based payments with a performance target. The adoption of ASU 2014-12 is not expected to have a material impact on our Consolidated Financial Statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers - Topic 606, which supersedes the revenue recognition requirements in FASB ASC 605. The new guidance primarily states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 from annual and interim periods beginning after December 15, 2016 to annual and interim periods beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The amendments in this update must be applied prospectively to all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The adoption of ASU 2014-08 did not have a material impact on our Consolidated Financial Statements.

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


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2.
Acquisitions

Acquisition of Insight Pharmaceuticals
On September 3, 2014, the Company completed the acquisition of Insight Pharmaceuticals Corporation ("Insight"), a marketer and distributor of feminine care and other OTC healthcare products, for $745.9 million in cash after receiving a return of approximately $7.2 million from escrow related to an arbitrator's ruling. The closing followed the Federal Trade Commission’s (“FTC”) approval of the acquisition and was finalized pursuant to the terms of the purchase agreement announced on April 25, 2014. Pursuant to the Insight purchase agreement, the Company acquired 27 OTC brands sold in North America (including related trademarks, contracts and inventory), which extended the Company's portfolio of OTC brands to include a leading feminine care platform in the United States and Canada anchored by Monistat, the leading brand in OTC yeast infection treatment. The acquisition also added brands to the Company's cough & cold, pain relief, ear care and dermatological platforms. In connection with the FTC's approval of the Insight acquisition, we sold one of the competing brands that we acquired from Insight on the same day as the Insight closing. The Insight brands are primarily included in our North American OTC Healthcare segment.

The Insight acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.

We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. During the quarter ended June 30, 2015, we adjusted the fair values of the assets acquired and liabilities assumed by increasing goodwill for certain immaterial items that came to our attention subsequent to the date of acquisition. Additionally, during the quarter ended December 31, 2015, we reduced goodwill, as we received $7.2 million as a result of a finalized arbitration ruling relating to the disputed working capital calculation, as determined under GAAP, as of the date of the Insight acquisition, which is clearly and directly related to the purchase price. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the September 3, 2014 acquisition date, after giving effect of the adjustments noted above.

(In thousands)
September 3, 2014
 
 
Cash acquired
$
3,507

Accounts receivable
26,012

Inventories
23,456

Deferred income tax assets - current
1,032

Prepaids and other current assets
1,341

Property, plant and equipment
2,308

Goodwill
96,323

Intangible assets
724,374

Total assets acquired
878,353

 
 
Accounts payable
16,079

Accrued expenses
8,539

Deferred income tax liabilities - long term
107,799

Total liabilities assumed
132,417

Total purchase price
$
745,936


Based on this analysis, we allocated $599.6 million to indefinite-lived intangible assets and $124.8 million to amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of 16.2 years. The weighted average remaining life for amortizable intangible assets at December 31, 2015 was 14.8 years.

We also recorded goodwill of $96.3 million based on the amount by which the purchase price exceeded the fair value of the net assets acquired after the effect of the adjustments described above. Goodwill is not deductible for income tax purposes.


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The operating results of Insight have been included in our Consolidated Financial Statements beginning September 3, 2014. On September 3, 2014, we sold one of the brands we acquired from the Insight acquisition for $18.5 million, for which we had allocated $17.7 million, $0.6 million and $0.2 million to intangible assets, inventory and property, plant and equipment, respectively.

The following table provides our unaudited pro forma revenues, net income and net income per basic and diluted common share had the results of Insight's operations been included in our operations commencing on April 1, 2013, based upon available information related to Insight's operations. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized by us had the Insight acquisition been consummated at the beginning of the period for which the pro forma information is presented, or of future results.

(In thousands, except per share data)
 
Nine Months Ended
December 31, 2014
Revenues
 
$
593,171

Net income
 
$
62,688

 
 
 
Earnings per share:
 
 
Basic
 
$
1.20

 
 
 
Diluted
 
$
1.19


Acquisition of the Hydralyte brand
On April 30, 2014, we completed the acquisition of the Hydralyte brand in Australia and New Zealand from The Hydration Pharmaceuticals Trust of Victoria, Australia, which was funded through a combination of cash on hand and our existing senior secured credit facility.

Hydralyte is the leading OTC brand in oral rehydration in Australia and is marketed and sold through our Care Pharmaceuticals Pty Ltd. subsidiary ("Care Pharma"). Hydralyte is available in pharmacies in multiple forms and is indicated for oral rehydration following diarrhea, vomiting, fever, heat and other ailments. Hydralyte is included in our International OTC Healthcare segment.

The Hydralyte acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.

We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the April 30, 2014 acquisition date.

(In thousands)
April 30, 2014
 
 
Inventories
$
1,970

Property, plant and equipment, net
1,267

Goodwill
1,224

Intangible assets, net
73,580

Total assets acquired
78,041

 
 
Accrued expenses
38

Other long-term liabilities
12

Total liabilities assumed
50

Net assets acquired
$
77,991


Based on this analysis, we allocated $73.6 million to non-amortizable intangible assets and no allocation was made to amortizable intangible assets.

We also recorded goodwill of $1.2 million based on the amount by which the purchase price exceeded the fair value of the net assets acquired. Goodwill is not deductible for income tax purposes.

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The pro forma effect of this acquisition on revenues and earnings was not material.

3.
Accounts Receivable

Accounts receivable consist of the following:
(In thousands)
December 31,
2015
 
March 31,
2015
Components of Accounts Receivable
 
 
 
Trade accounts receivable
$
94,636

 
$
95,411

Other receivables
1,436

 
2,353

 
96,072

 
97,764

Less allowances for discounts, returns and uncollectible accounts
(10,987
)
 
(9,906
)
Accounts receivable, net
$
85,085

 
$
87,858


4.
Inventories

Inventories consist of the following:
(In thousands)
December 31,
2015
 
March 31,
2015
Components of Inventories
 
 
 
Packaging and raw materials
$
8,097

 
$
7,588

Finished goods
72,574

 
66,412

Inventories
$
80,671

 
$
74,000


Inventories are carried and depicted above at the lower of cost or market value, which includes a reduction in inventory values of $2.6 million and $4.1 million at December 31, 2015 and March 31, 2015, respectively, related to obsolete and slow-moving inventory.

5.
Property and Equipment

Property and equipment consist of the following:
(In thousands)
December 31,
2015
 
March 31,
2015
Components of Property and Equipment
 
 
 
Machinery
$
4,085

 
$
4,743

Computer equipment
13,843

 
11,339

Furniture and fixtures
2,406

 
2,484

Leasehold improvements
7,371

 
7,134

 
27,705

 
25,700

Accumulated depreciation
(15,403
)
 
(11,956
)
Property and equipment, net
$
12,302

 
$
13,744


We recorded depreciation expense of $1.2 million and $3.7 million for the three and nine months ended December 31, 2015, respectively, and $1.0 million and $2.6 million for the three and nine months ended December 31, 2014, respectively.


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6.
Goodwill

A reconciliation of the activity affecting goodwill by operating segment is as follows:
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
 
 
 
 
 
 
 
 
Balance — March 31, 2015
$
263,411

 
$
20,440

 
$
6,800

 
$
290,651

Adjustments
(6,932
)
 

 

 
(6,932
)
Effects of foreign currency exchange rates

 
(1,040
)
 

 
(1,040
)
Balance — December 31, 2015
$
256,479

 
$
19,400

 
$
6,800

 
$
282,679


As discussed in Note 2, we completed two acquisitions during the year ended March 31, 2015. On September 3, 2014, we completed the acquisition of Insight and recorded goodwill of $96.3 million, reflecting the amount by which the purchase price exceeded the preliminary estimate of fair value of net assets acquired, after giving effect to the following adjustments. During the quarter ended June 30, 2015, we increased goodwill by $0.3 million for certain immaterial items. During the quarter ended December 31, 2015, we decreased goodwill by $7.2 million, as we received that amount from escrow pursuant to an arbitrator's ruling in December 2015 related to a disputed working capital calculation, as determined under GAAP, associated with the Insight acquisition, which is clearly and directly related to the purchase price. Additionally, on April 30, 2014, we completed the acquisition of the Hydralyte brand and recorded goodwill of $1.2 million, reflecting the amount by which the purchase price exceeded the preliminary estimate of fair value of the net assets acquired.

As further discussed in Note 7, in December 2014, we completed a transaction to sell rights to use of the Comet brand in certain Eastern European countries to a third-party licensee. As a result, we recorded a gain on sale of $1.3 million and reduced the carrying value of our intangible assets and goodwill.

Under accounting guidelines, goodwill is not amortized, but must be tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below the carrying amount.

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

We utilize the discounted cash flow method to estimate the fair value of our reporting units as part of the goodwill impairment test and the excess earnings method to estimate the fair value of our individual indefinite-lived intangible assets. We also considered our market capitalization at February 28, 2015, which was the date of our annual review, as compared to the aggregate fair values of our reporting units, to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology. The estimates and assumptions made in assessing the fair value of our reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. Consequently, changing rates of interest and inflation, declining sales or margins, increases in competition, changing consumer preferences, technical advances, or reductions in advertising and promotion may require an impairment charge to be recorded in the future.

At February 28, 2015, during our annual test for goodwill impairment, there were no indicators of impairment under the analysis. Accordingly, no impairment charge was recorded in fiscal 2015. As of December 31, 2015, there have been no triggering events that would indicate potential impairment of goodwill.


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7.
Intangible Assets

A reconciliation of the activity affecting intangible assets is as follows:
(In thousands)
Indefinite
Lived
Trademarks
 
Finite Lived
Trademarks
 
Totals
Gross Carrying Amounts
 
 
 
 
 
Balance — March 31, 2015
$
1,873,404

 
$
358,066

 
$
2,231,470

Effects of foreign currency exchange rates
(4,383
)
 
(70
)
 
(4,453
)
Balance — December 31, 2015
1,869,021

 
357,996

 
2,227,017

 
 

 
 

 
 

Accumulated Amortization
 

 
 

 
 

Balance — March 31, 2015

 
96,770

 
96,770

Additions

 
13,745

 
13,745

Effects of foreign currency exchange rates

 
(9
)
 
(9
)
Balance — December 31, 2015

 
110,506

 
110,506

 
 
 
 
 
 
Intangible assets, net - December 31, 2015
$
1,869,021

 
$
247,490

 
$
2,116,511

 
 
 
 
 
 
Intangible Assets, net by Reportable Segment:
 
 
 
 
 
North American OTC Healthcare
$
1,676,991

 
$
223,272

 
$
1,900,263

International OTC Healthcare
81,758

 
1,104

 
82,862

Household Cleaning
110,272

 
23,114

 
133,386

Intangible assets, net - December 31, 2015
$
1,869,021

 
$
247,490

 
$
2,116,511


As discussed in Note 2, we completed two acquisitions during the year ended March 31, 2015. On September 3, 2014, we completed the acquisition of Insight and allocated $724.4 million to intangible assets based on our preliminary analysis. Additionally, on April 30, 2014, we completed the acquisition of the Hydralyte brand and allocated $73.6 million to intangible assets based on our preliminary analysis. Furthermore, on September 3, 2014, we sold one of the brands that we acquired from Insight, for which we had allocated $17.7 million to intangible assets.

Under accounting guidelines, indefinite-lived assets are not amortized, but must be tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below the carrying amount.  Additionally, at each reporting period, an evaluation must be made to determine whether events and circumstances continue to support an indefinite useful life.  Intangible assets with finite lives are amortized over their respective estimated useful lives and are also tested for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable and exceeds its fair value.

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

We utilize the discounted cash flow method to estimate the fair value of our reporting units as part of the goodwill impairment test and the excess earnings method to estimate the fair value of our individual indefinite-lived intangible assets. We also considered our market capitalization at February 28, 2015, which was the date of our annual review, as compared to the aggregate fair values of our reporting units, to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology. The estimates and assumptions made in assessing the fair value of our reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. Consequently, changing rates of interest and inflation, declining sales or margins, increases in competition, changing consumer preferences, technical advances, or reductions in advertising and promotion may require an impairment charge to be recorded in the future.

Although we experienced declines in revenues in Pediacare and in certain other brands in the past, we continue to believe that the fair values of our brands exceed their carrying values. However, sustained or significant future declines in revenue, profitability, lost distribution, other adverse changes in expected operating results, and/or unfavorable changes in other economic factors used

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to estimate fair value of certain brands could indicate that the fair value no longer exceeds carrying value in which case a non-cash impairment charge may be recorded in future periods.

The weighted average remaining life for finite-lived intangible assets at December 31, 2015 was approximately 13.9 years, and the amortization expense for the three and nine months ended December 31, 2015 was $4.8 million and $13.7 million, respectively. At December 31, 2015, finite-lived intangible assets are being amortized over a period of 10 to 30 years, and the associated amortization expense is expected to be as follows:
(In thousands)
 
 
Year Ending March 31,
 
Amount
2016 (Remaining three months ending March 31, 2016)
$
4,466

2017
17,863

2018
17,863

2019
17,863

2020
17,863

Thereafter
171,572

 
$
247,490


Sale of asset

Historically, we received royalty income from the licensing of the name of certain of our brands in geographic areas or markets in which we do not directly compete. We have had a royalty agreement for our Comet brand for several years, which included an option on behalf of the licensee to purchase the rights in certain geographic areas and markets in perpetuity. In December 2014, we amended the agreement to allow the licensee to buy out a portion of the agreement early, but retaining the remaining stream of royalty payments. In December 2014, in connection with this amendment, we sold rights to use of the Comet brand in certain Eastern European countries to a third-party licensee and received $10.0 million as a partial early buyout. As a result, we recorded a gain on sale of $1.3 million, and reduced the carrying value of our intangible assets and goodwill. The licensee will continue to make quarterly payments at least through June 30, 2016 of approximately $1.0 million. The licensee has the option to purchase the remaining territories and markets, as defined in the agreement, at any time after July 1, 2016.

8.
Other Accrued Liabilities

Other accrued liabilities consist of the following:

(In thousands)
December 31,
2015
 
March 31,
2015
 
 
 
 
Accrued marketing costs
$
24,757

 
$
16,903

Accrued compensation costs
6,837

 
8,840

Accrued broker commissions
1,231

 
1,134

Income taxes payable
3,456

 
2,642

Accrued professional fees
2,229

 
2,769

Deferred rent
825

 
1,021

Accrued production costs
5,303

 
5,610

Accrued lease termination costs
544

 
669

Other accrued liabilities
3,641

 
1,360

 
$
48,823

 
$
40,948



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9.    Long-Term Debt

2012 Senior Notes:
On January 31, 2012, Prestige Brands, Inc. (the "Borrower") issued $250.0 million of senior unsecured notes at par value, with an interest rate of 8.125% and a maturity date of February 1, 2020 (the "2012 Senior Notes"). The Borrower may earlier redeem some or all of the 2012 Senior Notes at redemption prices set forth in the indenture governing the 2012 Senior Notes. The 2012 Senior Notes are guaranteed by Prestige Brands Holdings, Inc. and certain of its domestic 100% owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company. In connection with the 2012 Senior Notes offering, we incurred $12.6 million of costs, which were capitalized as deferred financing costs and are being amortized over the term of the 2012 Senior Notes.

2012 Term Loan and 2012 ABL Revolver:
On January 31, 2012, the Borrower also entered into a new senior secured credit facility, which consists of (i) a $660.0 million term loan facility (the “2012 Term Loan”) with a 7-year maturity and (ii) a $50.0 million asset-based revolving credit facility (the “2012 ABL Revolver”) with a 5-year maturity. In subsequent years, we have utilized portions of our accordion feature to increase the amount of our borrowing capacity under the 2012 ABL Revolver by $85.0 million to $135.0 million and reduced our borrowing rate on the 2012 ABL Revolver by 0.25%. The 2012 Term Loan was issued with an original issue discount of 1.5% of the principal amount thereof, resulting in net proceeds to the Borrower of $650.1 million. In connection with these loan facilities, we incurred $20.6 million of costs, which were capitalized as deferred financing costs and are being amortized over the terms of the facilities. The 2012 Term Loan is unconditionally guaranteed by Prestige Brands Holdings, Inc. and certain of its domestic 100% owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company.

On February 21, 2013, the Borrower entered into Amendment No. 1 (the "Term Loan Amendment No. 1") to the 2012 Term Loan. Term Loan Amendment No. 1 provided for the refinancing of all of the Borrower's existing Term B Loans with new Term B-1 Loans (the "Term B-1 Loans"). The interest rate on the Term B-1 Loans under the Term Loan Amendment No. 1 was based, at the Borrower's option, on a LIBOR rate plus a margin of 2.75% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin. The new Term B-1 Loans mature on the same date as the Term B Loans' original maturity date.  In addition, Term Loan Amendment No. 1 provided the Borrower with certain additional capacity to prepay subordinated debt, the 2012 Senior Notes and certain other unsecured indebtedness permitted to be incurred under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver. In connection with Term Loan Amendment No. 1, during the fourth quarter ended March 31, 2013, we recognized a $1.4 million loss on the extinguishment of debt.
On September 3, 2014, the Borrower entered into Amendment No. 2 ("Term Loan Amendment No. 2") to the 2012 Term Loan. Term Loan Amendment No. 2 provided for (i) the creation of a new class of Term B-2 Loans under the 2012 Term Loan (the "Term B-2 Loans") in an aggregate principal amount of $720.0 million, (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility and financial maintenance covenant relief, and (iii) an interest rate on (x) the Term B-1 Loans that was based, at the Borrower’s option, on a LIBOR rate plus a margin of 3.125% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin, and (y) the Term B-2 Loans that was based, at the Borrower’s option, on a LIBOR rate plus a margin of 3.50% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin (with a margin step-down to 3.25% per annum, based upon achievement of a specified secured net leverage ratio).
On May 8, 2015, the Borrower entered into Amendment No. 3 (the "Term Loan Amendment No. 3") to the 2012 Term Loan. Term Loan Amendment No. 3 provides for (i) the creation of a new class of Term B-3 Loans under the 2012 Term Loan (the "Term B-3 Loans") in an aggregate principal amount of $852.5 million, which combined the outstanding balances of the Term B-1 Loans of $207.5 million and the Term B-2 Loans of $645.0 million, (ii) increased flexibility under the credit agreement governing the 2012 Term Loan, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant relief, and (iii) an interest rate on the Term B-3 Loans that is based, at the Borrower’s option, on a LIBOR rate plus a margin of 2.75% per annum, with a LIBOR floor of 0.75%, or an alternate base rate, with a floor of 1.75%, plus a margin. The maturity date of the Term B-3 Loans remains the same as the Term B-2 Loans' original maturity date of September 3, 2021.
The 2012 Term Loan, as amended, bears interest at a rate per annum equal to an applicable margin plus, at the Borrower's option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus 1.00% and (d) a floor of 1.75% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, with a floor of 0.75%. For the nine months ended December 31, 2015, the average interest rate on the 2012 Term Loan was 4.5%.

- 16-



Under the 2012 Term Loan, we were originally required to make quarterly payments each equal to 0.25% of the original principal amount of the 2012 Term Loan, with the balance expected to be due on the seventh anniversary of the closing date. However, since we entered into Term Loan Amendment No. 3, we are required to make quarterly payments each equal to 0.25% of the aggregate principal amount of $852.5 million. Since we have previously made optional payments that exceeded a significant portion of our required quarterly payments, we will not be required to make another payment until the fiscal year ending March 31, 2019.

On September 3, 2014, the Borrower entered into Amendment No. 3 (“ABL Amendment No. 3”) to the 2012 ABL Revolver. ABL Amendment No. 3 provided for (i) a $40.0 million increase in revolving commitments under the 2012 ABL Revolver and (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility. Borrowings under the 2012 ABL Revolver, as amended, bear interest at a rate per annum equal to an applicable margin plus, at the Borrower's option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., or (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus 1.00% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs. The initial applicable margin for borrowings under the 2012 ABL Revolver is 1.75% with respect to LIBOR borrowings and 0.75% with respect to base-rate borrowings. The applicable margin for borrowings under the 2012 ABL Revolver may be increased to 2.00% or 2.25% for LIBOR borrowings and 1.00% or 1.25% for base-rate borrowings, depending on average excess availability under the 2012 ABL Revolver during the prior fiscal quarter. In addition to paying interest on outstanding principal under the 2012 ABL Revolver, we are required to pay a commitment fee to the lenders under the 2012 ABL Revolver in respect of the unutilized commitments thereunder. The initial commitment fee rate is 0.50% per annum. The commitment fee rate will be reduced to 0.375% per annum at any time when the average daily unused commitments for the prior quarter is less than a percentage of total commitments by an amount set forth in the credit agreement covering the 2012 ABL Revolver.

On June 9, 2015, the Borrower entered into Amendment No. 4 (“ABL Amendment No. 4”) to the 2012 ABL Revolver. ABL Amendment No. 4 provides for (i) a $35.0 million increase in the accordion feature under the 2012 ABL Revolver and (ii) increased flexibility under the credit agreement governing the 2012 ABL Revolver, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant relief and (iii) extended the maturity date of the 2012 ABL Revolver to June 9, 2020, which is five years from the effective date. We may voluntarily repay outstanding loans under the 2012 ABL Revolver at any time without a premium or penalty. For the nine months ended December 31, 2015, the average interest rate on the amounts borrowed under the 2012 ABL Revolver was 2.1%.
2013 Senior Notes:
On December 17, 2013, the Borrower issued $400.0 million of senior unsecured notes, with an interest rate of 5.375% and a maturity date of December 15, 2021 (the "2013 Senior Notes"). The Borrower may redeem some or all of the 2013 Senior Notes at redemption prices set forth in the indenture governing the 2013 Senior Notes. The 2013 Senior Notes are guaranteed by Prestige Brands Holdings, Inc. and certain of its 100% domestic owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company. In connection with the 2013 Senior Notes offering, we incurred $7.2 million of costs, which were capitalized as deferred financing costs and are being amortized over the term of the 2013 Senior Notes.
Redemptions and Restrictions:
At any time prior to February 1, 2016, we may redeem the 2012 Senior Notes in whole or in part at a redemption price equal to 100% of the principal amount of the notes redeemed, plus a "make-whole premium" calculated as set forth in the indenture governing the 2012 Senior Notes, together with accrued and unpaid interest, if any, to the date of redemption. On or after February 1, 2016, we may redeem the 2012 Senior Notes in whole or in part at redemption prices set forth in the indenture governing the 2012 Senior Notes. In addition, at any time prior to February 1, 2015, we could have redeemed up to 35% of the aggregate principal amount of the 2012 Senior Notes at a redemption price equal to 108.125% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of certain equity offerings, provided that certain conditions were met. Subject to certain limitations, in the event of a change of control, as defined in the indenture governing the 2012 Senior Notes, the Borrower will be required to make an offer to purchase the 2012 Senior Notes at a price equal to 101% of the aggregate principal amount of the 2012 Senior Notes repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.

At any time prior to December 15, 2016, we may redeem the 2013 Senior Notes in whole or in part at a redemption price equal to 100% of the principal amount of notes redeemed, plus an applicable "make-whole premium" calculated as set forth in the indenture governing the 2013 Senior Notes, together with accrued and unpaid interest, if any, to the date of redemption. On or after December 15, 2016, we may redeem some or all of the 2013 Senior Notes at redemption prices set forth in the indenture

- 17-



governing the 2013 Senior Notes. In addition, at any time prior to December 15, 2016, we may redeem up to 35% of the aggregate principal amount of the 2013 Senior Notes at a redemption price equal to 105.375% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of certain equity offerings, provided that certain conditions are met. Subject to certain limitations, in the event of a change of control, as defined in the indenture governing the 2013 Senior Notes, the Borrower will be required to make an offer to purchase the 2013 Senior Notes at a price equal to 101% of the aggregate principal amount of the 2013 Senior Notes repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.

The indentures governing the 2012 Senior Notes and the 2013 Senior Notes contain provisions that restrict us from undertaking specified corporate actions, such as asset dispositions, acquisitions, dividend payments, repurchases of common shares outstanding, changes of control, incurrences of indebtedness, issuance of equity, creation of liens, making of loans and transactions with affiliates. Additionally, the credit agreement with respect to the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2012 Senior Notes and the 2013 Senior Notes contain cross-default provisions, whereby a default pursuant to the terms and conditions of certain indebtedness will cause a default on the remaining indebtedness under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2012 Senior Notes and the 2013 Senior Notes. At December 31, 2015, we were in compliance with the covenants under our long-term indebtedness.

Effective April 1, 2015, the Company elected to change its method of presentation relating to debt issuance costs in accordance with ASU 2015-03. Prior to 2016, the Company's policy was to present these costs in other-long term assets on the balance sheet, net of accumulated amortization. Beginning in 2016, the Company has presented these fees as a direct deduction to the related long-term debt. As a result, we reclassified $27.4 million of deferred financing costs as of March 31, 2015 from other long-term assets, and such costs are now presented as a direct deduction from the long-term debt liability.

At December 31, 2015, we had an aggregate of $30.5 million of unamortized debt costs, the total of which is comprised of $7.6 million related to the 2012 Senior Notes, $5.7 million related to the 2013 Senior Notes and $17.2 million related to the 2012 Term Loan.

As of December 31, 2015, there were no outstanding borrowings on the 2012 ABL Revolver and we had a borrowing capacity of $115.4 million.

Long-term debt consists of the following, as of the dates indicated:
(In thousands, except percentages)
 
December 31,
2015
 
March 31,
2015
2013 Senior Notes bearing interest at 5.375%, with interest payable on June 15 and December 15 of each year. The 2013 Senior Notes mature on December 15, 2021.
 
$
400,000

 
$
400,000

2012 Senior Notes bearing interest at 8.125%, with interest payable on February 1 and August 1 of each year. The 2012 Senior Notes mature on February 1, 2020.
 
250,000

 
250,000

2012 Term B-3 Loans bearing interest at the Borrower's option at either a base rate with a floor of 1.75% plus applicable margin or LIBOR with a floor of 0.75% plus applicable margin, due on September 3, 2021.
 
827,500

 
877,500

2012 ABL Revolver bearing interest at the Borrower's option at either a base rate plus applicable margin or LIBOR plus applicable margin. Any unpaid balance is due on June 9, 2020.
 

 
66,100

Total long-term debt (including current portion)
 
1,477,500

 
1,593,600

Current portion of long-term debt
 

 

Long-term debt
 
1,477,500

 
1,593,600

Less: unamortized debt costs
 
(30,468
)
 
(32,327
)
Long-term debt, net
 
$
1,447,032

 
$
1,561,273


- 18-




As of December 31, 2015, aggregate future principal payments required in accordance with the terms of the 2012 Term Loan, 2012 ABL Revolver and the indentures governing the 2013 Senior Notes and the 2012 Senior Notes are as follows:
(In thousands)
 
 
Year Ending March 31,
 
Amount
2016 (remaining three months ending March 31, 2016)
$

2017

2018

2019
6,969

2020
258,525

Thereafter
1,212,006

 
$
1,477,500


10.
Fair Value Measurements
 
For certain of our financial instruments, including cash, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their respective fair values due to the relatively short maturity of these amounts.

The Fair Value Measurements and Disclosures topic of the FASB ASC 820 requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market assuming an orderly transaction between market participants. The Fair Value Measurements and Disclosures topic established market (observable inputs) as the preferred source of fair value, to be followed by the Company's assumptions of fair value based on hypothetical transactions (unobservable inputs) in the absence of observable market inputs. Based upon the above, the following fair value hierarchy was created:

Level 1 - Quoted market prices for identical instruments in active markets;

Level 2 - Quoted prices for similar instruments in active markets, as well as quoted prices for identical or similar instruments in markets that are not considered active; and

Level 3 - Unobservable inputs developed by the Company using estimates and assumptions reflective of those that would be utilized by a market participant.

The market values have been determined based on market values for similar instruments adjusted for certain factors. As such, the 2013 Senior Notes, the 2012 Senior Notes, the Term B-3 Loans, and the 2012 ABL Revolver are measured in Level 2 of the above hierarchy. At December 31, 2015 and March 31, 2015, we did not have any assets or liabilities measured in Level 1 or 3. During the periods presented, there were no transfers of assets or liabilities between Levels 1, 2 and 3.

At December 31, 2015 and March 31, 2015, the carrying value of our 2013 Senior Notes was $400.0 million. The fair value of our 2013 Senior Notes was $384.0 million and $405.0 million at December 31, 2015 and March 31, 2015, respectively.

At December 31, 2015 and March 31, 2015, the carrying value of our 2012 Senior Notes was $250.0 million. The fair value of our 2012 Senior Notes was $257.5 million and $268.1 million at December 31, 2015 and March 31, 2015, respectively.

At December 31, 2015 and March 31, 2015, the carrying value of the Term B-3 Loans was $827.5 million and $877.5 million, respectively. The fair value of the Term B-3 Loans was $822.3 million and $880.5 million at December 31, 2015 and March 31, 2015, respectively.

At December 31, 2015 and March 31, 2015, the carrying value of the 2012 ABL Revolver was $0.0 million and $66.1 million, respectively. The fair value of the 2012 ABL revolver was $0.0 million and $65.7 million at December 31, 2015 and March 31, 2015, respectively.

11.    Stockholders' Equity

The Company is authorized to issue 250.0 million shares of common stock, $0.01 par value per share, and 5.0 million shares of preferred stock, $0.01 par value per share.  The Board of Directors may direct the issuance of the undesignated preferred stock in one or more series and determine preferences, privileges and restrictions thereof.

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Each share of common stock has the right to one vote on all matters submitted to a vote of stockholders.  The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to prior rights of holders of all classes of outstanding stock having priority rights as to dividends.  No dividends have been declared or paid on the Company's common stock through December 31, 2015.

During the three and nine months ended December 31, 2015, we repurchased 0 shares and 39,429 shares, respectively, of restricted common stock from our employees pursuant to the provisions of various employee restricted stock awards. During the three and nine months ended December 31, 2014, we repurchased 781 shares and 48,445 shares, respectively, of restricted common stock from our employees pursuant to the provisions of various employee restricted stock awards. The repurchases for the nine months ended December 31, 2015 and 2014 were at an average price of $41.66 and $33.66, respectively. All of the repurchased shares have been recorded as treasury stock.

12.
Accumulated Other Comprehensive Loss

The table below presents accumulated other comprehensive loss (“AOCI”), which affects equity and results from recognized transactions and other economic events, other than transactions with owners in their capacity as owners.
AOCI consisted of the following at December 31, 2015 and March 31, 2015:
 
December 31,
 
March 31,
(In thousands)
2015
 
2015
Components of Accumulated Other Comprehensive Loss
 
 
 
Cumulative translation adjustment
$
(29,974
)
 
$
(23,412
)
Accumulated other comprehensive loss, net of tax
$
(29,974
)
 
$
(23,412
)

13.
Earnings Per Share

Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted-average number of shares of common stock outstanding plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method, which includes stock options, and restricted stock units. The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
(In thousands, except per share data)
 
2015
 
2014
 
2015
 
2014
Numerator
 
 
 
 
 
 
 
 
Net income
 
$
27,995

 
$
21,293

 
$
85,971

 
$
54,488

 
 
 

 
 

 
 
 
 
Denominator
 
 

 
 

 
 
 
 
Denominator for basic earnings per share — weighted average shares outstanding
 
52,824

 
52,278

 
52,727

 
52,110

Dilutive effect of unvested restricted stock units and options issued to employees and directors
 
379

 
452

 
379

 
512

Denominator for diluted earnings per share
 
53,203

 
52,730

 
53,106

 
52,622

 
 
 

 
 

 
 
 
 
Earnings per Common Share:
 
 

 
 

 
 
 
 
Basic net earnings per share
 
$
0.53

 
$
0.41

 
$
1.63

 
$
1.05

 
 
 

 
 

 
 
 
 
Diluted net earnings per share
 
$
0.53

 
$
0.40

 
$
1.62

 
$
1.04


For the three months ended December 31, 2015 and 2014, there were 0.2 million and 0.3 million shares, respectively, attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the nine months ended December 31, 2015 and 2014, there were less than 0.1 million and 0.3 million shares, respectively, attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

- 20-



 
14.
Share-Based Compensation

In connection with our initial public offering, the Board of Directors adopted the 2005 Long-Term Equity Incentive Plan (the “Plan”), which provides for grants of up to a maximum of 5.0 million shares of restricted stock, stock options, restricted stock units and other equity-based awards. In June 2014, the Board of Directors approved, and in July 2014, the stockholders ratified, an increase of an additional 1.8 million shares of our common stock for issuance under the Plan, increased the maximum number of shares subject to stock options that may be awarded to any one participant under the Plan during any 12-month period from 1.0 million to 2.5 million shares, and extended the term of the Plan by ten years to February 2025.  Directors, officers and other employees of the Company and its subsidiaries, as well as others performing services for the Company, are eligible for grants under the Plan.

During the three and nine months ended December 31, 2015, pre-tax share-based compensation costs charged against income were $2.1 million and $7.1 million, respectively, and the related income tax benefit recognized was $0.7 million and $2.5 million, respectively. During the three and nine months ended December 31, 2014, pre-tax share-based compensation costs charged against income were $1.5 million and $4.9 million, respectively, and the related income tax benefit recognized was $0.6 million and $1.8 million, respectively.
 
On April 22, 2015, we announced that Matthew M. Mannelly, our President and Chief Executive Officer and member of the Board of Directors, would retire effective June 1, 2015. In conjunction with his retirement, the Board of Directors accelerated the vesting of his previously unvested restricted stock units and stock options, and we recorded additional compensation expense of approximately $0.8 million associated with this acceleration. Effective June 1, 2015, the Board of Directors appointed Ron M. Lombardi, our then current Chief Financial Officer, to succeed Mr. Mannelly as President and Chief Executive Officer and as a member of the Board of Directors. In connection with his appointment, Mr. Lombardi was granted 57,924 restricted stock units on April 22, 2015.

On October 28, 2015, we announced that David S. Marberger has been appointed as Chief Financial Officer of the Company, effective November 10, 2015. In connection with Mr. Marberger’s appointment as Chief Financial Officer, on October 28, 2015, the Company entered into an employment agreement with Mr. Marberger, which sets forth the terms of his compensation as approved by the Compensation Committee of the Board of Directors. In accordance with the terms of his employment agreement, on October 28, 2015, the Company granted to Mr. Marberger, 6,612 shares of restricted stock units and stock options to acquire 8,079 shares of our common stock under the Plan. The restricted stock units vest in their entirety on the three-year anniversary of the date of grant. Upon vesting, the units will be settled in shares of our common stock. The stock options will vest 33.3% per year over three years and are exercisable for up to ten years from the date of grant. These stock options were granted at an exercise price of $50.42 per share, which is equal to the closing price of our common stock on the date of grant.

On May 11, 2015, the Compensation Committee of our Board of Directors (the "Compensation Committee") granted 185,904 restricted stock units and stock options to acquire 186,302 shares of our common stock to certain executive officers and employees under the Plan. Of those grants, 163,404 restricted stock units vest in their entirety on the three-year anniversary of the date of grant and 22,500 restricted stock units vest 33.3% per year over three years. Upon vesting, the units will be settled in shares of our common stock. The stock options vest 33.3% per year over three years and are exercisable for up to ten years from the date of grant. These stock options were granted at an exercise price of $41.44 per share, which is equal to the closing price of our common stock on the date of grant. On July 1, 2015, the Compensation Committee granted 2,841 restricted stock units, which vest on the three-year anniversary of the date of grant, and stock options to acquire 13,861 shares of our common stock to certain employees under the Plan. The stock options vest 33.3% per year over three years and are exercisable for up to ten years from the date of grant. These stock options were granted at an exercise price of $46.58 per share, which is equal to the closing price of our common stock on the date of grant.


- 21-



Restricted Shares

Restricted shares granted to employees under the Plan generally vest in three to five years, primarily upon the attainment of certain time vesting thresholds, and may also be contingent on the attainment of certain performance goals of the Company, including revenue and earnings before income taxes, depreciation and amortization targets.  The restricted share awards provide for accelerated vesting if there is a change of control, as defined in the Plan.  The restricted stock units granted to employees generally vest in their entirety on the three-year anniversary of the date of the grant. Termination of employment prior to vesting will result in forfeiture of the restricted stock units, unless otherwise accelerated by the Compensation Committee. The restricted stock units granted to directors vest in their entirety one year after the date of grant so long as the membership on the Board of Directors continues through the vesting date, with the settlement in common stock to occur on the earliest of the director's death, disability or six-month anniversary of the date on which the director's Board membership ceases for reasons other than death or disability. Upon vesting, the units will be settled in shares of our common stock.

Each of our six independent members of the Board of Directors received a grant of 2,075 restricted stock units on August 4, 2015 under the Plan. Additionally, on May 11, 2015, the Compensation Committee granted 362 restricted stock units to a newly appointed Board member. The restricted stock units vest on the one year anniversary of the date of grant and will be settled by delivery to the director of one share of common stock of the Company for each vested restricted stock unit promptly following the earliest of the director's (i) death, (ii) disability or (iii) the six-month anniversary of the date on which the director's Board membership ceases for reasons other than death or disability.

The fair value of the restricted stock units is determined using the closing price of our common stock on the date of the grant. The weighted-average grant-date fair value during the nine months ended December 31, 2015 and 2014 was $42.41 and $33.30, respectively.

A summary of the Company's restricted shares granted under the Plan is presented below:
 
 
 
Restricted Shares
 
 
Shares
(in thousands)
 
Weighted-
Average
Grant-Date
Fair Value
Nine months ended December 31, 2014
 
 
 
 
Vested and nonvested at March 31, 2014
 
437.5

 
$
16.76

Granted
 
104.4

 
33.30

Vested and issued
 
(122.8
)
 
13.62

Forfeited
 
(21.3
)
 
20.77

Vested and nonvested at December 31, 2014
 
397.8

 
21.86

Vested at December 31, 2014
 
76.6

 
11.62

 
 
 

 
 

Nine months ended December 31, 2015
 
 
 
 
Vested and nonvested at March 31, 2015
 
362.3

 
$
22.74

Granted
 
266.1

 
42.41

Vested and issued
 
(153.6
)
 
18.16

Forfeited
 
(1.4
)
 
33.50

Vested and nonvested at December 31, 2015
 
473.4

 
35.25

Vested at December 31, 2015
 
69.8

 
14.76


Options
The Plan provides that the exercise price of options granted shall be no less than the fair market value of the Company's common stock on the date the options are granted.  Options granted have a term of no greater than ten years from the date of grant and vest in accordance with a schedule determined at the time the option is granted, generally three to five years.  The option awards provide for accelerated vesting in the event of a change in control, as defined in the Plan. Termination of employment prior to vesting will result in forfeiture of the unvested stock options. Vested stock options will remain exercisable by the employee after termination of employment, subject to the terms in the Plan.

The fair value of each option award is estimated on the date of grant using the Black-Scholes Option Pricing Model that uses the assumptions noted in the table below.  Expected volatilities are based on the historical volatility of our common stock and other factors, including the historical volatilities of comparable companies.  We use appropriate historical data, as well as current data,

- 22-



to estimate option exercise and employee termination behaviors.  Employees that are expected to exhibit similar exercise or termination behaviors are grouped together for the purposes of valuation.  The expected terms of the options granted are derived from our historical experience, management's estimates, and consideration of information derived from the public filings of companies similar to us, and represent the period of time that options granted are expected to be outstanding.  The risk-free rate represents the yield on U.S. Treasury bonds with a maturity equal to the expected term of the granted options.  

The weighted-average grant-date fair values of the options granted during the nine months ended December 31, 2015 and 2014 were $17.24 and $15.93, respectively.
 
 
Nine Months Ended December 31,
 
 
2015
 
2014
Expected volatility
 
40.2
%
 
47.3
%
Expected dividends
 
$

 
$

Expected term in years
 
6.0

 
6.0

Risk-free rate
 
1.7
%
 
2.2
%

A summary of option activity under the Plan is as follows:
 
 
 
 
Options
 
 
 
Shares
(in thousands)
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term (years)
 
Aggregate
Intrinsic
Value
(in thousands)
Nine months ended December 31, 2014:
 
 
 
 
 
 
 
 
Outstanding at March 31, 2014
 
994.9

 
$
15.24

 
 
 
 
Granted
 
307.5

 
33.50

 
 
 
 
Exercised
 
(363.4
)
 
10.05

 
 
 
 
Forfeited or expired
 
(47.5
)
 
25.76

 
 
 
 
Outstanding at December 31, 2014
 
891.5

 
23.09

 
7.9
 
$
10,368

Exercisable at December 31, 2014
 
335.1

 
15.01

 
6.7
 
6,604

 
 
 
 
 
 
 
 
 
Nine months ended December 31, 2015:
 
 

 
 

 
 
 
 

Outstanding at March 31, 2015
 
871.2

 
$
23.40

 
 
 
 
Granted
 
208.2

 
42.13

 
 
 
 
Exercised
 
(336.9
)
 
18.99

 
 
 
 
Forfeited or expired
 
(2.1
)
 
38.21

 
 
 
 
Outstanding at December 31, 2015
 
740.4

 
30.63

 
7.9
 
$
15,325

Exercisable at December 31, 2015
 
313.5

 
21.68

 
6.7
 
9,341


The aggregate intrinsic value of options exercised in the nine months ended December 31, 2015 was $8.4 million.

At December 31, 2015, there were $11.6 million of unrecognized compensation costs related to nonvested share-based compensation arrangements under the Plan, based on management's estimate of the shares that will ultimately vest.  We expect to recognize such costs over a weighted-average period of 1.1 years.  The total fair value of options and restricted shares vested during the nine months ended December 31, 2015 and 2014 was $6.6 million and $4.3 million, respectively.  For the nine months ended December 31, 2015 and 2014, cash received from the exercise of stock options was $6.6 million and $3.7 million, respectively, and we realized $2.1 million and $1.9 million, respectively, in tax benefits from the tax deductions resulting from these option exercises. At December 31, 2015, there were 2.6 million shares available for issuance under the Plan.


- 23-



15.
Income Taxes

Income taxes are recorded in our quarterly financial statements based on our estimated annual effective income tax rate, subject to adjustments for discrete events, should they occur.  The effective tax rates used in the calculation of income taxes were 35.2% and 36.5% for the three months ended December 31, 2015 and 2014, respectively. The effective tax rates used in the calculation of income taxes were 35.2% and 39.5% for the nine months ended December 31, 2015 and 2014, respectively. The decrease in the effective tax rate for the three and nine months ended December 31, 2015 was primarily due to the impact of certain non-deductible items related to acquisitions in the prior year period and to favorable tax deductions related to stock options, equity awards and to certain foreign tax credits realized in the current period.

At December 31, 2015, 100% owned subsidiaries of the Company had net operating loss carryforwards of approximately $36.2 million, which may be used to offset future taxable income of the consolidated group and which begin to expire in 2020.  The net operating loss carryforwards are subject to an annual limitation as to usage of approximately $33.6 million pursuant to Internal Revenue Code Section 382. The Company expects to utilize all of the net operating loss carryforwards before they expire.

We had a net increase of $0.7 million in our uncertain tax liability during the nine months ended December 31, 2015. Therefore, the balance in our uncertain tax liability was $4.1 million at December 31, 2015 and $3.4 million March 31, 2015. We recognize interest and penalties related to uncertain tax positions as a component of income tax expense.  We did not incur any material interest or penalties related to income taxes in any of the periods presented.

16. Commitments and Contingencies

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

Lease Commitments
We have operating leases for office facilities and equipment in New York, Wyoming, and other locations, which expire at various dates through fiscal 2021. These amounts have been included in the table below.

The following summarizes future minimum lease payments for our operating leases as of December 31, 2015 (a):
(In thousands)
 
 
 
 
 
Year Ending March 31,
Facilities
 
Equipment
 
Total
2016 (Remaining three months ending March 31, 2016)
$
455

 
$
47

 
$
502

2017
1,923

 
77

 
2,000

2018
1,934

 

 
1,934

2019
1,926

 

 
1,926

2020
1,757

 

 
1,757

Thereafter
817

 

 
817

 
$
8,812

 
$
124

 
$
8,936

(a) Minimum lease payments have not been reduced by minimum sublease rentals of $1.2 million due in the future
under noncancelable subleases.


- 24-



The following schedule shows the composition of total minimum lease payments that have been reduced by minimum sublease rentals: 

(In thousands)
December 31,
2015
 
March 31, 2015
Minimum lease payments
$
8,936

 
$
9,957

Less: Sublease rentals
(1,224
)
 
(1,401
)
 
$
7,712

 
$
8,556


Rent expense for the three and nine months ended December 31, 2015 was $0.4 million and $1.2 million, respectively.
Rent expense for the three and nine months ended December 31, 2014 was $0.4 million and $1.2 million, respectively.

Purchase Commitments
Effective November 1, 2009, we entered into a ten year supply agreement for the exclusive manufacture of a portion of one of our Household Cleaning products.  Although we are committed under the supply agreement to pay the minimum amounts set forth in the table below, the total commitment is less than 10% of the estimated purchases that we expect to make during the course of the agreement.
(In thousands)
 
Year Ending March 31,
Amount
2016 (Remaining three months ending March 31, 2016)
266

2017
1,044

2018
1,013

2019
982

2020
560

Thereafter

 
$
3,865


17.
Concentrations of Risk

Our revenues are concentrated in the areas of OTC Healthcare and Household Cleaning products.  We sell our products to mass merchandisers, food and drug stores, and convenience, dollar and club stores.  During the three and nine months ended December 31, 2015, approximately 41.0% and 42.2%, respectively, of our total revenues were derived from our five top selling brands.  During the three and nine months ended December 31, 2014, approximately 44.3% and 41.9%, respectively, of our total revenues were derived from our five top selling brands. One customer, Walmart, accounted for more than 10% of our gross revenues for each of the periods presented. Walmart accounted for approximately 20.2% and 19.9%, respectively, of our gross revenues for the three and nine months ended December 31, 2015, and approximately 16.5% and 17.4%, respectively, of our gross revenues for the three and nine months ended December 31, 2014. Our next largest customer accounted for approximately 9.5% and 9.6%, respectively, of gross revenues for the three and nine months ended December 31, 2015. At December 31, 2015, approximately 20.9% of accounts receivable were owed by Walmart.

We manage product distribution in the continental United States through a third-party distribution center in St. Louis, Missouri.  A serious disruption, such as a flood or fire, to the main distribution center could damage our inventories and could materially impair our ability to distribute our products to customers in a timely manner or at a reasonable cost.  We could incur significantly higher costs and experience longer lead times associated with the distribution of our products to our customers during the time that it takes us to reopen or replace our distribution center and inventory levels.  As a result, any such disruption could have a material adverse effect on our business, sales and profitability.

At December 31, 2015, we had relationships with 101 third-party manufacturers.  Of those, we had long-term contracts with 47 manufacturers that produced items that accounted for approximately 79.8% of gross sales for the nine months ended December 31, 2015. At December 31, 2014, we had relationships with 96 third-party manufacturers.  Of those, we had long-term contracts with 44 manufacturers that produced items that accounted for approximately 80.1% of gross sales for the nine months ended December 31, 2014. The fact that we do not have long-term contracts with certain manufacturers means that they could cease manufacturing our products at any time and for any reason or initiate arbitrary and costly price increases, which could have a material adverse effect on our business and results from operations. Although we are in the process of negotiating long-term

- 25-



contracts with certain key manufacturers, we may not be able to reach an agreement, which could have a material adverse effect on our business and results of operations.


18. Business Segments

Segment information has been prepared in accordance with the Segment Reporting topic of the FASB ASC 280. Our current reportable segments consist of (i) North American OTC Healthcare, (ii) International OTC Healthcare and (iii) Household Cleaning. We evaluate the performance of our operating segments and allocate resources to these segments based primarily on contribution margin, which we define as gross profit less advertising and promotional expenses.

- 26-




The tables below summarize information about our reportable segments.
 
Three Months Ended December 31, 2015
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
Gross segment revenues*
$
165,278

 
$
13,812

 
$
20,623

 
$
199,713

Elimination of intersegment revenues
(228
)
 

 

 
(228
)
Third-party segment revenues
165,050

 
13,812

 
20,623

 
199,485

Other revenues*

 
9

 
701

 
710

Total segment revenues
165,050

 
13,821

 
21,324

 
200,195

Cost of sales
62,654

 
4,965

 
15,792

 
83,411

Gross profit
102,396

 
8,856

 
5,532

 
116,784

Advertising and promotion
26,472

 
2,838

 
625

 
29,935

Contribution margin
$
75,924

 
$
6,018

 
$
4,907

 
86,849

Other operating expenses
 

 
 
 
 

 
24,206

Operating income
 

 
 
 
 

 
62,643

Other expense
 

 
 
 
 

 
19,462

Income before income taxes
 
 
 
 
 
 
43,181

Provision for income taxes
 

 
 
 
 

 
15,186

Net income
 
 
 
 
 
 
$
27,995


 
Nine Months Ended December 31, 2015
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
Gross segment revenues*
$
489,224

 
$
43,254

 
$
65,984

 
$
598,462

Elimination of intersegment revenues
(2,428
)
 

 

 
(2,428
)
Third-party segment revenues
486,796

 
43,254

 
65,984

 
596,034

Other revenues*
14

 
41

 
2,303

 
2,358

Total segment revenues
486,810

 
43,295

 
68,287

 
598,392

Cost of sales
182,279

 
16,347

 
50,806

 
249,432

Gross profit
304,531

 
26,948

 
17,481

 
348,960

Advertising and promotion
74,107

 
8,338

 
1,805

 
84,250

Contribution margin
$
230,424

 
$
18,610

 
$
15,676

 
264,710

Other operating expenses
 

 
 
 
 

 
69,664

Operating income
 

 
 
 
 

 
195,046

Other expense
 

 
 
 
 

 
62,464

Income before income taxes
 
 
 
 
 
 
132,582

Provision for income taxes
 

 
 
 
 

 
46,611

Net income
 
 
 
 
 
 
$
85,971




- 27-



 
Three Months Ended December 31, 2014
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
Gross segment revenues*
$
162,163

 
$
15,563

 
$
20,218

 
$
197,944

Elimination of intersegment revenues
(1,509
)
 

 

 
(1,509
)
Third-party segment revenues
160,654

 
15,563

 
20,218

 
196,435

Other revenues
151

 
4

 
1,016

 
1,171

Total segment revenues
160,805

 
15,567

 
21,234

 
197,606

Cost of sales
63,479

 
6,247

 
16,135

 
85,861

Gross profit
97,326

 
9,320

 
5,099

 
111,745

Advertising and promotion
26,779

 
2,776

 
589

 
30,144

Contribution margin
$
70,547

 
$
6,544

 
$
4,510

 
81,601

Other operating expenses
 

 
 
 
 

 
24,608

Operating income
 

 
 
 
 

 
56,993

Other expense
 

 
 
 
 

 
23,459

Income before income taxes
 
 
 
 
 
 
33,534

Provision for income taxes
 

 
 
 
 

 
12,241

Net income
 
 
 
 
 
 
$
21,293


 
Nine Months Ended December 31, 2014
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
Gross segment revenues*
$
412,703

 
$
45,157

 
$
66,057

 
$
523,917

Elimination of intersegment revenues
(2,936
)
 

 

 
(2,936
)
Third-party segment revenues
409,767

 
45,157

 
66,057

 
520,981

Other revenues
478

 
62

 
3,056

 
3,596

Total segment revenues
410,245

 
45,219

 
69,113

 
524,577

Cost of sales
158,005

 
17,926

 
52,493

 
228,424

Gross profit
252,240

 
27,293

 
16,620

 
296,153

Advertising and promotion
64,573

 
8,151

 
1,560

 
74,284

Contribution margin
$
187,667

 
$
19,142

 
$
15,060

 
221,869

Other operating expenses
 

 
 
 
 

 
75,555

Operating income
 

 
 
 
 

 
146,314

Other expense
 

 
 
 
 

 
56,305

Income before income taxes
 
 
 
 
 
 
90,009

Provision for income taxes
 

 
 
 
 

 
35,521

Net income
 
 
 
 
 
 
$
54,488


* Certain immaterial amounts relating to intersegment revenues and other revenues were reclassified between the International OTC Healthcare segment and the North American OTC Healthcare segment. There were no changes to the consolidated financial statements for any periods presented.



- 28-



The tables below summarize information about our segment revenues from similar product groups.
 
Three Months Ended December 31, 2015
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
Analgesics
$
30,454

 
$
450

 
$

 
$
30,904

Cough & Cold
30,466

 
3,696

 

 
34,162

Women's Health
33,521

 
877

 

 
34,398

Gastrointestinal
17,401

 
5,517

 

 
22,918

Eye & Ear Care
21,927

 
2,622

 

 
24,549

Dermatologicals
19,734

 
524

 

 
20,258

Oral Care
9,996

 
126

 

 
10,122

Other OTC
1,551

 
9

 

 
1,560

Household Cleaning

 

 
21,324

 
21,324

Total segment revenues
$
165,050

 
$
13,821

 
$
21,324

 
$
200,195


 
Nine Months Ended December 31, 2015
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
Analgesics
$
86,996

 
$
1,668

 
$

 
$
88,664

Cough & Cold
74,661

 
12,968

 

 
87,629

Women's Health
100,036

 
2,381

 

 
102,417

Gastrointestinal
56,782

 
14,667

 

 
71,449

Eye & Ear Care
71,137

 
9,415

 

 
80,552

Dermatologicals
63,026

 
1,669

 

 
64,695

Oral Care
29,706

 
509

 

 
30,215

Other OTC
4,466

 
18

 

 
4,484

Household Cleaning

 

 
68,287

 
68,287

Total segment revenues
$
486,810

 
$
43,295

 
$
68,287

 
$
598,392


 
Three Months Ended December 31, 2014
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
Analgesics
$
28,187

 
$
657

 
$

 
$
28,844

Cough & Cold
31,927

 
3,831

 

 
35,758

Women's Health
31,364

 
589

 

 
31,953

Gastrointestinal
17,365

 
6,668

 

 
24,033

Eye & Ear Care
20,528

 
3,069

 

 
23,597

Dermatologicals
17,663

 
570

 

 
18,233

Oral Care
12,300

 
172

 

 
12,472

Other OTC
1,471

 
11

 

 
1,482

Household Cleaning

 

 
21,234

 
21,234

Total segment revenues
$
160,805

 
$
15,567

 
$
21,234

 
$
197,606



- 29-



 
Nine Months Ended December 31, 2014
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
Analgesics
$
82,290

 
$
2,114

 
$

 
$
84,404

Cough & Cold
76,741

 
14,090

 

 
90,831

Women's Health
40,851

 
1,765

 

 
42,616

Gastrointestinal
58,899

 
14,764

 

 
73,663

Eye & Ear Care
64,086

 
10,311

 

 
74,397

Dermatologicals
47,383

 
1,799

 

 
49,182

Oral Care
35,421

 
361

 

 
35,782

Other OTC
4,574

 
15

 

 
4,589

Household Cleaning

 

 
69,113

 
69,113

Total segment revenues
$
410,245

 
$
45,219

 
$
69,113

 
$
524,577


During the three months ended December 31, 2015 and 2014, approximately 87.8% and 85.9%, respectively, of our total segment revenues were from customers in the United States. During the nine months ended December 31, 2015 and 2014, approximately 86.9% and 84.4%, respectively, of our total segment revenues were from customers in the United States. Other than the United States, no individual geographical area accounted for more than 10% of net sales in any of the periods presented. During the three months ended December 31, 2015, our Canada and Australia sales accounted for approximately 5.0% and 5.0%, respectively, of our total segment revenues, while during the three months ended December 31, 2014, approximately 5.1% and 7.2%, respectively, of our total segment revenues were attributable to sales to Canada and Australia. During the nine months ended December 31, 2015, our Canada and Australia sales accounted for approximately 5.2% and 5.9%, respectively, of our total segment revenues, while during the nine months ended December 31, 2014, approximately 6.1% and 7.5%, respectively, of our total segment revenues were attributable to sales to Canada and Australia.

At December 31, 2015, approximately 95.7% of our consolidated goodwill and intangible assets were located in the United States and approximately 4.3% were located in Australia. These consolidated goodwill and intangible assets have been allocated to the reportable segments as follows:
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
Goodwill
$
256,479

 
$
19,400

 
$
6,800

 
$
282,679

 
 
 
 
 
 
 
 
Intangible assets
 
 
 
 
 
 
 

Indefinite-lived
1,676,991

 
81,758

 
110,272

 
1,869,021

Finite-lived
223,272

 
1,104

 
23,114

 
247,490

Intangible assets, net
1,900,263

 
82,862

 
133,386

 
2,116,511

Total
$
2,156,742

 
$
102,262

 
$
140,186

 
$
2,399,190


- 30-



19. Condensed Consolidating Financial Statements

As described in Note 9, Prestige Brands Holdings, Inc., together with certain of our 100% owned subsidiaries, has fully and unconditionally guaranteed, on a joint and several basis, the obligations of Prestige Brands, Inc. (a 100% owned subsidiary of the Company) set forth in the indentures governing the 2013 Senior Notes and the 2012 Senior Notes, including the obligation to pay principal and interest with respect to the 2013 Senior Notes and the 2012 Senior Notes. The 100% owned subsidiaries of the Company that have guaranteed the 2013 Senior Notes and the 2012 Senior Notes are as follows: Prestige Services Corp., Prestige Brands Holdings, Inc. (a Virginia corporation), Prestige Brands International, Inc., Medtech Holdings, Inc., Medtech Products Inc., The Cutex Company, The Spic and Span Company, Blacksmith Brands, Inc., Insight Pharmaceuticals Corporation, Insight Pharmaceuticals, LLC and Practical Health Products, Inc. (collectively, the "Subsidiary Guarantors"). A significant portion of our operating income and cash flow is generated by our subsidiaries. As a result, funds necessary to meet Prestige Brands, Inc.'s debt service obligations are provided in part by distributions or advances from our subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of our subsidiaries, could limit Prestige Brands, Inc.'s ability to obtain cash from our subsidiaries for the purpose of meeting our debt service obligations, including the payment of principal and interest on the 2013 Senior Notes and the 2012 Senior Notes. Although holders of the 2013 Senior Notes and the 2012 Senior Notes will be direct creditors of the guarantors of the 2013 Senior Notes and the 2012 Senior Notes by virtue of the guarantees, we have indirect subsidiaries located primarily in the United Kingdom, the Netherlands and Australia (collectively, the "Non-Guarantor Subsidiaries") that have not guaranteed the 2013 Senior Notes or the 2012 Senior Notes, and such subsidiaries will not be obligated with respect to the 2013 Senior Notes or the 2012 Senior Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of the holders of the 2013 Senior Notes and the 2012 Senior Notes.

Presented below are supplemental Condensed Consolidating Balance Sheets as of December 31, 2015 and March 31, 2015, Condensed Consolidating Statements of Income and Comprehensive Income for the three and nine months ended December 31, 2015 and 2014, and Condensed Consolidating Statements of Cash Flows for the nine months ended December 31, 2015 and 2014. Such consolidating information includes separate columns for:

a)  Prestige Brands Holdings, Inc., the parent,
b)  Prestige Brands, Inc., the Issuer or the Borrower,
c)  Combined Subsidiary Guarantors,
d)  Combined Non-Guarantor Subsidiaries, and
e)  Elimination entries necessary to consolidate the Company and all of its subsidiaries.

The Condensed Consolidating Financial Statements are presented using the equity method of accounting for investments in our 100% owned subsidiaries. Under the equity method, the investments in subsidiaries are recorded at cost and adjusted for our share of the subsidiaries' cumulative results of operations, capital contributions, distributions and other equity changes. The elimination entries principally eliminate investments in subsidiaries and intercompany balances and transactions. The financial information in this note should be read in conjunction with the Consolidated Financial Statements presented and other notes related thereto contained in this Quarterly Report on Form 10-Q.



- 31-



Condensed Consolidating Statements of Income and Comprehensive Income
Three Months Ended December 31, 2015

(In thousands)
 
Prestige
Brands
Holdings,
Inc.
 
Prestige
Brands,
Inc.,
the issuer
 
Combined
Subsidiary
Guarantors
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$

 
$
27,598

 
$
159,783

 
$
12,332

 
$
(228
)
 
$
199,485

Other revenues
 

 
98

 
700

 
356

 
(444
)
 
710

        Total revenues
 

 
27,696

 
160,483

 
12,688

 
(672
)
 
200,195

 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Sales
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation shown below)
 

 
11,796

 
68,148

 
4,448

 
(981
)
 
83,411

        Gross profit
 

 
15,900

 
92,335

 
8,240

 
309

 
116,784

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Advertising and promotion
 

 
1,881

 
25,251

 
2,803

 

 
29,935

General and administrative
 
1,370

 
1,789

 
13,463

 
1,513

 

 
18,135

Depreciation and amortization
 
1,013

 
151

 
4,794

 
113

 

 
6,071

        Total operating expenses
 
2,383

 
3,821

 
43,508

 
4,429

 

 
54,141

        Operating income (loss)
 
(2,383
)
 
12,079

 
48,827

 
3,811

 
309

 
62,643

 
 
 
 
 
 
 
 
 
 
 
 
 
Other (income) expense
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
(12,141
)
 
(21,569
)
 
(1,124
)
 
(128
)
 
34,931

 
(31
)
Interest expense
 
8,602

 
19,443

 
25,255

 
1,124

 
(34,931
)
 
19,493

Equity in (income) loss of subsidiaries
 
(27,711
)
 
(15,898
)
 
(2,033
)
 

 
45,642

 

        Total other (income) expense
 
(31,250
)
 
(18,024
)
 
22,098

 
996

 
45,642

 
19,462

 Income (loss) before income taxes
 
28,867

 
30,103

 
26,729

 
2,815

 
(45,333
)
 
43,181

Provision for income taxes
 
872

 
4,950

 
8,582

 
782

 

 
15,186

Net income (loss)
 
$
27,995

 
$
25,153

 
$
18,147

 
$
2,033

 
$
(45,333
)
 
$
27,995

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
4,922

 
4,922

 
4,922

 
4,922

 
(14,766
)
 
4,922

Total other comprehensive income (loss)
 
4,922

 
4,922

 
4,922

 
4,922

 
(14,766
)
 
4,922

Comprehensive income (loss)
 
$
32,917

 
$
30,075

 
$
23,069

 
$
6,955

 
$
(60,099
)
 
$
32,917



- 32-



Condensed Consolidating Statements of Income and Comprehensive Income
Nine Months Ended December 31, 2015

(In thousands)
 
Prestige
Brands
Holdings,
Inc.
 
Prestige
Brands,
Inc.,
the issuer
 
Combined
Subsidiary
Guarantors
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$

 
$
83,438

 
$
477,079

 
$
37,945

 
$
(2,428
)
 
$
596,034

Other revenues
 

 
273

 
2,317

 
1,397

 
(1,629
)
 
2,358

        Total revenues
 

 
83,711

 
479,396

 
39,342

 
(4,057
)
 
598,392

 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Sales
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation shown below)
 

 
33,105

 
206,646

 
13,808

 
(4,127
)
 
249,432

        Gross profit
 

 
50,606

 
272,750

 
25,534

 
70

 
348,960

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Advertising and promotion
 

 
7,602

 
68,412

 
8,236

 

 
84,250

General and administrative
 
3,884

 
5,644

 
38,326

 
4,332

 

 
52,186

Depreciation and amortization
 
3,032

 
444

 
13,686

 
316

 

 
17,478

        Total operating expenses
 
6,916

 
13,690

 
120,424

 
12,884

 

 
153,914

        Operating income (loss)
 
(6,916
)
 
36,916

 
152,326

 
12,650

 
70

 
195,046

 
 
 
 
 
 
 
 
 
 
 
 
 
Other (income) expense
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
(36,351
)
 
(64,584
)
 
(3,513
)
 
(366
)
 
104,723

 
(91
)
Interest expense
 
26,056

 
61,654

 
75,604

 
3,513

 
(104,723
)
 
62,104

Loss on extinguishment of debt
 

 
451

 

 

 

 
451

Equity in (income) loss of subsidiaries
 
(84,458
)
 
(52,599
)
 
(6,868
)
 

 
143,925

 

        Total other (income) expense
 
(94,753
)
 
(55,078
)
 
65,223

 
3,147

 
143,925

 
62,464

 Income (loss) before income taxes
 
87,837

 
91,994

 
87,103

 
9,503

 
(143,855
)
 
132,582

Provision for income taxes
 
1,866

 
13,867

 
28,243

 
2,635

 

 
46,611

Net income (loss)
 
$
85,971

 
$
78,127

 
$
58,860

 
$
6,868

 
$
(143,855
)
 
$
85,971

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
(6,562
)
 
(6,562
)
 
(6,562
)
 
(6,562
)
 
19,686

 
(6,562
)
Total other comprehensive income (loss)
 
(6,562
)
 
(6,562
)
 
(6,562
)
 
(6,562
)
 
19,686

 
(6,562
)
Comprehensive income (loss)
 
$
79,409

 
$
71,565

 
$
52,298

 
$
306

 
$
(124,169
)
 
$
79,409

























- 33-



Condensed Consolidating Statements of Income and Comprehensive Income
Three Months Ended December 31, 2014

(In thousands)
 
Prestige
Brands
Holdings,
Inc.
 
Prestige
Brands,
Inc.,
the issuer
 
Combined
Subsidiary
Guarantors
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$

 
$
27,937

 
$
155,733

 
$
14,273

 
$
(1,508
)
 
$
196,435

Other revenues
 

 
83

 
1,166

 
266

 
(344
)
 
1,171

        Total revenues
 

 
28,020

 
156,899

 
14,539

 
(1,852
)
 
197,606

 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Sales
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation shown below)
 

 
10,296

 
71,891

 
5,208

 
(1,534
)
 
85,861

        Gross profit
 

 
17,724

 
85,008

 
9,331

 
(318
)
 
111,745

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Advertising and promotion
 

 
2,175

 
25,202

 
2,767

 

 
30,144

General and administrative
 
1,408

 
1,879

 
13,760

 
2,407

 

 
19,454

Depreciation and amortization
 
869

 
156

 
3,864

 
265

 

 
5,154

        Total operating expenses
 
2,277

 
4,210

 
42,826

 
5,439

 

 
54,752

        Operating income (loss)
 
(2,277
)
 
13,514

 
42,182

 
3,892

 
(318
)
 
56,993

 
 
 
 
 
 
 
 
 
 
 
 
 
Other (income) expense
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
(12,226
)
 
(21,602
)
 
(1,278
)
 
(15
)
 
35,101

 
(20
)
Interest expense
 
8,611

 
24,612

 
25,212

 
1,278

 
(35,101
)
 
24,612

Gain on sale of asset
 

 

 
(1,133
)
 

 

 
(1,133
)
Equity in (income) loss of subsidiaries
 
(20,462
)
 
(12,977
)
 
(1,654
)
 

 
35,093

 

        Total other (income) expense
 
(24,077
)
 
(9,967
)
 
21,147

 
1,263

 
35,093

 
23,459

Income (loss) before income taxes
 
21,800

 
23,481

 
21,035

 
2,629

 
(35,411
)
 
33,534

Provision for income taxes
 
507

 
3,782

 
6,977

 
975

 

 
12,241

Net income (loss)
 
$
21,293

 
$
19,699

 
$
14,058

 
$
1,654

 
$
(35,411
)
 
$
21,293

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
(8,779
)
 
(8,779
)
 
(8,779
)
 
(8,779
)
 
26,337

 
(8,779
)
Total other comprehensive income (loss)
 
(8,779
)
 
(8,779
)
 
(8,779
)
 
(8,779
)
 
26,337

 
(8,779
)
Comprehensive income (loss)
 
$
12,514

 
$
10,920

 
$
5,279

 
$
(7,125
)
 
$
(9,074
)
 
$
12,514

























- 34-




Condensed Consolidating Statements of Income and Comprehensive Income
Nine Months Ended December 31, 2014

(In thousands)
 
Prestige
Brands
Holdings,
Inc.
 
Prestige
Brands,
Inc.,
the issuer
 
Combined
Subsidiary
Guarantors
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$

 
$
80,514

 
$
402,967

 
$
40,436

 
$
(2,936
)
 
$
520,981

Other revenues
 

 
308

 
3,506

 
1,104

 
(1,322
)
 
3,596

        Total revenues
 

 
80,822

 
406,473

 
41,540

 
(4,258
)
 
524,577

 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Sales
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation shown below)
 

 
30,170

 
187,218

 
14,998

 
(3,962
)
 
228,424

        Gross profit
 

 
50,652

 
219,255

 
26,542

 
(296
)
 
296,153

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Advertising and promotion
 

 
7,563

 
58,579

 
8,142

 

 
74,284

General and administrative
 
3,662

 
7,793

 
43,079

 
9,054

 

 
63,588

Depreciation and amortization
 
2,381

 
446

 
8,682

 
458

 

 
11,967

        Total operating expenses
 
6,043

 
15,802

 
110,340

 
17,654

 

 
149,839

        Operating income (loss)
 
(6,043
)
 
34,850

 
108,915

 
8,888

 
(296
)
 
146,314

 
 
 
 
 
 
 
 
 
 
 
 
 
Other (income) expense
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
(36,604
)
 
(52,546
)
 
(3,800
)
 
(55
)
 
92,938

 
(67
)
Interest expense
 
25,788

 
57,505

 
63,350

 
3,800

 
(92,938
)
 
57,505

Gain on sale of asset
 

 

 
(1,133
)
 

 

 
(1,133
)
Equity in (income) loss of subsidiaries
 
(53,718
)
 
(33,700
)
 
(2,565
)
 

 
89,983

 

        Total other (income) expense
 
(64,534
)
 
(28,741
)
 
55,852

 
3,745

 
89,983

 
56,305

Income (loss) before income taxes
 
58,491

 
63,591

 
53,063

 
5,143

 
(90,279
)
 
90,009

Provision for income taxes
 
4,003

 
10,761

 
18,179

 
2,578

 

 
35,521

Net income (loss)
 
$
54,488

 
$
52,830

 
$
34,884

 
$
2,565

 
$
(90,279
)
 
$
54,488

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
(16,883
)
 
(16,883
)
 
(16,883
)
 
(16,883
)
 
50,649

 
(16,883
)
Total other comprehensive income (loss)
 
(16,883
)
 
(16,883
)
 
(16,883
)
 
(16,883
)
 
50,649

 
(16,883
)
Comprehensive income (loss)
 
$
37,605

 
$
35,947

 
$
18,001

 
$
(14,318
)
 
$
(39,630
)
 
$
37,605



- 35-




Condensed Consolidating Balance Sheet
December 31, 2015

 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
Prestige
Brands
Holdings,
Inc.
 
Prestige
Brands,
Inc.,
the issuer
 
Combined
Subsidiary
Guarantors
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
33,752

 
$

 
$

 
$
15,221

 
$

 
$
48,973

Accounts receivable, net
 

 
13,381

 
64,679

 
7,025

 

 
85,085

Inventories
 

 
11,186

 
63,466

 
7,095

 
(1,076
)
 
80,671

Deferred income tax assets
 
304

 
728

 
6,921

 
453

 

 
8,406

Prepaid expenses and other current assets
 
2,174

 
446

 
1,165

 
1,235

 

 
5,020

Total current assets
 
36,230

 
25,741

 
136,231

 
31,029

 
(1,076
)
 
228,155

 
 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
9,383

 
227

 
2,085

 
607

 

 
12,302

Goodwill
 

 
66,007

 
197,272

 
19,400

 

 
282,679

Intangible assets, net
 

 
191,923

 
1,841,558

 
83,030

 

 
2,116,511

Other long-term assets
 

 
1,352

 

 

 

 
1,352

Intercompany receivables
 
1,231,094

 
2,523,623

 
960,672

 
10,958

 
(4,726,347
)
 

Investment in subsidiary
 
1,620,683

 
1,274,571

 
68,658

 

 
(2,963,912
)
 

Total Assets
 
$
2,897,390

 
$
4,083,444

 
$
3,206,476

 
$
145,024

 
$
(7,691,335
)
 
$
2,640,999

 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
1,952

 
$
5,668

 
$
18,372

 
$
2,547

 
$

 
$
28,539

Accrued interest payable
 

 
9,359

 

 

 

 
9,359

Other accrued liabilities
 
10,276

 
2,132

 
31,852

 
4,563

 

 
48,823

Total current liabilities
 
12,228

 
17,159

 
50,224

 
7,110

 

 
86,721

 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
Principal amount
 

 
1,477,500

 

 

 

 
1,477,500

Less unamortized debt costs
 

 
(30,468
)
 

 

 

 
(30,468
)
Long-term debt, net
 

 
1,447,032

 

 

 

 
1,447,032

 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred income tax liabilities
 

 
59,256

 
324,211

 
18

 

 
383,485

Other long-term liabilities
 

 

 
2,664

 
159

 

 
2,823

Intercompany payables
 
2,164,224

 
1,010,637

 
1,478,338

 
73,148

 
(4,726,347
)
 

Total Liabilities
 
2,176,452

 
2,534,084

 
1,855,437

 
80,435

 
(4,726,347
)
 
1,920,061

 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
530

 

 

 

 

 
530

Additional paid-in capital
 
442,127

 
1,280,947

 
1,131,578

 
74,031

 
(2,486,556
)
 
442,127

Treasury stock, at cost
 
(5,121
)
 

 

 

 

 
(5,121
)
Accumulated other comprehensive income (loss), net of tax
 
(29,974
)
 
(29,974
)
 
(29,974
)
 
(29,974
)
 
89,922

 
(29,974
)
Retained earnings (accumulated deficit)
 
313,376

 
298,387

 
249,435

 
20,532

 
(568,354
)
 
313,376

Total Stockholders' Equity
 
720,938

 
1,549,360

 
1,351,039

 
64,589

 
(2,964,988
)
 
720,938

Total Liabilities and Stockholders' Equity
 
$
2,897,390

 
$
4,083,444

 
$
3,206,476

 
$
145,024

 
$
(7,691,335
)
 
$
2,640,999



- 36-



Condensed Consolidating Balance Sheet
March 31, 2015

(In thousands)
 
Prestige
Brands
Holdings,
Inc.
 
Prestige
Brands,
Inc.,
the issuer
 
Combined
Subsidiary
Guarantors
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
11,387

 
$

 
$

 
$
9,931

 
$

 
$
21,318

Accounts receivable, net
 

 
14,539

 
66,523

 
6,796

 

 
87,858

Inventories
 

 
8,667

 
60,297

 
6,182

 
(1,146
)
 
74,000

Deferred income tax assets
 
452

 
674

 
6,497

 
474

 

 
8,097

Prepaid expenses and other current assets
 
5,731

 
141

 
3,804

 
758

 

 
10,434

Total current assets
 
17,570

 
24,021

 
137,121

 
24,141

 
(1,146
)
 
201,707

 
 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
10,726

 
175

 
2,207

 
636

 

 
13,744

Goodwill
 

 
66,007

 
204,205

 
20,439

 

 
290,651

Intangible assets, net
 

 
192,325

 
1,854,798

 
87,577

 

 
2,134,700

Other long-term assets
 

 
1,165

 

 

 

 
1,165

Intercompany receivables
 
1,210,017

 
2,607,054

 
668,169

 
8,764

 
(4,494,004
)
 

Investment in subsidiary
 
1,545,575

 
1,228,535

 
65,564

 

 
(2,839,674
)
 

Total Assets
 
$
2,783,888

 
$
4,119,282

 
$
2,932,064

 
$
141,557

 
$
(7,334,824
)
 
$
2,641,967

 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
1,959

 
$
6,829

 
$
32,898

 
$
4,429

 
$

 
$
46,115

Accrued interest payable
 

 
11,974

 

 

 

 
11,974

Other accrued liabilities
 
10,378

 
1,153

 
25,795

 
3,622

 

 
40,948

Total current liabilities
 
12,337

 
19,956

 
58,693

 
8,051

 

 
99,037

 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
Principal amount
 

 
1,593,600

 

 

 

 
1,593,600

Less unamortized debt costs
 

 
(32,327
)
 

 

 

 
(32,327
)
Long-term debt, net
 

 
1,561,273

 

 

 

 
1,561,273

 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred income tax liabilities
 

 
59,038

 
292,504

 
27

 

 
351,569

Other long-term liabilities
 

 

 
2,293

 
171

 

 
2,464

Intercompany payables
 
2,143,927

 
1,001,219

 
1,279,833

 
69,025

 
(4,494,004
)
 

Total Liabilities
 
2,156,264

 
2,641,486

 
1,633,323

 
77,274

 
(4,494,004
)
 
2,014,343

 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
525

 

 

 

 

 
525

Additional paid-in capital
 
426,584

 
1,280,948

 
1,131,578

 
74,031

 
(2,486,557
)
 
426,584

Treasury stock, at cost
 
(3,478
)
 

 

 

 

 
(3,478
)
Accumulated other comprehensive income (loss), net of tax
 
(23,412
)
 
(23,412
)
 
(23,412
)
 
(23,412
)
 
70,236

 
(23,412
)
Retained earnings (accumulated deficit)
 
227,405

 
220,260

 
190,575

 
13,664

 
(424,499
)
 
227,405

Total Stockholders' Equity
 
627,624

 
1,477,796

 
1,298,741

 
64,283

 
(2,840,820
)
 
627,624

Total Liabilities and Stockholders' Equity
 
$
2,783,888

 
$
4,119,282

 
$
2,932,064

 
$
141,557

 
$
(7,334,824
)
 
$
2,641,967



- 37-



Condensed Consolidating Statement of Cash Flows
Nine Months Ended December 31, 2015

(In thousands)
 
Prestige
Brands
Holdings,
Inc.
 
Prestige
Brands,
Inc.,
the issuer
 
Combined
Subsidiary
Guarantors
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Operating Activities
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
85,971

 
$
78,127

 
$
58,860

 
$
6,868

 
$
(143,855
)
 
$
85,971

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
3,032

 
444

 
13,686

 
316

 

 
17,478

Deferred income taxes
 
148

 
164

 
31,301

 
(22
)
 

 
31,591

Amortization of debt origination costs
 

 
5,433

 

 

 

 
5,433

Stock-based compensation costs
 
7,057

 

 

 
41

 

 
7,098

Loss on extinguishment of debt
 

 
451

 

 

 

 
451

Gain on sale or disposal of property and equipment
 

 

 

 
(36
)
 

 
(36
)
Equity in income of subsidiaries
 
(84,458
)
 
(52,599
)
 
(6,868
)
 

 
143,925

 

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable
 

 
1,158

 
2,188

 
(893
)
 

 
2,453

Inventories
 

 
(2,519
)
 
(3,014
)
 
(1,511
)
 
(70
)
 
(7,114
)
Prepaid expenses and other current assets
 
3,557

 
(305
)
 
2,752

 
(532
)
 

 
5,472

Accounts payable
 
(33
)
 
(1,161
)
 
(14,613
)
 
(1,746
)
 

 
(17,553
)
Accrued liabilities
 
(102
)
 
(1,636
)
 
5,439

 
1,506

 

 
5,207

Net cash provided by operating activities
 
15,172

 
27,557

 
89,731

 
3,991

 

 
136,451

 
 
 
 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
 
(1,741
)
 
(93
)
 
(212
)
 
(494
)
 


 
(2,540
)
Proceeds from the sale of property and equipment
 

 

 

 
344

 

 
344

Proceeds from Insight Pharmaceuticals working capital arbitration settlement


 

 

 
7,237

 

 

 
7,237

Net cash provided by (used in) investing activities
 
(1,741
)
 
(93
)
 
7,025

 
(150
)
 


5,041

 
 
 
 
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
 
 
 
 
Term loan repayments
 

 
(50,000
)
 

 

 

 
(50,000
)
Borrowings under revolving credit agreement
 

 
15,000

 

 

 

 
15,000

Repayments under revolving credit agreement
 

 
(81,100
)
 

 

 

 
(81,100
)
Payments of debt origination costs
 

 
(4,211
)
 

 

 

 
(4,211
)
Proceeds from exercise of stock options
 
6,600

 

 

 

 

 
6,600

Proceeds from restricted stock exercises
 
544

 

 

 

 

 
544

Excess tax benefits from share-based awards
 
1,850

 

 

 

 

 
1,850

Fair value of shares surrendered as payment of tax withholding
 
(2,187
)
 

 

 

 

 
(2,187
)
Intercompany activity, net
 
2,127

 
92,847

 
(96,756
)
 
1,782

 

 

Net cash (used in) provided by financing activities
 
8,934

 
(27,464
)
 
(96,756
)
 
1,782

 

 
(113,504
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 

 

 

 
(333
)
 

 
(333
)
Increase in cash and cash equivalents
 
22,365

 

 

 
5,290

 

 
27,655

Cash and cash equivalents - beginning of period
 
11,387

 

 

 
9,931

 

 
21,318

Cash and cash equivalents - end of period
 
$
33,752

 
$

 
$

 
$
15,221

 
$

 
$
48,973




- 38-



Condensed Consolidating Statement of Cash Flows
Nine Months Ended December 31, 2014

(In thousands)
 
Prestige Brands Holdings, Inc.
 
Prestige
Brands,
Inc.,
the issuer
 
Combined Subsidiary Guarantors
 
Combined Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Operating Activities
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
54,488

 
$
52,830

 
$
34,884

 
$
2,565

 
$
(90,279
)
 
$
54,488

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
2,381

 
446

 
8,682

 
458

 

 
11,967

Gain on sale of asset
 

 

 
(1,133
)
 

 

 
(1,133
)
Deferred income taxes
 
(69
)
 
1,814

 
17,900

 
(128
)
 

 
19,517

Amortization of debt origination costs
 

 
5,904

 

 

 

 
5,904

Stock-based compensation costs
 
4,919

 

 

 

 

 
4,919

Lease termination costs
 

 

 
1,125

 

 

 
1,125

Loss on sale or disposal of equipment
 

 

 

 
321

 

 
321

Equity in income of subsidiaries
 
(53,718
)
 
(33,700
)
 
(2,565
)
 

 
89,983

 

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable
 
466

 
(131
)
 
6,556

 
(4,778
)
 

 
2,113

Inventories
 

 
5,381

 
8,109

 
692

 
296

 
14,478

Prepaid expenses and other current assets
 
5,821

 
(140
)
 
2,070

 
(153
)
 

 
7,598

Accounts payable
 
(2,460
)
 
(2,652
)
 
(21,748
)
 
1,408

 

 
(25,452
)
Accrued liabilities
 
1,010

 
2,392

 
2,978

 
1,917

 

 
8,297

Net cash provided by operating activities
 
12,838

 
32,144

 
56,858

 
2,302

 

 
104,142

 
 
 
 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
 
(3,167
)
 

 
(419
)
 
(114
)
 

 
(3,700
)
Proceeds from sale of business
 

 

 
18,500

 

 

 
18,500

Proceeds from sale of asset
 

 

 
10,000

 

 

 
10,000

Acquisition of Insight Pharmaceuticals, less cash acquired
 

 

 
(749,666
)
 

 

 
(749,666
)
Acquisition of the Hydralyte brand
 

 

 

 
(77,991
)
 

 
(77,991
)
Intercompany activity, net
 

 
(809,157
)
 
731,166

 
77,991

 

 

Net cash (used in) provided by investing activities
 
(3,167
)
 
(809,157
)
 
9,581

 
(114
)
 

 
(802,857
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
 
 
 
 
Term loan borrowings
 

 
720,000

 

 

 

 
720,000

Term loan repayments
 

 
(80,000
)
 

 

 

 
(80,000
)
Borrowings under revolving credit agreement
 

 
124,600

 

 

 

 
124,600

Repayments under revolving credit agreement
 

 
(58,500
)
 

 

 

 
(58,500
)
Payment of debt origination costs
 

 
(16,072
)
 

 

 

 
(16,072
)
Proceeds from exercise of stock options
 
3,654

 

 

 

 

 
3,654

Proceeds from restricted stock exercises
 
57

 

 

 

 

 
57

Excess tax benefits from share-based awards
 
1,030

 

 

 

 

 
1,030

Fair value of shares surrendered as payment of tax withholding
 
(1,688
)
 

 

 

 

 
(1,688
)
Intercompany activity, net
 
(23,093
)
 
86,985

 
(65,950
)
 
2,058

 

 

Net cash provided by (used in) financing activities
 
(20,040
)
 
777,013

 
(65,950
)
 
2,058

 

 
693,081

 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 

 

 

 
(746
)
 

 
(746
)
(Decrease) increase in cash and cash equivalents
 
(10,369
)
 

 
489

 
3,500

 

 
(6,380
)
Cash and cash equivalents - beginning of period
 
24,644

 

 

 
3,687

 

 
28,331

Cash and cash equivalents - end of period
 
$
14,275

 
$

 
$
489

 
$
7,187

 
$

 
$
21,951



- 39-



20. Subsequent Events

Acquisition of DenTek Oral Care, Inc.
On November 23, 2015, we announced that we had entered into a definitive agreement to acquire DenTek Oral Care, Inc. ("DenTek"), a privately-held marketer and distributor of oral care products, for $225.0 million in cash. As of the date of this filing, we have not yet completed the acquisition, although we have recently received clearance under the Hart-Scott Rodino Antitrust Improvements Act of 1976 and anticipate closing on this transaction in the near future. The transaction will be financed from a combination of available cash on hand, the use of our existing credit facilities, and funds made available pursuant to a short-term bridge loan, which we anticipate finalizing prior to the DenTek closing. We anticipate refinancing the bridge loan on a long-term basis in the near future.

Director Resignation
On February 1, 2016, Charles J. Hinkaty resigned as a Director of the Company. Mr. Hinkaty had served as a Director since May 2010. His resignation was not the result of a disagreement related to the Company's operations, policies or practices.





- 40-




ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with the Consolidated Financial Statements and the related notes included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended March 31, 2015.  This discussion and analysis may contain forward-looking statements that involve certain risks, assumptions and uncertainties.  Future results could differ materially from the discussion that follows for many reasons, including the factors described in Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, as well as those described in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q and in future reports filed with the Securities and Exchange Commission (the "SEC").
See also “Cautionary Statement Regarding Forward-Looking Statements” on page 66 of this Quarterly Report on Form 10-Q.

General
We are engaged in the marketing, sales and distribution of over-the-counter (“OTC”) healthcare and household cleaning products to mass merchandisers, drug stores, supermarkets, and club, convenience, and dollar stores in North America (the United States and Canada) and in Australia and certain other international markets.  We use the strength of our brands, our established retail distribution network, a low-cost operating model and our experienced management team to grow our presence in these categories and, as a result, grow our sales and profits.

We have grown our product portfolio both organically and through acquisitions. We develop our core brands organically by investing in new product lines, brand extensions and providing advertising support. Acquisitions of OTC brands have also been an important part of our growth strategy. We have acquired well-recognized brands from consumer products and pharmaceutical companies as well as from private equity investors. While many of these brands have long histories of brand development and investment, we believe that, at the time we acquired them, many were considered “non-core” by their previous owners. As a result, these acquired brands did not benefit from adequate management focus and marketing support during the period prior to their acquisition, which created significant opportunities for us to achieve our objective of reinvigorating these brands and improving their performance post-acquisition. After adding a brand to our portfolio, we seek to increase its sales, market share and distribution in both existing and new channels through our established retail distribution network.  This is achieved often through increased spending on advertising and promotional support, new sales and marketing strategies, improved packaging and formulations and innovative development of brand extensions.

Acquisitions

Acquisition of Insight Pharmaceuticals
On September 3, 2014, the Company completed the acquisition of Insight Pharmaceuticals Corporation ("Insight"), a marketer and distributor of feminine care and other OTC healthcare products, for $745.9 million in cash after receiving a return of approximately $7.2 million from escrow related to an arbitrator's ruling. The closing followed the Federal Trade Commission’s (“FTC”) approval of the acquisition and was finalized pursuant to the terms of the purchase agreement announced on April 25, 2014. Pursuant to the Insight purchase agreement, the Company acquired 27 OTC brands sold in North America (including related trademarks, contracts and inventory), which extended the Company's portfolio of OTC brands to include a leading feminine care platform in the United States and Canada anchored by Monistat, the leading brand in OTC yeast infection treatment. The acquisition also added brands to the Company's cough & cold, pain relief, ear care and dermatological platforms. In connection with the FTC's approval of the Insight acquisition, we sold one of the competing brands that we acquired from Insight on the same day as the Insight closing. The Insight brands are primarily included in our North American OTC Healthcare segment.

The Insight acquisition was accounted for in accordance with the Business Combinations topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.


- 41-



We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. During the quarter ended June 30, 2015, we adjusted the fair values of the assets acquired and liabilities assumed by increasing goodwill for certain immaterial items that came to our attention subsequent to the date of acquisition. Additionally, during the quarter ended December 31, 2015, we reduced goodwill, as we received $7.2 million as a result of an arbitration ruling relating to the disputed working capital calculation as of the date of the Insight acquisition, which is clearly and directly related to the purchase price. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the September 3, 2014 acquisition date, after giving effect of the adjustments noted above.


(In thousands)
September 3, 2014
 
 
Cash acquired
$
3,507

Accounts receivable
26,012

Inventories
23,456

Deferred income tax assets - current
1,032

Prepaids and other current assets
1,341

Property, plant and equipment
2,308

Goodwill
96,323

Intangible assets
724,374

Total assets acquired
878,353

 
 
Accounts payable
16,079

Accrued expenses
8,539

Deferred income tax liabilities - long term
107,799

Total liabilities assumed
132,417

Total purchase price
$
745,936


Based on this analysis, we allocated $599.6 million to indefinite-lived intangible assets and $124.8 million to amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of 16.2 years. The weighted average remaining life for amortizable intangible assets at December 31, 2015 was 14.8 years.

We also recorded goodwill of $96.3 million based on the amount by which the purchase price exceeded the fair value of the net assets acquired after the effect of the adjustments described above. Goodwill is not deductible for income tax purposes.

The operating results of Insight have been included in our Consolidated Financial Statements beginning September 3, 2014. On September 3, 2014, we sold one of the brands we acquired from the Insight acquisition for $18.5 million, for which we had allocated $17.7 million, $0.6 million and $0.2 million to intangible assets, inventory and property, plant and equipment, respectively.

The following table provides our unaudited pro forma revenues, net income and net income per basic and diluted common share had the results of Insight's operations been included in our operations commencing on April 1, 2013, based upon available information related to Insight's operations. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized by us had the Insight acquisition been consummated at the beginning of the period for which the pro forma information is presented, or of future results.


- 42-



(In thousands, except per share data)
 
Nine Months Ended December 31, 2014
Revenues
 
$
593,171

Net income
 
$
62,688

 
 
 
Earnings per share:
 
 
Basic
 
$
1.20

 
 
 
Diluted
 
$
1.19


Acquisition of the Hydralyte brand
On April 30, 2014, we completed the acquisition of the Hydralyte brand in Australia and New Zealand from The Hydration Pharmaceuticals Trust of Victoria, Australia, which was funded through a combination of cash on hand and our existing senior secured credit facility.

Hydralyte is the leading OTC brand in oral rehydration in Australia and is marketed and sold through our Care Pharmaceuticals Pty Ltd. subsidiary ("Care Pharma"). Hydralyte is available in pharmacies in multiple forms and is indicated for oral rehydration following diarrhea, vomiting, fever, heat and other ailments. Hydralyte is included in our International OTC Healthcare segment.

The Hydralyte acquisition was accounted for in accordance with the Business Combinations topic of the FASB ASC 805, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.

We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the April 30, 2014 acquisition date.

(In thousands)
April 30, 2014
 
 
Inventories
$
1,970

Property, plant and equipment, net
1,267

Goodwill
1,224

Intangible assets, net
73,580

Total assets acquired
78,041

 
 
Accrued expenses
38

Other long term liabilities
12

Total liabilities assumed
50

Net assets acquired
$
77,991


Based on this analysis, we allocated $73.6 million to non-amortizable intangible assets and no allocation was made to amortizable intangible assets.

We also recorded goodwill of $1.2 million based on the amount by which the purchase price exceeded the fair value of the net assets acquired. Goodwill is not deductible for income tax purposes.

The pro forma effect of this acquisition on revenues and earnings was not material.


- 43-



Results of Operations

Three Months Ended December 31, 2015 compared to the Three Months Ended December 31, 2014

Total Segment Revenues

The following table represents total revenue by segment, including product groups, for the three months ended December 31, 2015 and 2014.
 
Three Months Ended December 31,
 
 
 
 
 
Increase (Decrease)
(In thousands)
2015
%
2014
%
Amount
%
North American OTC Healthcare
 
 
 
 
 
Analgesics
$
30,454

15.2
$
28,187

14.3
$
2,267

8.0

Cough & Cold
30,466

15.2
31,927

16.2
(1,461
)
(4.6
)
Women's Health
33,521

16.7
31,364

15.9
2,157

6.9

Gastrointestinal
17,401

8.7
17,365

8.8
36

0.2

Eye & Ear Care
21,927

10.9
20,528

10.4
1,399

6.8

Dermatologicals
19,734

9.9
17,663

8.9
2,071

11.7

Oral Care
9,996

5.0
12,300

6.2
(2,304
)
(18.7
)
Other OTC
1,551

0.8
1,471

0.7
80

5.4

Total North American OTC Healthcare
165,050

82.4
160,805

81.4
4,245

2.6

 
 
 
 
 
 
 
International OTC Healthcare
 
 
 
 
 
Analgesics
450

0.2
657

0.3
(207
)
(31.5
)
Cough & Cold
3,696

1.8
3,831

1.9
(135
)
(3.5
)
Women's Health
877

0.4
589

0.3
288

48.9

Gastrointestinal
5,517

2.8
6,668

3.4
(1,151
)
(17.3
)
Eye & Ear Care
2,622

1.3
3,069

1.6
(447
)
(14.6
)
Dermatologicals
524

0.3
570

0.3
(46
)
(8.1
)
Oral Care
126

0.1
172

0.1
(46
)
(26.7
)
Other OTC
9

11

(2
)
(18.2
)
Total International OTC Healthcare
13,821

6.9
15,567

7.9
(1,746
)
(11.2
)
 
 
 
 
 
 
 
Total OTC Healthcare
178,871

89.3
176,372

89.3
2,499

1.4

Household Cleaning
21,324

10.7
21,234

10.7
90

0.4

Total Consolidated
$
200,195

100.0
$
197,606

100.0
$
2,589

1.3



Total segment revenues for the three months ended December 31, 2015 were $200.2 million, an increase of $2.6 million, or 1.3%, versus the three months ended December 31, 2014. This increase was primarily related to the North American OTC Healthcare segment in the analgesics, women's health, dermatologicals, and eye & ear care product groups. The increase was partially offset by a decrease of $1.7 million in the International OTC Healthcare segment, primarily due to the lower revenues from certain brands in the gastrointestinal and eye & ear care product groups.

North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment increased $4.2 million, or 2.6%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014. 

This increase was primarily due to the increases of $2.3 million in the analgesics product group, $2.2 million in the women's health product group, $2.1 million in the dermatologicals product group, and $1.4 million in the eye & ear care product group during the three months ended December 31, 2015 versus the three months ended December 31, 2014. The increase was partially offset by

- 44-



decreases in the oral care and cough & cold product groups of $2.3 million and $1.5 million, respectively. The decrease in the cough & cold product group was partially due to Pediacare, which continues to experience declines in revenues and market share due to increasing competition in the cough & cold market. Although we experienced declines in revenues in Pediacare, we continue to believe that the carrying value is recoverable. However, if we experience future declines in revenue or performance not in line with our expectations, the carrying value may no longer be recoverable, in which case a non-cash impairment charge may be recorded in future periods.

In the past, in our women's health and analgesics product groups, a third-party manufacturer had failed to keep up with demand, leading to product being temporarily out of stock. However, in the third quarter of calendar 2015, those out of stock issues were resolved as a result of increased manufacturing, and we therefore believe we will not have need for an alternative supplier as we had previously anticipated. If supply issues resurface in these or in other product groups that are not resolved timely, we may not have enough product to meet demand, which could adversely impact our business, result in a significant reduction of net sales and have an adverse impact on our results of operations and financial condition.

International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment decreased $1.7 million, or 11.2%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014. This decrease was primarily due to a decrease of $1.2 million in the gastrointestinal product group and a decrease of $0.5 million in the eye & ear care product group. The decrease was also related to the negative impact of foreign currency exchange rates during the three months ended December 31, 2015 versus the three months ended December 31, 2014.

Household Cleaning Segment
Revenues for the Household Cleaning segment increased by $0.1 million, or 0.4%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014. This increase was primarily attributable to increased sales in certain distribution channels.

Cost of Sales
The following table presents our cost of sales and cost of sales as a percentage of total segment revenues, by segment for each of the periods presented.
 
Three Months Ended December 31,
(In thousands)
 
 
 
 
 
 
 
 
Increase (Decrease)
Cost of Sales
2015
 
%
 
2014
 
%
 
Amount
 
%
North American OTC Healthcare
$
62,654

 
38.0
 
$
63,479

 
39.5
 
$
(825
)
 
(1.3
)
International OTC Healthcare
4,965

 
35.9
 
6,247

 
40.1
 
(1,282
)
 
(20.5
)
Household Cleaning
15,792

 
74.1
 
16,135

 
76.0
 
(343
)
 
(2.1
)
 
$
83,411

 
41.7
 
$
85,861

 
43.5
 
$
(2,450
)
 
(2.9
)

Cost of sales decreased $2.5 million, or 2.9%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014. This decrease was largely due to decreases in the International OTC Healthcare segment and the North American OTC Healthcare segment. As a percentage of total revenue, cost of sales decreased to 41.7% in the three months ended December 31, 2015 from 43.5% in the three months ended December 31, 2014. This decrease in cost of sales as a percentage of revenues was a result of decreases in cost of sales in all segments.

North American OTC Healthcare Segment
Cost of sales for the North American OTC Healthcare segment decreased $0.8 million, or 1.3%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014.  As a percentage of the North American OTC Healthcare revenues, cost of sales decreased to 38.0% during the three months ended December 31, 2015 from 39.5% during the three months ended December 31, 2014. The decrease in costs of sales as a percentage of revenues was primarily due to a favorable product mix in the North American OTC Healthcare segment.

International OTC Healthcare Segment
Cost of sales for the International OTC Healthcare segment decreased $1.3 million, or 20.5%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014. This decrease was due to decreases in cost of sales in the gastrointestinal product group and the eye & ear care product group, driven by foreign currency exchange rate fluctuations during the three months ended December 31, 2015 versus the three months ended December 31, 2014. As a percentage of the International

- 45-



OTC Healthcare revenues, cost of sales decreased to 35.9% in the three months ended December 31, 2015 from 40.1% during the three months ended December 31, 2014. The decrease in cost of sales as a percentage of revenues was due to the decreases in cost of sales in the gastrointestinal and eye & ear care product groups.

Household Cleaning Segment
Cost of sales for the Household Cleaning segment decreased $0.3 million, or 2.1%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014.  As a percentage of Household Cleaning revenues, cost of sales decreased to 74.1% during the three months ended December 31, 2015 from 76.0% during the three months ended December 31, 2014. This decrease in cost of sales as a percentage of revenues was primarily attributable to a favorable product mix.

Gross Profit
The following table presents our gross profit and gross profit as a percentage of total segment revenues, by segment for each of the periods presented.

 
Three Months Ended December 31,
(In thousands)
 
 
 
 
 
 
 
 
Increase (Decrease)
Gross Profit
2015
 
%
 
2014
 
%
 
Amount
 
%
North American OTC Healthcare
$
102,396

 
62.0
 
$
97,326

 
60.5
 
$
5,070

 
5.2

International OTC Healthcare
8,856

 
64.1
 
9,320

 
59.9
 
(464
)
 
(5.0
)
Household Cleaning
5,532

 
25.9
 
5,099

 
24.0
 
433

 
8.5

 
$
116,784

 
58.3
 
$
111,745

 
56.5
 
$
5,039

 
4.5


Gross profit for the three months ended December 31, 2015 increased $5.0 million, or 4.5%, when compared with the three months ended December 31, 2014.  As a percentage of total revenues, gross profit increased to 58.3% in the three months ended December 31, 2015 from 56.5% in the three months ended December 31, 2014. The increase in gross profit as a percentage of revenues was primarily due to the increases in gross margin in the North American OTC Healthcare segment.

North American OTC Healthcare Segment
Gross profit for the North American OTC Healthcare segment increased $5.1 million, or 5.2%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014. As a percentage of North American OTC Healthcare revenues, gross profit increased to 62.0% during the three months ended December 31, 2015 from 60.5% during the three months ended December 31, 2014. The increase in gross profit and the increase in gross profit as a percentage of revenues was primarily attributable to an increase in gross margin in the women’s health and analgesics product groups.

International OTC Healthcare Segment
Gross profit for the International OTC Healthcare segment decreased $0.5 million, or 5.0%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014. As a percentage of International OTC Healthcare revenues, gross profit increased to 64.1% during the three months ended December 31, 2015 from 59.9% during the three months ended December 31, 2014. As discussed above, this increase was primarily due to decreased cost of sales as a percentage of revenues for the three months ended December 31, 2015 versus the three months ended December 31, 2014.

Household Cleaning Segment
Gross profit for the Household Cleaning segment increased $0.4 million, or 8.5%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014.  As a percentage of Household Cleaning revenue, gross profit increased to 25.9% during the three months ended December 31, 2015 from 24.0% during the three months ended December 31, 2014. The increase in gross profit as a percentage of revenues was primarily attributable to higher sales through certain distribution channels that have higher gross margins.

- 46-



Contribution Margin
The following table presents our contribution margin and contribution margin as a percentage of total segment revenues, by segment for each of the periods presented.

 
Three Months Ended December 31,
(In thousands)
 
 
 
 
 
 
 
 
Increase (Decrease)
Contribution Margin
2015
 
%
 
2014
 
%
 
Amount
 
%
North American OTC Healthcare
$
75,924

 
46.0
 
$
70,547

 
43.9
 
$
5,377

 
7.6

International OTC Healthcare
6,018

 
43.5
 
6,544

 
42.0
 
(526
)
 
(8.0
)
Household Cleaning
4,907

 
23.0
 
4,510

 
21.2
 
397

 
8.8

 
$
86,849

 
43.4
 
$
81,601

 
41.3
 
$
5,248

 
6.4


Contribution margin is a non-GAAP financial measure that we use as a primary measure for evaluating segment performance. It is defined as gross profit less advertising and promotional expenses. Contribution margin increased $5.2 million, or 6.4%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014.  This increase was primarily related to the increases in gross profit in the North American OTC Healthcare segment.

North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment increased $5.4 million, or 7.6%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014. The contribution margin increase was primarily the result of an increase in gross profit in the analgesics and women's health product groups. As a percentage of North American OTC Healthcare revenues, contribution margin increased to 46.0% during the three months ended December 31, 2015 from 43.9% during the three months ended December 31, 2014.

International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment decreased $0.5 million, or 8.0%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014. As a percentage of International OTC Healthcare revenues, contribution margin increased to 43.5% during the three months ended December 31, 2015 from 42.0% during the three months ended December 31, 2014. This increase in contribution margin as a percentage of revenues was primarily the result of the decrease in cost of sales as a percentage of revenues discussed above.

Household Cleaning Segment
Contribution margin for the Household Cleaning segment increased $0.4 million, or 8.8%, during the three months ended December 31, 2015 versus the three months ended December 31, 2014.  As a percentage of Household Cleaning revenues, contribution margin increased to 23.0% during the three months ended December 31, 2015 from 21.2% during the three months ended December 31, 2014. The contribution margin increase as a percentage of revenues was primarily due to the gross profit increase as a percentage of revenues in the Household Cleaning segment discussed above.
 
General and Administrative
General and administrative expenses were $18.1 million for the three months ended December 31, 2015 versus $19.5 million for the three months ended December 31, 2014. The decrease in general and administrative expenses was primarily due to a lease termination charge of $1.1 million related to the remaining lease payments from the Insight office, incurred during the third quarter of fiscal 2015.

Depreciation and Amortization
Depreciation and amortization expense was $6.1 million and $5.2 million for the three months ended December 31, 2015 and 2014, respectively. The increase in depreciation and amortization expense was due to higher intangible asset amortization in the three months ended December 31, 2015 related to Pediacare, as this trade name was reclassified to a finite-lived intangible asset as part of our annual impairment analysis conducted during the fourth fiscal quarter of 2015.


- 47-



Interest Expense
Net interest expense was $19.5 million during the three months ended December 31, 2015 versus $24.6 million during the three months ended December 31, 2014. The decrease in net interest expense was primarily the result of reduced borrowings under our term loan facility and revolving credit facility. The average indebtedness outstanding decreased from approximately $1.7 billion during the three months ended December 31, 2014 to $1.5 billion during the three months ended December 31, 2015. The decrease in average indebtedness outstanding is the result of the reduced borrowings discussed above. The average cost of borrowing decreased to 5.2% for the three months ended December 31, 2015 from 5.8% for the three months ended December 31, 2014.

Income Taxes
The provision for income taxes during the three months ended December 31, 2015 was $15.2 million versus $12.2 million during the three months ended December 31, 2014.  The effective tax rate during the three months ended December 31, 2015 was 35.2% versus 36.5% during the three months ended December 31, 2014. The decrease in the effective tax rate for the three months ended December 31, 2015 versus the three months ended December 31, 2014 was primarily due to the impact of certain non-deductible items related to acquisitions in the prior year period and to the favorable tax deductions related to stock options, equity awards and to certain foreign tax credits that were realized in the current year period. The estimated effective tax rate for the remaining quarters of the fiscal year ending March 31, 2016 is expected to be approximately 35.1%, excluding the impact of acquisitions and discrete items that may occur.


- 48-



Results of Operations

Nine Months Ended December 31, 2015 compared to the Nine Months Ended December 31, 2014

Total Segment Revenues

The following table represents total revenue by segment, including product groups, for the nine months ended December 31, 2015 and 2014.
 
Nine Months Ended December 31,
 
 
 
 
 
Increase (Decrease)
(In thousands)
2015
%
2014
%
Amount
%
North American OTC Healthcare
 
 
 
 
 
Analgesics
$
86,996

14.5
$
82,290

15.7
$
4,706

5.7

Cough & Cold
74,661

12.5
76,741

14.6
(2,080
)
(2.7
)
Women's Health
100,036

16.7
40,851

7.8
59,185

(*)

Gastrointestinal
56,782

9.5
58,899

11.2
(2,117
)
(3.6
)
Eye & Ear Care
71,137

12.0
64,086

12.2
7,051

11.0

Dermatologicals
63,026

10.5
47,383

9.0
15,643

33.0

Oral Care
29,706

5.0
35,421

6.8
(5,715
)
(16.1
)
Other OTC
4,466

0.7
4,574

0.9
(108
)
(2.4
)
Total North American OTC Healthcare
486,810

81.4
410,245

78.2
76,565

18.7

 
 
 
 
 
 
 
International OTC Healthcare
 
 
 
 
 
Analgesics
1,668

0.3
2,114

0.4
(446
)
(21.1
)
Cough & Cold
12,968

2.2
14,090

2.7
(1,122
)
(8.0
)
Women's Health
2,381

0.4
1,765

0.3
616

34.9

Gastrointestinal
14,667

2.3
14,764

2.8
(97
)
(0.7
)
Eye & Ear Care
9,415

1.6
10,311

2.0
(896
)
(8.7
)
Dermatologicals
1,669

0.3
1,799

0.3
(130
)
(7.2
)
Oral Care
509

0.1
361

0.1
148

41.0

Other OTC
18

15

3

20.0

Total International OTC Healthcare
43,295

7.2
45,219

8.6
(1,924
)
(4.3
)
 
 
 
 
 
 
 
Total OTC Healthcare
530,105

88.6
455,464

86.8
74,641

16.4

Household Cleaning
68,287

11.4
69,113

13.2
(826
)
(1.2
)
Total Consolidated
$
598,392

100.0
$
524,577

100.0
$
73,815

14.1

(*) % not meaningful

Total segment revenues for the nine months ended December 31, 2015 were $598.4 million, an increase of $73.8 million, or 14.1%, versus the nine months ended December 31, 2014. This increase was primarily related to an increase of $76.6 million in the North American OTC Healthcare segment, largely due to the acquisition of Insight. The Insight brands accounted for approximately $74.1 million of revenues in the North American OTC Healthcare segment that were not included in the comparable period in the prior year. The increase was partially offset by a decrease of $2.0 million in the International OTC Healthcare segment.

North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment increased $76.6 million, or 18.7%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014. 

This increase was primarily due to the acquisition of Insight, which contributed $74.1 million of revenues not included in the comparable period in the prior year, consisting of increases of $55.3 million, $11.3 million, $2.5 million, $2.4 million, and $1.7 million in the women’s health, dermatologicals, eye & ear care, cough & cold, and analgesics product groups, respectively. In

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addition to the revenue increase contributed by Insight, there was an increase of $2.4 million in revenue primarily consisting of increases in the eye & ear care, dermatologicals, women’s health and analgesics product groups, which was partially offset by decreases in oral care, gastrointestinal and cough & cold product groups. The decrease in the cough & cold product group was partially due to Pediacare, which continues to experience declines in revenues and market share due to increasing competition in the cough & cold market. Although we experienced declines in revenues in Pediacare, we continue to believe that the carrying value is recoverable. However, if we experience future declines in revenue or performance not in line with our expectations, the carrying value may no longer be recoverable, in which case a non-cash impairment charge may be recorded in future periods.

In the past, in our women's health and analgesics product groups, a third-party manufacturer had failed to keep up with demand leading to product being temporarily out of stock. However, in the third quarter of calendar 2015, those out of stock issues were resolved as a result of increased manufacturing, and we therefore believe we will not have need for an alternative supplier as we had previously anticipated. If supply issues resurface in these or in other product groups that are not resolved timely, we may not have enough product to meet demand, which could adversely impact our business, result in a significant reduction of net sales and have an adverse impact on our results of operations and financial condition.

International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment decreased $1.9 million, or 4.3%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014. This decrease was primarily due to a decrease of $1.1 million in the cough & cold product group and a decrease of $0.9 million in the eye & ear care product group.

Household Cleaning Segment
Revenues for the Household Cleaning segment decreased by $0.8 million, or 1.2%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014. The decrease was primarily due to decreased sales in certain distribution channels.

Cost of Sales
The following table presents our cost of sales and cost of sales as a percentage of total segment revenues, by segment for each of the periods presented.
 
Nine Months Ended December 31,
(In thousands)
 
 
 
 
 
 
 
 
Increase (Decrease)
Cost of Sales
2015
 
%
 
2014
 
%
 
Amount
 
%
North American OTC Healthcare
$
182,279

 
37.4
 
$
158,005

 
38.5
 
$
24,274

 
15.4

International OTC Healthcare
16,347

 
37.8
 
17,926

 
39.6
 
(1,579
)
 
(8.8
)
Household Cleaning
50,806

 
74.4
 
52,493

 
76.0
 
(1,687
)
 
(3.2
)
 
$
249,432

 
41.7
 
$
228,424

 
43.5
 
$
21,008

 
9.2


Cost of sales increased $21.0 million, or 9.2%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014. This increase was largely due to increased sales volume associated with the acquisitions of Insight and the Hydralyte brand. As a percentage of total revenue, cost of sales decreased to 41.7% in the nine months ended December 31, 2015 from 43.5% in the nine months ended December 31, 2014. This decrease in cost of sales as a percentage of revenues was the result of decreases in cost of sales as a percentage of revenue in all segments.

North American OTC Healthcare Segment
Cost of sales for the North American OTC Healthcare segment increased $24.3 million, or 15.4%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014.  This increase was due to higher overall sales volume primarily from the acquisition of Insight and to higher manufacturing costs for certain of our products. As a percentage of North American OTC Healthcare revenues, cost of sales decreased to 37.4% during the nine months ended December 31, 2015 from 38.5% during the nine months ended December 31, 2014. The decrease in costs of sales as a percentage of revenues was largely due to a favorable product mix in the North American OTC Healthcare segment, primarily the result of the acquired Insight brands.

International OTC Healthcare Segment
Cost of sales for the International OTC Healthcare segment decreased $1.6 million, or 8.8%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014. This decrease was due to decreases in cost of sales in the gastrointestinal, eye & ear and cough & cold product groups, driven by foreign currency exchange rate fluctuations year over year. As a percentage of the International OTC Healthcare revenues, cost of sales in the International OTC Healthcare segment decreased

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to 37.8% in the nine months ended December 31, 2015 from 39.6% during the nine months ended December 31, 2014. The decrease in cost of sales as a percentage of revenues was primarily attributable to the product groups discussed above.

Household Cleaning Segment
Cost of sales for the Household Cleaning segment decreased $1.7 million, or 3.2%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014.  As a percentage of Household Cleaning revenues, cost of sales decreased to 74.4% during the nine months ended December 31, 2015 from 76.0% during the nine months ended December 31, 2014. This decrease in cost of sales as a percentage of revenues was primarily attributable to a favorable product mix.

Gross Profit
The following table presents our gross profit and gross profit as a percentage of total segment revenues, by segment for each of the periods presented.

 
Nine Months Ended December 31,
(In thousands)
 
 
 
 
 
 
 
 
Increase (Decrease)
Gross Profit
2015
 
%
 
2014
 
%
 
Amount
 
%
North American OTC Healthcare
$
304,531

 
62.6
 
$
252,240

 
61.5
 
$
52,291

 
20.7

International OTC Healthcare
26,948

 
62.2
 
27,293

 
60.4
 
(345
)
 
(1.3
)
Household Cleaning
17,481

 
25.6
 
16,620

 
24.0
 
861

 
5.2

 
$
348,960

 
58.3
 
$
296,153

 
56.5
 
$
52,807

 
17.8


Gross profit for the nine months ended December 31, 2015 increased $52.8 million, or 17.8%, when compared with the nine months ended December 31, 2014.  As a percentage of total revenues, gross profit increased to 58.3% in the nine months ended December 31, 2015 from 56.5% in the nine months ended December 31, 2014. The increase in gross profit as a percentage of revenues was primarily the result of higher gross margins associated with the acquired Insight brands.

North American OTC Healthcare Segment
Gross profit for the North American OTC Healthcare segment increased $52.3 million, or 20.7%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014.  This increase was due to higher overall sales volume primarily from the acquisition of Insight, slightly offset by higher manufacturing costs for certain of our products. As a percentage of North American OTC Healthcare revenues, gross profit increased to 62.6% in the nine months ended December 31, 2015 from 61.5% in the nine months ended December 31, 2014. The increase in gross profit as a percentage of revenues was primarily attributable to the mix of the brands acquired from Insight that were in-line with certain of our higher gross margin OTC healthcare brands.

International OTC Healthcare Segment
Gross profit for the International OTC Healthcare segment decreased $0.3 million, or 1.3%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014. As a percentage of International OTC Healthcare revenues, gross profit increased to 62.2% during the nine months ended December 31, 2015 from 60.4% during the nine months ended December 31, 2014. The increase in gross profit as a percentage of revenues was primarily attributable to an increase in gross margin in the gastrointestinal product group.

Household Cleaning Segment
Gross profit for the Household Cleaning segment increased $0.9 million, or 5.2%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014.  As a percentage of Household Cleaning revenue, gross profit increased to 25.6% during the nine months ended December 31, 2015 from 24.0% during the nine months ended December 31, 2014. The increase in gross profit as a percentage of revenues was primarily attributable to higher sales through certain distribution channels that have higher gross margins.


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Contribution Margin
The following table presents our contribution margin and contribution margin as a percentage of total segment revenues, by segment for each of the periods presented.

 
Nine Months Ended December 31,
(In thousands)
 
 
 
 
 
 
 
 
Increase (Decrease)
Contribution Margin
2015
 
%
 
2014
 
%
 
Amount
 
%
North American OTC Healthcare
$
230,424

 
47.3
 
$
187,667

 
45.7
 
$
42,757

 
22.8

International OTC Healthcare
18,610

 
43.0
 
19,142

 
42.3
 
(532
)
 
(2.8
)
Household Cleaning
15,676

 
23.0
 
15,060

 
21.8
 
616

 
4.1

 
$
264,710

 
44.2
 
$
221,869

 
42.3
 
$
42,841

 
19.3


Contribution margin is a non-GAAP financial measure that we use as a primary measure for evaluating segment performance. It is defined as gross profit less advertising and promotional expenses. Contribution margin increased $42.8 million, or 19.3%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014.  The contribution margin increase was primarily related to the increase in gross profit in the North American OTC Healthcare segment.

North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment increased $42.8 million, or 22.8%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014. The contribution margin increase was primarily the result of higher sales volumes and gross profit attributable to the Insight acquisition, partially offset by an increase in advertising and promotional expenses. As a percentage of North American OTC Healthcare revenues, contribution margin increased to 47.3% during the nine months ended December 31, 2015 from 45.7% during the nine months ended December 31, 2014.

International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment decreased $0.5 million, or 2.8%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014. As a percentage of International OTC Healthcare revenues, contribution margin increased to 43.0% during the nine months ended December 31, 2015 from 42.3% during the nine months ended December 31, 2014.

Household Cleaning Segment
Contribution margin for the Household Cleaning segment increased $0.6 million, or 4.1%, during the nine months ended December 31, 2015 versus the nine months ended December 31, 2014.  As a percentage of Household Cleaning revenues, contribution margin increased to 23.0% during the nine months ended December 31, 2015 from 21.8% during the nine months ended December 31, 2014. This increase was primarily attributable to a favorable product mix in certain distribution channels.
 
General and Administrative
General and administrative expenses were $52.2 million for the nine months ended December 31, 2015 versus $63.6 million for the nine months ended December 31, 2014. The decrease in general and administrative expenses was primarily due to the decrease in acquisition costs of $13.9 million associated with the acquisition and integration of Insight in the prior year. This decrease was also attributable to a lease termination charge of $1.1 million related to the remaining lease payments from the Insight office incurred during the third quarter of fiscal 2015. These decreases were partially offset by an increase in compensation, stock based compensation and information technology costs of $2.6 million, $2.2 million and $1.0 million, respectively.

Depreciation and Amortization
Depreciation and amortization expense was $17.5 million and $12.0 million for the nine months ended December 31, 2015 and 2014, respectively. The increase in depreciation and amortization expense was primarily due to higher intangible asset amortization in the nine months ended December 31, 2015 related to the intangible assets acquired as a result of the Insight acquisition. Additionally, the increase in depreciation and amortization is partially due to higher intangible asset amortization in the nine months ended December 31, 2015 related to Pediacare, as this trade name was reclassified to a finite-lived intangible asset as part of our annual impairment analysis conducted during the fourth fiscal quarter of 2015.


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Interest Expense
Net interest expense was $62.1 million during the nine months ended December 31, 2015 versus $57.5 million during the nine months ended December 31, 2014. The increase in net interest expense was primarily the result of a higher level of indebtedness, primarily related to the acquisition of Insight. The average indebtedness outstanding increased from $1.3 billion during the nine months ended December 31, 2014 to $1.5 billion during the nine months ended December 31, 2015. The increase in average indebtedness outstanding is the result of additional borrowings under our term loan facility and revolving credit facility to fund our acquisition of Insight. The average cost of borrowing decreased to 5.3% for the nine months ended December 31, 2015, from 5.9% for the nine months ended December 31, 2014.

Income Taxes
The provision for income taxes during the nine months ended December 31, 2015 was $46.6 million versus $35.5 million during the nine months ended December 31, 2014.  The effective tax rate during the nine months ended December 31, 2015 was 35.2% versus 39.5% during the nine months ended December 31, 2014. The decrease in the effective tax rate for the nine months ended December 31, 2015 versus the nine months ended December 31, 2014 was primarily due to the impact of certain non-deductible items related to acquisitions in the prior year and to the favorable tax deductions related to stock options, equity awards and to certain foreign tax credits realized in the current year period. The estimated effective tax rate for the remaining quarters of the fiscal year ending March 31, 2016 is expected to be approximately 35.1%, excluding the impact of acquisitions and discrete items that may occur.

Liquidity and Capital Resources
Liquidity
Our primary source of cash comes from our cash flow from operations. In the past, we have supplemented this source of cash with various debt facilities, primarily in connection with acquisitions. We have financed, and expect to continue to finance our operations over the next twelve months, with a combination of borrowings and funds generated from operations.  Our principal uses of cash are for operating expenses, debt service, acquisitions, working capital and capital expenditures. Based on our current levels of operations and anticipated growth, excluding acquisitions, we believe that our cash generated from operations, and our existing credit facilities, will be adequate to finance our working capital and capital expenditures through the next twelve months, although no assurance can be given in this regard.

The following table summarizes our cash provided by (used in) operating activities, investing activities and financing activities as reported in our consolidated statements of cash flows in the accompanying Consolidated Financial Statements.

 
Nine Months ended December 31,
(In thousands)
2015
 
2014
Cash provided by (used in):
 
 
 
Operating Activities
$
136,451

 
$
104,142

Investing Activities
5,041

 
(802,857
)
Financing Activities
(113,504
)
 
693,081



Operating Activities
Net cash provided by operating activities was $136.5 million for the nine months ended December 31, 2015 compared to $104.1 million for the nine months ended December 31, 2014. The $32.3 million increase in net cash provided by operating activities was primarily due to an increase in net income of $31.5 million and an increase in non-cash charges of $19.4 million, partially offset by an increase in working capital of $18.6 million.

Working capital is defined as current assets (excluding cash and cash equivalents) minus current liabilities. Working capital increased in the nine months ended December 31, 2015 compared to the nine months ended December 31, 2014 as a result of an increase in the year-over-year change in inventory of $21.6 million, a lower decrease in the year-over-year change in prepaid expenses and other current assets of $2.2 million and a decrease in the year-over-year change in accrued liabilities of $3.1 million, partially offset by a lower decrease in the year-over-year change in accounts payable of $8.0 million and a decrease in the year-over-year change in accounts receivable of $0.3 million. The year-over-year increase of $21.6 million of inventory is primarily the result of an inventory build of $7.1 million in the current year period primarily related to certain brands in anticipation of short-term requirements and a $14.5 million inventory usage in the prior year period primarily associated with certain brands selling through and holding less stock.


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Non-cash charges increased $19.4 million for the nine months ended December 31, 2015 compared to the nine months ended December 31, 2014 primarily due to an increase in deferred income taxes of $12.1 million, an increase in depreciation and amortization of $5.5 million, and an increase in stock-based compensation of $2.2 million.

Investing Activities
Net cash provided by investing activities was $5.0 million for the nine months ended December 31, 2015 compared to net cash used in investing activities of $802.9 million for the nine months ended December 31, 2014. The change was primarily due to the use of cash for the acquisition of Insight in September 2014 of $749.7 million and the acquisition of the Hydralyte brand in April 2014 of $78.0 million, and the proceeds received from the escrow following the arbitrator's ruling relating to the working capital dispute of the Insight acquisition of $7.2 million in the current period, offset partially by $18.5 million of proceeds from the sale of one brand we acquired from the Insight acquisition, and $10.0 million received as proceeds from the sale of certain rights to sell our Comet brand in certain Eastern European countries to a licensee, both in the prior year period.

Financing Activities
Net cash used in financing activities was $113.5 million for the nine months ended December 31, 2015 compared to net cash provided by financing activities of $693.1 million for the nine months ended December 31, 2014.  The change was primarily due to net borrowings under our credit facilities of $706.1 million in the prior year period primarily to acquire Insight and net repayments under our existing credit facilities of $116.1 million in the current year period.

Capital Resources

2012 Senior Notes, 2012 Term Loan and 2012 ABL Revolver:
On January 31, 2012, Prestige Brands, Inc. (the "Borrower") (i) issued senior unsecured notes in an aggregate principal amount of $250.0 million (the "2012 Senior Notes"), (ii) entered into a $660.0 million term loan facility (the "2012 Term Loan") with a 7-year maturity and a $50.0 million asset-based revolving credit facility (the "2012 ABL Revolver") with a 5-year maturity, and (iii) repaid in full and canceled its then-existing credit facility. The 2012 Term Loan was issued with an original issue discount of 1.5% of the principal amount thereof, resulting in net proceeds to the Borrower of $650.1 million. In addition to the discount, we incurred $33.3 million in issuance costs related to the 2012 Senior Notes, the 2012 Term Loan and the 2012 ABL Revolver, which were capitalized as deferred financing costs and are being amortized over the terms of the related loans and notes. The Borrower may redeem some or all of the 2012 Senior Notes at redemption prices set forth in the indenture governing the 2012 Senior Notes. The 2012 Senior Notes are guaranteed by Prestige Brands Holdings, Inc. and certain of its 100% domestic owned subsidiaries. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or Prestige Brands Holdings, Inc.

On February 21, 2013, the Borrower entered into an amendment to the 2012 Term Loan ("Term Loan Amendment No. 1"). The Term Loan Amendment No. 1 provided for the refinancing of all of the Borrower's existing Term B Loans with new Term B-1 Loans (the "Term B-1 Loans"). The interest rate on the Term B-1 Loans under Term Loan Amendment No. 1 was based, at the Borrower's option, on a LIBOR rate plus a margin of 2.75% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin. The new Term B-1 Loans mature on the same date as the Term B Loans' original maturity date.  In addition, Term Loan Amendment No. 1 provided the Borrower with certain additional capacity to prepay subordinated debt, the 2012 Senior Notes and certain other unsecured indebtedness permitted to be incurred under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver. In connection with Term Loan Amendment No. 1, during the fourth quarter ended March 31, 2013, we recognized a $1.4 million loss on the extinguishment of debt.
On September 3, 2014, the Borrower entered into Amendment No. 2 ("Term Loan Amendment No. 2") to the 2012 Term Loan. Term Loan Amendment No. 2 provided for (i) the creation of a new class of Term B-2 Loans in an aggregate principal amount of $720.0 million (the "Term B-2 Loans"), (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility and financial maintenance covenant relief, and (iii) an interest rate on (x) the Term B-1 Loans that was based, at the Borrower’s option, on a LIBOR rate plus a margin of 3.125% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin, and (y) the Term B-2 Loans that was based, at the Borrower’s option, on a LIBOR rate plus a margin of 3.50% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin (with a margin step-down to 3.25% per annum, based upon achievement of a specified secured net leverage ratio).
On May 8, 2015, the Borrower entered into Amendment No. 3 (the "Term Loan Amendment No. 3") to the 2012 Term Loan. Term Loan Amendment No. 3 provides for (i) the creation of a new class of Term B-3 Loans under the 2012 Term Loan (the "Term B-3 Loans") in an aggregate principal amount of $852.5 million, which combined the outstanding balances of the Term B-1 Loans of $207.5 million and the Term B-2 Loans of $645.0 million, (ii) increased flexibility under the credit agreement governing the 2012 Term Loan, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant

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relief, and (iii) an interest rate on the Term B-3 Loans that is based, at the Borrower’s option, on a LIBOR rate plus a margin of 2.75% per annum, with a LIBOR floor of 0.75%, or an alternate base rate, with a floor of 1.75%, plus a margin. The maturity date of the Term B-3 Loans remains the same as the Term B-2 Loans' original maturity date of September 3, 2021.
On September 3, 2014, the Borrower entered into Amendment No. 3 (“ABL Amendment No. 3”) to the 2012 ABL Revolver. ABL Amendment No. 3 provided for (i) a $40.0 million increase in revolving commitments under the 2012 ABL Revolver and (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility. Borrowings under the 2012 ABL Revolver, as amended, bear interest at a rate per annum equal to an applicable margin, plus, at the Borrower's option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., or (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus 1.00% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs. The initial applicable margin for borrowings under the 2012 ABL Revolver is 1.75% with respect to LIBOR borrowings and 0.75% with respect to base-rate borrowings. The applicable margin for borrowings under the 2012 ABL Revolver may be increased to 2.00% or 2.25% for LIBOR borrowings and 1.00% or 1.25% for base-rate borrowings, depending on average excess availability under the 2012 ABL Revolver during the prior fiscal quarter. In addition to paying interest on outstanding principal under the 2012 ABL Revolver, we are required to pay a commitment fee to the lenders under the 2012 ABL Revolver in respect of the unutilized commitments thereunder. The initial commitment fee rate is 0.50% per annum. The commitment fee rate will be reduced to 0.375% per annum at any time when the average daily unused commitments for the prior quarter is less than a percentage of total commitments by an amount set forth in the credit agreement covering the 2012 ABL Revolver.
On June 9, 2015, the Borrower entered into Amendment No. 4 (“ABL Amendment No. 4”) to the 2012 ABL Revolver. ABL Amendment No. 4 provides for (i) a $35.0 million increase in the accordion feature under the 2012 ABL Revolver and (ii) increased flexibility under the credit agreement governing the 2012 ABL Revolver, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant relief and (iii) extended the maturity date to five years from the effective date of the 2012 ABL Revolver to June 9, 2020. We may voluntarily repay outstanding loans under the 2012 ABL Revolver at any time without a premium or penalty. For the nine months ended December 31, 2015, the average interest rate on the amounts borrowed under the 2012 ABL Revolver was 2.1%.
2013 Senior Notes:
On December 17, 2013, the Borrower issued $400.0 million of senior unsecured notes (the "2013 Senior Notes"). The Borrower may redeem some or all of the 2013 Senior Notes at redemption prices set forth in the indenture governing the 2013 Senior Notes. The 2013 Senior Notes are guaranteed by Prestige Brands Holdings, Inc. and certain of its 100% domestic owned subsidiaries. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or Prestige Brands Holdings, Inc. As a result of this issuance, in December 2013, we redeemed $201.7 million of our 8.25% senior notes due 2018 and the balance of $48.3 million in January 2014 and repaid approximately $120.0 million toward our 2012 Term Loan.
As of December 31, 2015, we had an aggregate of $1,477.5 million of outstanding indebtedness, which consisted of the following:

$250.0 million of 8.125% 2012 Senior Notes due 2020;
$400.0 million of 5.375% 2013 Senior Notes due 2021; and
$827.5 million of borrowings under the Term B-3 Loans; and

As of December 31, 2015, we had $115.4 million of borrowing capacity under the 2012 ABL Revolver.

In connection with the closing of the DenTek acquisition, we anticipate that the transaction will be financed from a combination of available cash on hand, the use of our existing credit facilities, and funds available pursuant to a short-term bridge loan, which we anticipate finalizing prior to the DenTek closing. We anticipate refinancing the bridge loan on a long-term basis in the near future.

The 2012 Term Loan, as amended, bears interest at a rate per annum equal to an applicable margin plus, at our option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus 1.00% and (d) a floor of 1.75% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, with a floor of 0.75%. For the nine months ended December 31, 2015, the average interest rate on the 2012 Term Loan was 4.5%.


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As we deem appropriate, we may from time to time utilize derivative financial instruments to mitigate the impact of changing interest rates associated with our long-term debt obligations or other derivative financial instruments.  While we have utilized derivative financial instruments in the past, we did not have any significant derivative financial instruments outstanding at either December 31, 2015 or March 31, 2015 or during any of the periods presented. We have not entered into derivative financial instruments for trading purposes; all of our derivatives were over-the-counter instruments with liquid markets.  

Our debt facilities contain various financial covenants, including provisions that require us to maintain certain leverage, interest coverage and fixed charge ratios.  The credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2012 Senior Notes and 2013 Senior Notes contain provisions that accelerate our indebtedness on certain changes in control and restrict us from undertaking specified corporate actions, including asset dispositions, acquisitions, payment of dividends and other specified payments, repurchasing our equity securities in the public markets, incurrence of indebtedness, creation of liens, making loans and investments and transaction with affiliates. Specifically, we must:

Have a leverage ratio of less than 7.25 to 1.0 for the quarter ended December 31, 2015 (defined as, with certain adjustments, the ratio of our consolidated total net debt as of the last day of the fiscal quarter to our trailing twelve month consolidated net income before interest, taxes, depreciation, amortization, non-cash charges and certain other items (“EBITDA”)). Our leverage ratio requirement decreases over time to 3.75 to 1.0 for the quarter ending March 31, 2019 and remains level thereafter;

Have an interest coverage ratio of greater than 2.50 to 1.0 for the quarter ended December 31, 2015 (defined as, with certain adjustments, the ratio of our consolidated EBITDA to our trailing twelve month consolidated cash interest expense). Our interest coverage requirement increases over time to 3.50 to 1.0 for the quarter ending March 31, 2018 and remains level thereafter; and

Have a fixed charge ratio of greater than 1.0 to 1.0 for the quarter ended December 31, 2015 (defined as, with certain adjustments, the ratio of our consolidated EBITDA minus capital expenditures to our trailing twelve month consolidated interest paid, taxes paid and other specified payments). Our fixed charge requirement remains level throughout the term of the agreement.

At December 31, 2015, we were in compliance with the applicable financial and restrictive covenants under the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2012 Senior Notes and the 2013 Senior Notes. Additionally, management anticipates that in the normal course of operations, we will be in compliance with the financial and restrictive covenants during the remainder of 2016. During the years ended March 31, 2015, 2014 and 2013, we made voluntary principal payments against outstanding indebtedness of $130.0 million, $157.5 million and $190.0 million, respectively, under the 2012 Term Loan. Under the Term Loan Amendment No. 2, we were required to make quarterly payments each equal to 0.25% of the original principal amount of the Term B-2 Loans, with the balance expected to be due on the seventh anniversary of the closing date. However, since we entered into Term Loan Amendment No. 3, we are required to make quarterly payments each equal to 0.25% of the aggregate principal amount of $852.5 million. Since we have previously made optional payments that exceeded a significant portion of our required quarterly payments, we will not be required to make another payment until the fiscal year ending March 31, 2019.

Effective April 1, 2015, the Company elected to change its method of presentation relating to debt issuance costs in accordance with Accounting Standards Update ("ASU") 2015-03. Prior to 2016, the Company's policy was to present these costs in other-long term assets on the balance sheet, net of accumulated amortization. Beginning in 2016, the Company has presented these fees as a direct deduction to the related long-term debt. As a result, we reclassified $27.4 million of deferred financing costs as of March 31, 2015 from other long-term assets, and such costs are now presented as a direct deduction from the long-term debt liability.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or financing activities with special-purpose entities.


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Inflation

Inflationary factors such as increases in the costs of raw materials, packaging materials, purchased product and overhead may adversely affect our operating results and financial condition.  Although we do not believe that inflation has had a material impact on our financial condition or results from operations for the three and nine months ended December 31, 2015, a high rate of inflation in the future could have a material adverse effect on our financial condition or results from operations.  More volatility in crude oil prices may have an adverse impact on transportation costs, as well as certain petroleum based raw materials and packaging material.  Although we make efforts to minimize the impact of inflationary factors, including raising prices to our customers, a high rate of pricing volatility associated with crude oil supplies or other raw materials used in our products may have an adverse effect on our operating results.


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Critical Accounting Policies and Estimates

Our significant accounting policies are described in the notes to the unaudited Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q, as well as in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015.  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 of operations and require our most difficult, subjective and complex estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, or the related disclosure of contingent assets and liabilities.  These estimates are based on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances.  Actual results may differ materially from these estimates.  The most critical accounting policies are as follows:

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

As is customary in the consumer products industry, we participate in the promotional programs of our customers to enhance the sale of our products.  The cost of these promotional programs varies based on the actual number of units sold during a finite period of time. These promotional programs consist of direct-to-consumer incentives, such as coupons and temporary price reductions, as well as incentives to our customers, such as allowances for new distribution, including slotting fees, and cooperative advertising.  Estimates of the costs of these promotional programs are based on (i) historical sales experience, (ii) the current promotional offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel. We recognize the cost of such sales incentives by recording an estimate of such cost as a reduction of revenue, at the later of (a) the date the related revenue is recognized, or (b) the date when a particular sales incentive is offered.  At the completion of the promotional program, these estimated amounts are adjusted to actual amounts.  Our related promotional expense for the fiscal year ended March 31, 2015 was $53.2 million. For the three and nine months ended December 31, 2015, our related promotional expense was $13.7 million and $40.9 million, respectively. We believe that the estimation methodologies employed, combined with the nature of the promotional campaigns, make the likelihood remote that our obligation would be misstated by a material amount. However, for illustrative purposes, had we underestimated the promotional program rate by 10% for the fiscal year ended March 31, 2015, our sales and operating income would have been reduced by approximately $5.3 million.  Net income would have been adversely affected by approximately $3.4 million.  Similarly, had we underestimated the promotional program rate by 10% for the three and nine months ended December 31, 2015, our sales and operating income would have been adversely affected by approximately $1.4 million and $4.1 million, respectively.  Net income would have been adversely affected by approximately $0.9 million and $2.7 million, respectively, for the three and nine months ended December 31, 2015.

We also periodically run coupon programs in Sunday newspaper inserts, on our product websites, or as on-package instant redeemable coupons.  We utilize a national clearing house to process coupons redeemed by customers.  At the time a coupon is distributed, a provision is made based upon historical redemption rates for that particular product, information provided as a result of the clearing house's experience with coupons of similar dollar value, the length of time the coupon is valid, and the seasonality of the coupon drop, among other factors.  For the fiscal year ended March 31, 2015, we had 341 coupon events.  The amount recorded against revenues and accrued for these events during 2015 was $5.2 million. Cash settlement of coupon redemptions during 2015 was $3.6 million.  During the three and nine months ended December 31, 2015, we had 81 and 321 coupon events, respectively.  The amount recorded against revenue and accrued for these events during the three and nine months ended December 31, 2015 was $1.3 million and $5.0 million, respectively. Cash settlement of coupon redemptions during the three and nine months ended December 31, 2015 was $0.2 million and $2.0 million, respectively.

Allowances for Product Returns
Due to the nature of the consumer products industry, we are required to estimate future product returns.  Accordingly, we record an estimate of product returns concurrent with recording sales.  Such estimates are made after analyzing (i) historical return rates, (ii) current economic trends, (iii) changes in customer demand, (iv) product acceptance, (v) seasonality of our product offerings, and (vi) the impact of changes in product formulation, packaging and advertising.

We construct our returns analysis by looking at the previous year's return history for each brand.  Subsequently, each month, we estimate our current return rate based upon an average of the previous twelve months' return rate and review that calculated rate for reasonableness, giving consideration to the other factors described above.  Our historical return rate has been relatively stable; for example, for the years ended March 31, 2015, 2014 and 2013, returns represented 4.2%, 2.2% and 2.9%, respectively, of gross

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sales.  For the three and nine months December 31, 2015, product returns represented 4.2% and 4.1% of gross sales, respectively.  At December 31, 2015 and March 31, 2015, the allowance for sales returns and cash discounts was $10.3 million and $8.6 million, respectively.

While we utilize the methodology described above to estimate product returns, actual results may differ materially from our estimates, causing our future financial results to be adversely affected.  Among the factors that could cause a material change in the estimated return rate would be significant unexpected returns with respect to a product or products that comprise a significant portion of our revenues.  Based on the methodology described above and our actual returns experience, management believes the likelihood of such an event remains remote.  As noted, over the last three years our actual product return rate has stayed within a range of 4.2% to 2.2% of gross sales.  However, a hypothetical increase of 0.1% in our estimated return rate as a percentage of gross sales would have adversely affected our reported sales and operating income for the fiscal year ended March 31, 2015 by approximately $0.8 million.  Net income would have been reduced by approximately $0.5 million.  A hypothetical increase of 0.1% in our estimated return rate as a percentage of gross sales for the three and nine months ended December 31, 2015 would have reduced our reported sales and operating income by approximately $0.2 million and $0.7 million, respectively. Net income would have been reduced by approximately $0.2 million and $0.5 million, respectively.

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

Many of our products are subject to expiration dating.  As a general rule, our customers will not accept goods with expiration dating of less than 12 months from the date of delivery.  To monitor this risk, management utilizes a detailed compilation of inventory with expiration dating between zero and 15 months and reserves for 100% of the cost of any item with expiration dating of 12 months or less.  Inventory obsolescence costs charged to operations were $2.9 million for the fiscal year ended March 31, 2015, while for the three and nine months ended December 31, 2015, we reduced obsolescence costs by $0.6 million and recorded obsolescence costs of $2.0 million, respectively.  A hypothetical increase of 1.0% in our allowance for obsolescence at March 31, 2015 would have adversely affected our reported operating income and net income for the fiscal year ended March 31, 2015 by approximately $0.4 million.  Similarly, a hypothetical increase of 1.0% in our obsolescence allowance for the three and nine months ended December 31, 2015 would have adversely affected each of our reported operating income and net income by less than $0.1 million and $0.1 million, respectively.

Allowance for Doubtful Accounts
In the ordinary course of business, we grant non-interest bearing trade credit to our customers on normal credit terms.  We maintain an allowance for doubtful accounts receivable, which is based upon our historical collection experience and expected collectability of the accounts receivable.  In an effort to reduce our credit risk, we (i) establish credit limits for all of our customer relationships, (ii) perform ongoing credit evaluations of our customers' financial condition, (iii) monitor the payment history and aging of our customers' receivables, and (iv) monitor open orders against an individual customer's outstanding receivable balance.

We establish specific reserves for those accounts which file for bankruptcy, have no payment activity for 180 days, or have reported major negative changes to their financial condition.  The allowance for bad debts amounted to 0.6% and 1.3% of accounts receivable at December 31, 2015 and March 31, 2015, respectively.  Bad debt expense for the fiscal year ended March 31, 2015 was approximately $0.1 million, while during the three and nine months ended December 31, 2015, we recorded bad debt expense of less than $0.1 million and $0.1 million, respectively.

While management believes that it is diligent in its evaluation of the adequacy of the allowance for doubtful accounts, an unexpected event, such as the bankruptcy filing of a major customer, could have an adverse effect on our future financial results.  A hypothetical increase of 0.1% in our bad debt expense as a percentage of net sales during the fiscal year ended March 31, 2015 would have resulted in a decrease in each of reported operating income and reported net income of less than $0.1 million.  Similarly, a hypothetical increase of 0.1% in our bad debt expense as a percentage of sales for the three and nine months ended December 31, 2015 would have resulted in a decrease in each of reported operating income and reported net income of less than $0.1 million $0.1 million, respectively.


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Valuation of Intangible Assets and Goodwill
Goodwill and intangible assets amounted to $2,399.2 million and $2,425.4 million at December 31, 2015 and March 31, 2015, respectively.  At December 31, 2015, goodwill and intangible assets were apportioned among our three operating segments as follows:

(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
 
 
 
 
 
 
 
 
Goodwill
$
256,479

 
$
19,400

 
$
6,800

 
$
282,679

 
 
 
 
 
 
 
 

Intangible assets, net
 
 
 
 
 
 
 

Indefinite-lived:
 
 
 
 
 
 


Analgesics
341,122

 
1,971

 

 
343,093

Cough & Cold
138,946

 
18,322

 

 
157,268

Women's Health
532,300

 
1,606

 

 
533,906

Gastrointestinal
213,639

 
57,961

 

 
271,600

Eye & Ear Care
172,319

 

 

 
172,319

Dermatologicals
217,227

 
1,898

 

 
219,125

Oral Care
61,438

 

 

 
61,438

Household Cleaning

 

 
110,272


110,272

Total indefinite-lived intangible assets, net
1,676,991

 
81,758

 
110,272

 
1,869,021

 
 
 
 
 
 
 
 
Finite-lived:
 
 
 
 
 
 


Analgesics
9,341

 

 

 
9,341

Cough & Cold
74,536

 
626

 

 
75,162

Women's Health
36,549

 
274

 

 
36,823

Gastrointestinal
20,135

 
204

 

 
20,339

Eye & Ear Care
28,940

 

 

 
28,940

Dermatologicals
24,000

 

 

 
24,000

Oral Care
14,830

 

 

 
14,830

Other OTC
14,941

 

 

 
14,941

Household Cleaning

 

 
23,114

 
23,114

Total finite-lived intangible assets, net
223,272

 
1,104

 
23,114

 
247,490

Total intangible assets, net
1,900,263

 
82,862

 
133,386

 
2,116,511

Total goodwill and intangible assets, net
$
2,156,742

 
$
102,262

 
$
140,186

 
$
2,399,190


At December 31, 2015, our highest valued brands were, Monistat, BC/Goody's, Clear Eyes, and Chloraseptic, comprising approximately 51.7% of the intangible assets within the OTC Healthcare segments. The Comet, Chore Boy, and Spic and Span brands comprise substantially all of the intangible assets value within the Household Cleaning segment.

Goodwill and intangible assets comprise substantially all of our assets.  Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination.  Intangible assets generally represent our trademarks, brand names and patents.  When we acquire a brand, we are required to make judgments regarding the value assigned to the associated intangible assets, as well as their respective useful lives.  Management considers many factors both prior to and after the acquisition of an intangible asset in determining the value, as well as the useful life, assigned to each intangible asset that we acquire or continue to own and promote.  


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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, that is required to reinvigorate a brand that has fallen from favor.

History of and Potential for Product Extensions
Consideration is given to the product innovation that has occurred during the brand's history and the potential for continued product innovation that will determine the brand's future.  Brands that can be continually enhanced by new product offerings generally warrant a higher valuation and longer life than a brand that has always “followed the leader”.

After consideration of the factors described above, as well as current economic conditions and changing consumer behavior, management prepares a determination of an intangible asset's value and useful life based on its analysis.  Under accounting guidelines, goodwill is not amortized, but must be tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below the carrying amount.  In a similar manner, indefinite-lived assets are not amortized.  They are also subject to an annual impairment test, or more frequently if events or changes in circumstances indicate that the asset may be impaired.  Additionally, at each reporting period an evaluation must be made to determine whether events and circumstances continue to support an indefinite useful life.  Intangible assets with finite lives are amortized over their respective estimated useful lives and must also be tested for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable and exceeds its fair value.

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

We report goodwill and indefinite-lived intangible assets in three reportable segments: North American OTC Healthcare, International OTC Healthcare and Household Cleaning.  We identify our reporting units in accordance with the FASB ASC Subtopic 280. The carrying value and fair value for intangible assets and goodwill for a reporting unit are calculated based on key assumptions and valuation methodologies previously discussed.  As a result, any material changes to these assumptions could require us to record additional impairment in the future.

In the past, we have experienced declines in revenues and profitability of certain brands in the North American OTC Healthcare and Household Cleaning segments. Sustained or significant future declines in revenue, profitability, other adverse changes in expected operating results, and/or unfavorable changes in other economic factors used to estimate fair values of certain brands could indicate that fair value no longer exceeds carrying value, in which case a non-cash impairment charge may be recorded in future periods.

Goodwill
As of February 28 and March 31, 2015, we had 15 reporting units with goodwill. As part of our annual test for impairment of goodwill, management estimates the discounted cash flows of each reporting unit, to estimate their respective fair values. In performing this analysis, management considers current information and future events, such as competition, technological advances and reductions in advertising support for our trademarks and trade names, that could cause subsequent evaluations to utilize different assumptions. In the event that the carrying value 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

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business combination, thereby revaluing the carrying amount of goodwill. No impairment charge was recorded during the nine months ended December 31, 2015.

Indefinite-Lived Intangible Assets
At each reporting period, management analyzes current events and circumstances to determine whether the indefinite life classification for a trademark or trade name continues to be valid. If circumstances warrant a change to a finite life, the carrying value of the intangible asset would then be amortized prospectively over the estimated remaining useful life.

Management tests the indefinite-lived intangible assets for impairment by comparing the carrying value of the intangible asset to its estimated fair value. Since quoted market prices are seldom available for trademarks and trade names such as ours, we utilize present value techniques to estimate fair value. Accordingly, management's projections are utilized to assimilate all of the facts, circumstances and expectations related to the trademark or trade name and estimate the cash flows over its useful life. In a manner similar to goodwill, future events, such as competition, technological advances and reductions in advertising support for our trademarks and trade names, could cause subsequent evaluations to utilize different assumptions. Once that analysis is completed, a discount rate is applied to the cash flows to estimate fair value. In connection with this analysis, management:

Reviews period-to-period sales and profitability by brand;
Analyzes industry trends and projects brand growth rates;
Prepares annual sales forecasts;
Evaluates advertising effectiveness;
Analyzes gross margins;
Reviews contractual benefits or limitations;
Monitors competitors' advertising spend and product innovation;
Prepares projections to measure brand viability over the estimated useful life of the intangible asset; and
Considers the regulatory environment, as well as industry litigation.

Finite-Lived Intangible Assets
When events or changes in circumstances indicate the carrying value of the assets may not be recoverable, management performs a review similar to indefinite-lived intangible assets to ascertain the impact of events and circumstances on the estimated useful lives and carrying values of our trademarks and trade names.

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

Although we experienced declines in revenues in Pediacare and in certain other brands in the past, we continue to believe that the fair values of our brands exceed their carrying values. However, sustained or significant future declines in revenue, profitability, lost distribution, other adverse changes in expected operating results, and/or unfavorable changes in other economic factors used to estimate fair value of certain brands could indicate that the fair value no longer exceeds carrying value in which case a non-cash impairment charge may be recorded in future periods.

Impairment Analysis
During the fourth quarter of each fiscal year, we perform our annual impairment analysis. We utilized the discounted cash flow method to estimate the fair value of our reporting units as part of the goodwill impairment test and the excess earnings method to estimate the fair value of our individual indefinite-lived intangible assets. The discount rate utilized in the analyses, as well as future cash flows, may be influenced by such factors as changes in interest rates and rates of inflation.  Additionally, should the related fair values of goodwill and intangible assets be adversely affected as a result of declining sales or margins caused by competition, changing consumer preferences, technological advances or reductions in advertising and promotional expenses, we may be required to record impairment charges in the future.  However, no impairment charge was recorded during the nine months ended December 31, 2015.


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Stock-Based Compensation
The Compensation and Equity topic of the FASB ASC 718 requires us to measure the cost of services to be rendered based on the grant-date fair value of an equity award.  Compensation expense is to be recognized over the period during which an employee is required to provide service in exchange for the award, generally referred to as the requisite service period.  Information utilized in the determination of fair value includes the following:

Type of instrument (i.e., restricted shares, stock options, warrants or performance shares);
Strike price of the instrument;
Market price of our common stock on the date of grant;
Discount rates;
Duration of the instrument; and
Volatility of our common stock in the public market.

Additionally, management must estimate the expected attrition rate of the recipients to enable it to estimate the amount of non-cash compensation expense to be recorded in our financial statements.  While management prepares various analyses to estimate the respective variables, a change in assumptions or market conditions, as well as changes in the anticipated attrition rates, could have a significant impact on the future amounts recorded as non-cash compensation expense.  We recorded non-cash compensation expense of $7.1 million and $4.9 million for the nine months ended December 31, 2015 and 2014, respectively.
 
Loss Contingencies
Loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of such loss is reasonably estimable.  Contingent losses are often resolved over longer periods of time and involve many factors, including:

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 January 2016, the FASB issued Accounting Standards Update ("ASU") 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. For public business entities, the amendments in this update include the elimination of the requirement to disclose the method(s) and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, the requirement to use the exit price notion when measuring fair value of financial instruments for disclosure purposes, the requirement to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, the requirement for separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or accompanying notes to the financial statements, and the amendments clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of the amendments in this update is not permitted, except that early application by public business entities to financial statements of fiscal years or interim periods that have not yet been issued or, by all other entities, that have not yet been made available for issuance are permitted as of the beginning of the fiscal year of adoption for the following amendment: An entity should present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. An entity should apply the amendments to this update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
 
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. For public business entities, the amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted for all entities as of the beginning of interim or annual reporting periods. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.


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In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. To simplify the accounting for adjustment made to provisional amounts recognized in a business combination, the amendments in this update eliminate the requirement to retrospectively account for those adjustments. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The adoption of ASU 2015-16 is not expected to have a material impact on our Consolidated Financial Statements.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards, under which an entity should measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. As permitted by the guidance, we have early adopted these provisions, as of the beginning of our first quarter of 2016. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, in August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, stating that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. As a result, we reclassified $27.4 million of deferred financing costs as of March 31, 2015 from other long-term assets, and such costs are now presented as a direct deduction from the long-term debt liability.
 
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. Update 2015-02 amended the process that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material impact on our Consolidated Financial Statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items. The amendments in this update eliminate the concept of extraordinary items in Subtopic 225-20, which required entities to consider whether an underlying event or transaction is extraordinary. However, the amendments retain the presentation and disclosure guidance for items that are unusual in nature or occur infrequently. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The adoption of ASU 2015-01 is not expected to have a material impact on our Consolidated Financial Statements.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This amendment states that in connection with preparing financial statements for each annual and interim reporting period, an entity's management should evaluate whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued, when applicable). The amendments in this update are effective for the annual reporting period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on our Consolidated Financial Statements.

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could Be Achieved after the Requisite Service Period, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the new guidance does not allow for a performance target that affects vesting to be reflected in estimating the fair value of the award at the grant date. The amendments to this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this update either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets

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that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. We currently do not have any outstanding share-based payments with a performance target. The adoption of ASU 2014-12 is not expected to have a material impact on our Consolidated Financial Statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers - Topic 606, which supersedes the revenue recognition requirements in FASB ASC 605. The new guidance primarily states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 from annual and interim periods beginning after December 15, 2016 to annual and interim periods beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The amendments in this update must be applied prospectively to all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The adoption of ASU 2014-08 did not have a material impact on our Consolidated Financial Statements.

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


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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

These forward-looking statements generally can be identified by the use of words or phrases such as “believe,” “anticipate,” “expect,” “estimate,” “project,” "intend," "strategy," "goal," "future," "seek," "may," "should," "would," "will," “will be,” or other similar words and phrases.  Forward-looking statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including, without limitation:

The high level of competition in our industry and markets;
Our inability to increase organic growth via new product introductions, line extensions, increased spending on advertising and promotional support, and other new sales and marketing strategies;
Our inability to invest successfully in research and development;
Our dependence on a limited number of customers for a large portion of our sales;
Changes in inventory management practices by retailers;
Our inability to grow our international sales;
General economic conditions affecting sales of our products and their respective markets;
Business, regulatory and other conditions affecting retailers;
Changing consumer trends, additional store brand competition or other pricing pressures which may cause us to lower our prices;
Our dependence on third-party manufacturers to produce the products we sell;
Price increases for raw materials, labor, energy and transportation costs, and for other input costs;
Disruptions in our distribution center;
Acquisitions, dispositions or other strategic transactions diverting managerial resources, the incurrence of additional liabilities or integration problems associated with such transactions;
Actions of government agencies in connection with our products or regulatory matters governing our industry;
Product liability claims, product recalls and related negative publicity;
Our ability to protect our intellectual property rights;
Our dependence on third parties for intellectual property relating to some of the products we sell;
Our assets being comprised virtually entirely of goodwill and intangibles and possible changes in their value based on adverse operating results;
Our dependence on key personnel and the transition to a new CEO and CFO;
Shortages of supply of sourced goods or interruptions in the manufacturing of our products;
The costs associated with any claims in litigation or arbitration and any adverse judgments rendered in such litigation or arbitration;
Our level of indebtedness, and possible inability to service our debt;
Our ability to obtain additional financing; and
The restrictions imposed by our financing agreements on our operations.

For more information, see “Risk Factors” contained in Part I, Item 1A., "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015 and Part II, Item 1A of this Quarterly Report on Form 10-Q.


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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to changes in interest rates because our 2012 Term Loan and 2012 ABL Revolver are variable rate debt.  Interest rate changes generally do not significantly affect the market value of the 2012 Term Loan and the 2012 ABL Revolver but do affect the amount of our interest payments and, therefore, our future earnings and cash flows, assuming other factors are held constant.  At December 31, 2015, we had variable rate debt of approximately $827.5 million under our 2012 Term Loan.

Holding other variables constant, including levels of indebtedness, a 1.0% increase in interest rates on our variable rate debt would have had an adverse impact on pre-tax earnings and cash flows for the three and nine months ended December 31, 2015 of approximately $2.1 million and $6.3 million, respectively.

Foreign Currency Exchange Rate Risk

During the three and nine months ended December 31, 2015, approximately 11.2% and 11.6%, respectively, of our revenues were denominated in currencies other than the U.S. Dollar. During the three and nine months ended December 31, 2014, approximately 11.4% and 13.6%, respectively, of our revenues were denominated in currencies other than the U.S. Dollar. As such, we are exposed to transactions that are sensitive to foreign currency exchange rates, including insignificant foreign currency forward exchange agreements. These transactions are primarily with respect to the Canadian and Australian Dollar.

We performed a sensitivity analysis with respect to exchange rates for the three and nine months ended December 31, 2015. Holding all other variables constant, and assuming a hypothetical 10.0% adverse change in foreign currency exchange rates, this analysis resulted in a less than 5.0% impact on pre-tax income of approximately $0.9 million and $2.9 million for the three and nine months ended December 31, 2015, respectively. We performed a sensitivity analysis with respect to exchange rates for the three and nine months ended December 31, 2014. Holding all other variables constant, and assuming a hypothetical 10.0% adverse change in foreign currency exchange rates, this analysis resulted in a less than 5.0% impact on pre-tax income of approximately $0.9 million and $2.6 million for the three and nine months ended December 31, 2014, respectively.

ITEM 4.
CONTROLS AND PROCEDURES
              
Disclosure Controls and Procedures

The Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a–15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of December 31, 2015.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that, as of December 31, 2015, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes during the quarter ended December 31, 2015 in the Company's internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II.
OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the risk factors set forth below and the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended March 31, 2015, which could materially affect our business, financial condition or future results of operations. The risks described below and in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations. The information below amends, updates and should be read in conjunction with the risk factors and information disclosed in our Annual Report on Form 10-K for the year ended March 31, 2015.

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

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

The formulation, manufacturing, packaging, labeling, distribution, importation, marketing, sale and storage of our products are subject to extensive regulation by various U.S. federal agencies, including the FDA, the FTC, the CPSC, the EPA, and by various agencies of the states, localities and foreign countries in which our products are manufactured, distributed, stored and sold.  The FDC Act and FDA regulations require that the manufacturing processes of our third-party manufacturers of U.S. products must also comply with the FDA’s GMPs.  The FDA inspects our facilities and those of our third-party manufacturers periodically to determine if we and our third-party manufacturers are complying with GMPs.  A history of general compliance in the past is not a guarantee that future GMPs will not mandate other compliance steps and associated expense.

If we or our third-party manufacturers or distributors fail to comply with applicable regulations, we could become subject to enforcement actions, significant penalties or claims, which could materially adversely affect our business, financial condition and results from operations.  In addition, we could be required to:

Suspend manufacturing operations;

Modify product formulations or processes;

Suspend the sale of products with non-complying specifications; or

Change product labeling, packaging, marketing, or advertising, recall non-compliant products, or take other corrective action.

The adoption of new regulations or changes in the interpretations of existing regulations may result in significant compliance costs or the cessation of product sales and may adversely affect the marketing of our products, which could have a material adverse effect on our financial condition and results from operations.

In addition, we could be required for a variety of reasons to initiate product recalls, which we are currently conducting for two products and have done on several other occasions. Any product recalls could have a material adverse effect on our business, financial condition and results from operations.

In addition, our failure to comply with FDA, FTC, EPA or any other federal and state regulations, or with similar regulations in foreign markets, that cover our product registration, product claims and advertising, including direct claims and advertising by us, may result in enforcement actions and imposition of penalties, litigation by private parties, or otherwise materially adversely affect the distribution and sale of our products, which could have a material adverse effect on our business, financial condition and results from operations. We are currently engaged in early-stage discussions with regulators regarding a product registration matter.









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ITEM 6.     EXHIBITS

 See Exhibit Index immediately following the signature page.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
PRESTIGE BRANDS HOLDINGS, INC.
 
 
 
 
 
 
 
 
 
 
 
Date:
February 4, 2016
By:
/s/ David S. Marberger
 
 
 
 
David S. Marberger
 
 
 
 
Chief Financial Officer
 
 
 
 
(Principal Financial Officer and Duly Authorized Officer)
 
 
 
 
 
 



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Exhibit Index
 
 
 
 
31.1

 
Certification of Principal Executive Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
 
 
 
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.
 
 
 
32.1

 
Certification of Principal Executive Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
 
 
 
32.2

 
Certification of Principal Financial Officer of Prestige Brands Holdings, Inc. pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
 
 
 
101.INS*
 
XBRL Instance Document
101.SCH*
 
XBRL Taxonomy Extension Schema Document
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document

* XBRL information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement, prospectus or other document to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.



- 71-
Exhibit


Exhibit 31.1
 
CERTIFICATIONS
 
I, Ronald M. Lombardi, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Prestige Brands Holdings, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:
February 4, 2016
/s/ Ronald M. Lombardi
 
 
 
Ronald M. Lombardi
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)
 




Exhibit


Exhibit 31.2
 
CERTIFICATIONS
 
I, David S. Marberger, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Prestige Brands Holdings, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:
February 4, 2016
/s/ David S. Marberger
 
 
 
David S. Marberger
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)
 




Exhibit


EXHIBIT 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald M. Lombardi, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Prestige Brands Holdings, Inc. on Form 10-Q for the quarter ended December 31, 2015, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of Prestige Brands Holdings, Inc.
/s/ Ronald M. Lombardi
Name: Ronald M. Lombardi
Title: Chief Executive Officer
(Principal Executive Officer)
Date: February 4, 2016
 
 
 
 
 
 





Exhibit


EXHIBIT 32.2
 
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
  
I, David S. Marberger, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Prestige Brands Holdings, Inc. on Form 10-Q for the quarter ended December 31, 2015, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of Prestige Brands Holdings, Inc.
 
/s/ David S. Marberger
 
Name: David S. Marberger
 
Title: Chief Financial Officer
 
(Principal Financial Officer)
 
Date: February 4, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 


 



Primary IR Contact

Irinquiries@prestigebrands.com
Prestige Consumer Healthcare Inc.
660 White Plains Road – Ste 250
Tarrytown, NY 10591
Telephone: 914-524-6819

Transfer Agent

AST
6201 15th Avenue
Brooklyn, NY 11219
Telephone: (800) 937-5449
help@astfinancial.com
https://www.astfinancial.com

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