U.
S. SECURITIES AND EXCHANGE COMMISSION
 Washington,
D. C. 20549
 
 FORM
10-Q
 
 [
      X ]
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
      the quarterly period ended September 30,
2009
 
 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.)
 
 90
      North Broadway
                Irvington,
      New York 10533(Address
      of Principal Executive Offices, including zip code)(914)
      524-6810(Registrant’s
      telephone number, including area
code)
 
 
  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  ̈      No
 ̈
 
 Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.  (Check one):
 Large accelerated
      filer   o
                Accelerated
      filer   x
                Non-accelerated
      filer   o
                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
November 3, 2009, there were 50,029,890 shares of common stock
outstanding.
 
 Prestige
Brands Holdings, Inc.
 Form
10-Q
 Index
 
  PART I.
              FINANCIAL
      INFORMATIONItem 1.
              Consolidated
      Financial Statements
              2Consolidated
      Statements of Operations – three and six month periods ended September 30,
      2009 and 2008 (unaudited)
              2Consolidated Balance
      Sheets – September 30, 2009 and March 31, 2009 (unaudited)
              3Consolidated
      Statements of Cash Flows – six month periods ended September 30, 2009 and
      2008 (unaudited)
              4Notes to
      Consolidated Financial Statements
              5Item 2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
              26Item 3.
              Quantitative and
      Qualitative Disclosure About Market Risk
              45Item 4.
              Controls and
      Procedures
              45PART II.
              OTHER
    INFORMATIONItem 1.
              Legal
      Proceedings
              45Item 1A.
              Risk
    Factors
              46Item 4.
              Submission of
      Matters to a Vote of Security Holders
              47Item
      6.
              Exhibits
              47Signatures
              48
   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 utilized the ® and TM symbols the first time each
trademark or trade name appears in this Quarterly Report on Form
10-Q.
  
 PART
      I
              FINANCIAL
      INFORMATION
 
 Item
      1.
              CONSOLIDATED
      FINANCIAL STATEMENTS
 
 Prestige
Brands Holdings, Inc.
 Consolidated
Statements of Operations
 (Unaudited)
 
 Three
      Months Ended September 30
              
              
              Six
      Months Ended September 30(In
      thousands, except share data)
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008RevenuesNet
      sales
              
              $
              83,737
              
              
              $
              84,858
              
              
              $
              154,133
              
              
              $
              155,237Other
      revenues
              
              
              444
              
              
              
              682
              
              
              
              1,060
              
              
              
              1,300Total
      revenues
              
              
              84,181
              
              
              
              85,540
              
              
              
              155,193
              
              
              
              156,537Cost
      of SalesCost
      of sales
              
              
              39,847
              
              
              
              40,402
              
              
              
              73,029
              
              
              
              73,309Gross
      profit
              
              
              44,334
              
              
              
              45,138
              
              
              
              82,164
              
              
              
              83,228Operating
      ExpensesAdvertising
      and promotion
              
              
              9,782
              
              
              
              13,543
              
              
              
              18,547
              
              
              
              20,780General
      and administrative
              
              
              10,481
              
              
              
              9,363
              
              
              
              18,675
              
              
              
              17,336Depreciation
      and amortization
              
              
              2,841
              
              
              
              2,308
              
              
              
              5,186
              
              
              
              4,615Total
      operating expenses
              
              
              23,104
              
              
              
              25,214
              
              
              
              42,408
              
              
              
              42,731Operating
      income
              
              
              21,230
              
              
              
              19,924
              
              
              
              39,756
              
              
              
              40,497Other
      (income) expenseInterest
      income
              
              
              -
              
              
              
              (56
              )
              
              
              -
              
              
              
              (129
              )Interest
      expense
              
              
              5,642
              
              
              
              6,835
              
              
              
              11,295
              
              
              
              15,591Total
      other (income) expense
              
              
              5,642
              
              
              
              6,779
              
              
              
              11,295
              
              
              
              15,462Income
      from continuing operations before income taxes
              
              
              15,588
              
              
              
              13,145
              
              
              
              28,461
              
              
              
              25,035Provision
      for income taxes
              
              
              5,908
              
              
              
              4,982
              
              
              
              10,787
              
              
              
              9,488Income
      from continuing operations
              
              
              9,680
              
              
              
              8,163
              
              
              
              17,674
              
              
              
              15,547Discontinued
      OperationsIncome
      from operations of assets held for sale, net of income tax
              
              
              243
              
              
              
              359
              
              
              
              574
              
              
              
              756Net
      income
              
              $
              9,923
              
              
              $
              8,522
              
              
              $
              18,248
              
              
              $
              16,303Basic
      earnings per share:Income
      from continuing operations
              
              $
              0.19
              
              
              $
              0.16
              
              
              $
              0.35
              
              
              $
              0.31Net
      income
              
              $
              0.20
              
              
              $
              0.17
              
              
              $
              0.36
              
              
              $
              0.33Diluted
      earnings per share:Income
      from continuing operations
              
              $
              0.19
              
              
              $
              0.16
              
              
              $
              0.35
              
              
              $
              0.31Net
      income
              
              $
              0.20
              
              
              $
              0.17
              
              
              $
              0.36
              
              
              $
              0.33  Weighted
      average shares outstanding:Basic
                
                
                50,012
                
                
                
                49,924
                
                
                
                49,997
                
                
                
                49,902Diluted
                
                
                50,055
                
                
                
                50,037
                
                
                
                50,080
                
                
                
                50,036
  See
accompanying notes.
  
 Prestige
Brands Holdings, Inc.
 Consolidated
Balance Sheets
 (Unaudited)
 
 
 (In thousands)
                Assets
              
              September
      30, 2009
              
              
              March
      31,
                2009Current
      assetsCash
      and cash equivalents
              
              $
              34,829
              
              
              $
              35,181Accounts
      receivable
              
              
              39,152
              
              
              
              36,025Inventories
              
              
              24,955
              
              
              
              25,939Deferred
      income tax assets
              
              
              5,362
              
              
              
              4,022Prepaid
      expenses and other current assets
              
              
              2,460
              
              
              
              1,358Inventories
      of operations held for sale
              
              
              1,535
              
              
              
              1,038Total
      current assets
              
              
              108,293
              
              
              
              103,563Property
      and equipment
              
              
              1,291
              
              
              
              1,367Goodwill
              
              
              114,240
              
              
              
              114,240Intangible
      assets
              
              
              564,259
              
              
              
              569,137Other
      long-term assets
              
              
              3,646
              
              
              
              4,602Intangible
      assets of operations held for sale
              
              
              7,574
              
              
              
              8,472Total
      Assets
              
              $
              799,303
              
              
              $
              801,381Liabilities
      and Stockholders’ EquityCurrent
      liabilitiesAccounts
      payable
              
              $
              21,444
              
              
              $
              15,898Accrued
      interest payable
              
              
              5,360
              
              
              
              5,371Other
      accrued liabilities
              
              
              17,951
              
              
              
              9,407Current
      portion of long-term debt
              
              
              3,550
              
              
              
              3,550Total
      current liabilities
              
              
              48,305
              
              
              
              34,226Long-term
      debt
              
              
              334,787
              
              
              
              374,787Deferred
      income tax liabilities
              
              
              103,231
              
              
              
              97,983Total
      Liabilities
              
              
              486,323
              
              
              
              506,996Commitments
      and Contingencies – Note 16Stockholders’
      EquityPreferred
      stock - $0.01 par valueAuthorized - 5,000
      sharesIssued and outstanding -
      NoneCommon
      stock - $0.01 par valueAuthorized - 250,000
      sharesIssued - 50,154 shares at
      September 30, 2009 and 50,060 shares at March 31, 2009
              
              
              502
              
              
              
              501Additional
      paid-in capital
              
              
              382,790
              
              
              
              382,803Treasury
      stock, at cost - 124 shares at September 30, 2009
                and March 31,
      2009
              
              
              (63
              )
              
              
              (63
              )Accumulated
      other comprehensive loss
              
              
              (975
              )
              
              
              (1,334
              )Retained
      deficit
              
              
              (69,274
              )
              
              
              (87,522
              )Total
      Stockholders’ Equity
              
              
              312,980
              
              
              
              294,385Total
      Liabilities and Stockholders’ Equity
              
              $
              799,303
              
              
              $
              801,381
 See
accompanying notes.
  
 Prestige
Brands Holdings, Inc.
 Consolidated
Statements of Cash Flows
 (Unaudited)
 
 
 Six
      Months Ended September 30(In
      thousands)
              
              2009
              
              
              2008Operating
      ActivitiesNet
      income
              
              $
              18,248
              
              
              $
              16,303Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
              
              
              6,084
              
              
              
              5,513Deferred
      income taxes
              
              
              3,687
              
              
              
              5,042Amortization
      of deferred financing costs
              
              
              956
              
              
              
              1,159Stock-based
      compensation
              
              
              848
              
              
              
              1,577Changes
      in operating assets and liabilitiesAccounts
      receivable
              
              
              (3,127
              )
              
              
              1,725Inventories
              
              
              984
              
              
              
              4,011Inventories
      held for sale
              
              
              (497
              )
              
              
              313Prepaid
      expenses and other current assets
              
              
              (1,102
              )
              
              
              (828
              )Accounts
      payable
              
              
              5,546
              
              
              
              (1,582
              )Accrued
      liabilities
              
              
              8,253
              
              
              
              3,443Net
      cash provided by operating activities
              
              
              39,880
              
              
              
              36,676Investing
      ActivitiesPurchases
      of equipment
              
              
              (232
              )
              
              
              (109
              )Business
      acquisition purchase price adjustments
              
              
              -
              
              
              
              (4,000
              )Net
      cash used for investing activities
              
              
              (232
              )
              
              
              (4,109
              )Financing
      ActivitiesRepayment
      of long-term debt
              
              
              (40,000
              )
              
              
              (26,000
              )Purchase
      of common stock for treasury
              
              
              -
              
              
              
              (15
              )Net
      cash used for financing activities
              
              
              (40,000
              )
              
              
              (26,015
              )Increase
      (Decrease) in cash
              
              
              (352
              )
              
              
              6,552Cash
      - beginning of period
              
              
              35,181
              
              
              
              6,078Cash
      - end of period
              
              $
              34,829
              
              
              $
              12,630Interest
      paid
              
              $
              10,350
              
              
              $
              14,775Income
      taxes paid
              
              $
              6,307
              
              
              $
              4,761
 
 See
accompanying notes.
  
 Prestige
Brands Holdings, Inc.
 Notes
to Consolidated Financial Statements
 
 
 
 1.
              Business
      and Basis of Presentation
 
 Nature
      of Business
 Prestige
Brands Holdings, Inc. (referred to herein as the “Company” which reference
shall, unless the context requires otherwise, be deemed to refer to Prestige
Brands Holdings, Inc. and all of its direct or indirect wholly-owned
subsidiaries on a consolidated basis) is engaged in the marketing, sales and
distribution of over-the-counter healthcare, personal care and household
cleaning brands to mass merchandisers, drug stores, supermarkets and club stores
primarily in the United States, Canada and certain other international
markets.  Prestige Brands Holdings, Inc. is a holding company with no
assets or operations and is also the parent guarantor of the senior credit
facility and the senior subordinated notes more fully described in Note 9 to the
consolidated financial statements.
 
 Basis
      of Presentation
 The
unaudited consolidated financial statements presented herein have been prepared
in accordance with accounting principles generally accepted in the United States
of America ("GAAP") for interim financial reporting and with the instructions to
Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not
include all of the information and footnotes required by GAAP for complete
financial statements.  All significant intercompany transactions and
balances have been eliminated.  In the opinion of management, the
financial statements include all adjustments, consisting of normal recurring
adjustments, that are considered necessary for a fair presentation of the
Company’s consolidated financial position, results of operations and cash flows
for the interim periods.  Operating results for the six month period
ended September 30, 2009 are not necessarily indicative of results that may be
expected for the year ending March 31, 2010.  This financial
information should be read in conjunction with the Company’s financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended March 31, 2009.
  Use of
      Estimates
 The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period.  Although these estimates are
based on the Company’s knowledge of current events and the Company’s
expectations, actual results could differ from those estimates.  As
discussed below, the Company’s most significant estimates include those made in
connection with the valuation of goodwill and intangible assets, sales returns
and allowances, trade promotional allowances and inventory
obsolescence.
  Cash
      and Cash Equivalents
 The
Company considers all short-term deposits and investments with original
maturities of three months or less to be cash
equivalents.  Substantially all of the Company’s cash is held by a
large regional bank with headquarters in California.  The Company does
not believe that, as a result of this concentration, it is subject to any
unusual financial risk beyond the normal risk associated with commercial banking
relationships.
 
 Accounts
      Receivable
 The
Company extends non-interest bearing trade credit to its customers in the
ordinary course of business.  The Company maintains an allowance for
doubtful accounts receivable based upon historical collection experience and
expected collectibility of the accounts receivable.  In an effort to
reduce credit risk, the Company (i) has established credit limits for all of its
customer relationships, (ii) performs ongoing credit evaluations of customers’
financial condition, (iii) monitors the payment history and aging of customers’
receivables, and (iv) monitors open orders against an individual customer’s
outstanding receivable balance.
 
 Inventories
 Inventories
are stated at the lower of cost or fair value, with cost determined by using the
first-in, first-out method.  The Company provides an allowance for
slow moving and obsolete inventory, whereby it reduces
 
 
 inventories
for the diminution of value, resulting from product obsolescence, damage or
other issues affecting marketability, equal to the difference between the cost
of the inventory and its estimated market value.  Factors utilized in
the determination of estimated market value include (i) current sales data and
historical return rates, (ii) estimates of future demand, (iii) competitive
pricing pressures, (iv) new product introductions, (v) product expiration dates,
and (vi) component and packaging obsolescence.
 
  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:
 YearsMachinery
              
              5Computer
      equipment
              
              3Furniture
      and fixtures
              
              7
 
 Leasehold
improvements are amortized over the lesser of the term of the lease or 5
years.
 
 Expenditures
for maintenance and repairs are charged to expense as incurred.  When
an asset is sold or otherwise disposed of, the cost and associated accumulated
depreciation are removed from the accounts and the resulting gain or loss is
recognized in the consolidated statement of operations.
  Property
and equipment are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable.  An impairment loss is recognized if the carrying amount
of the asset exceeds its fair value.
 
 Goodwill
 The
excess of the purchase price over the fair market value of assets acquired and
liabilities assumed in purchase business combinations is classified as
goodwill.  The Company does not amortize goodwill, but performs
impairment tests of the carrying value at least annually.  The Company
tests goodwill for impairment at the reporting unit “brand” level which is one
level below the operating segment level.
 
 Intangible
      Assets
 Intangible
assets, which are composed primarily of trademarks, are stated at cost less
accumulated amortization.  For intangible assets with finite lives,
amortization is computed on the straight-line method over estimated useful lives
ranging from 3 to 30 years.
 
 Indefinite-lived
intangible assets are tested for impairment at least annually; however, at each
reporting period an evaluation is made to determine whether events and
circumstances continue to support an indefinite useful
life.  Intangible assets with finite lives are reviewed for impairment
whenever events or changes in circumstances indicate that their carrying amounts
exceed their fair values and may not be recoverable.  An impairment
loss is recognized if the carrying amount of the asset exceeds its fair
value.
 
 Deferred
Financing Costs
 The
Company has incurred debt origination costs in connection with the issuance of
long-term debt.  These costs are capitalized as deferred financing
costs and amortized using the effective interest method, over the term of the
related debt.
 
 Revenue
      Recognition
 Revenues
are recognized when the following criteria are met: (i) persuasive evidence of
an arrangement exists; (ii) the selling price is fixed or determinable; (iii)
the product has been shipped and the customer takes ownership and assumes the
risk of loss; and (iv) collection of the resulting receivable is reasonably
assured.  The Company has determined that these criteria are met and
the transfer of the risk of loss generally occurs when product is received by
the customer and, accordingly, recognizes revenue at that
time.  Provision is made for estimated discounts related to customer
payment terms and estimated product returns at the time of sale based on the
Company’s historical experience.
 
 As is customary in the
consumer products industry,the Company
participatesin the
promotional programs of its customers to enhance the sale of its
products.The cost of these promotional programs varies based
on the actual number of units sold during a finite period of time.The
Company estimates the cost of such promotional
 
 
 programs
at their inception based on historical experience and current market conditions
and reduces sales by such estimates.These promotional programs
consist of direct to consumer incentives such ascoupons and temporary
price reductions, as well as incentives to the Company’s customers, such as
slotting fees and cooperative advertising.  Estimates of the costs of
these promotional programs are based on (i) historical sales experience, (ii)
the current offering, (iii) forecasted data, (iv) current market conditions, and
(v) communication with customer purchasing/marketing personnel.  At
the completion of the promotional program, the estimated amounts are adjusted to
actual results.
 
 Due to
the nature of the consumer products industry, the Company is required to
estimate future product returns.  Accordingly, the Company records an
estimate of product returns concurrent with recording sales which is made after
analyzing (i) historical return rates, (ii) current economic trends, (iii)
changes in customer demand, (iv) product acceptance, (v) seasonality of the
Company’s product offerings, and (vi) the impact of changes in product
formulation, packaging and advertising.
 
 Cost
      of Sales
 Cost of
sales includes product costs, warehousing costs, inbound and outbound shipping
costs, and handling and storage costs.  Shipping, warehousing and
handling costs were $5.5 million and $10.0 million for the three and six month
periods ended September 30, 2009, respectively.  During the three and
six month periods ended September 30, 2008, such costs were $6.5 million and
$11.8 million, respectively.
 
 Advertising
      and Promotion Costs
 Advertising
and promotion costs are expensed as incurred.  Slotting fees
associated with products are recognized as a reduction of
sales.  Under slotting arrangements, the retailers allow the Company’s
products to be placed on the stores’ shelves in exchange for such
fees.  Direct reimbursements of advertising costs are reflected as a
reduction of advertising costs in the period earned.
 
 Stock-based
      Compensation
 The Company recognizes
employee stock-based compensation by measuring the cost of services to be
rendered based on the grant-date fair value of the equity
award.  Compensation expense is to be recognized over the period an
employee is required to provide service in exchange for the award, generally
referred to as the requisite service period.
 
 Income
      Taxes
 Deferred
tax assets and liabilities are determined based on the differences between the
financial reporting and tax bases of assets and liabilities using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse.  A valuation allowance is established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
 
 The Taxes
Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) prescribes a recognition threshold and measurement
attributes for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.  As a result,
the Company has applied a more-likely-than-not recognition threshold for all tax
uncertainties.  The guidance only allows the recognition of those tax
benefits that have a greater than 50% likelihood of being sustained upon
examination by the various taxing authorities.
 
 The
Company is subject to taxation in the United States and various state and
foreign jurisdictions.  The Company remains subject to examination by
tax authorities for years after 2004.
 
 The
Company classifies penalties and interest related to unrecognized tax benefits
as income tax expense in the Statement of Operations.
 
 Derivative
      Instruments
 Companies
are required to recognize derivative instruments as either assets or liabilities
in the consolidated Balance Sheet at fair value.  The accounting for
changes in the fair value of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship and, further, on
the type of hedging relationship.  For those derivative instruments
that are designated and qualify as hedging instruments, a company
 
 
 must
designate the hedging instrument, based upon the exposure being hedged, as a
fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign
operation.
 
 The
Company has designated its derivative financial instruments as cash flow hedges
because they hedge exposure to variability in expected future cash flows that
are attributable to interest rate risk.  For these hedges, the
effective portion of the gain or loss on the derivative instrument is reported
as a component of other comprehensive income (loss) and reclassified into
earnings in the same line item associated with the forecasted transaction in the
same period or periods during which the hedged transaction affects
earnings.  Any ineffective portion of the gain or loss on the
derivative instruments is recorded in results of operations
immediately.  Cash flows from these instruments are classified as
operating activities.
 
 Earnings
Per Share
 Basic
earnings per share is calculated based on income available to common
stockholders and the weighted-average number of shares outstanding during the
reporting period.  Diluted earnings per share is calculated based on
income available to common stockholders and the weighted-average number of
common and potential common shares outstanding during the reporting
period.  Potential common shares, composed of the incremental common
shares issuable upon the exercise of stock options, stock appreciation rights
and unvested restricted shares, are included in the earnings per share
calculation to the extent that they are dilutive.
 
 Reclassifications
 Certain
prior year financial statements amounts have been reclassified to conform to the
current year presentation.
 
 Recently
      Issued Accounting Standards
 In
August 2009, the FASB issued authoritative guidance to provide
clarification on measuring liabilities at fair value when a quoted price in an
active market is not available.  In these circumstances, a valuation
technique should be applied that uses either the quote of the liability when
traded as an asset, the quoted prices for similar liabilities or similar
liabilities when traded as assets, or another valuation technique consistent
with existing fair value measurement guidance, such as an income approach or a
market approach.  The new guidance also clarifies that when estimating the
fair value of a liability, a reporting entity is not required to include a
separate input or adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of the liability.  This guidance is
effective with the Company's fiscal 2010 third quarter.  The Company
does not anticipate this guidance will have a material impact on the Company’s
consolidated financial statements.
 
 In
June 2009, the FASB issued authoritative guidance to eliminate the
exception to consolidate a qualifying special-purpose entity, change the
approach to determining the primary beneficiary of a variable interest entity
and require companies to more frequently re-assess whether they must consolidate
variable interest entities.  Under the new guidance, the primary
beneficiary of a variable interest entity is identified qualitatively as the
enterprise that has both (a) the power to direct the activities of a
variable interest entity that most significantly impact the entity’s economic
performance, and (b) the obligation to absorb losses of the entity that
could potentially be significant to the variable interest entity or the right to
receive benefits from the entity that could potentially be significant to the
variable interest entity.  This guidance becomes effective for the
Company’s fiscal 2011 year-end and interim reporting periods thereafter. 
The Company does not expect this guidance to have a material impact on its
consolidated financial statements
 
 In June
2009, the FASB established the FASB ASC as the source of authoritative
accounting principles recognized by the FASB to be applied in the preparation of
financial statements in conformity with generally accepted accounting
principles.  The new guidance explicitly recognizes rules and
interpretive releases of the SEC under federal securities laws as authoritative
GAAP for SEC registrants.  The new guidance became effective for our
financial statements issued for the three and six month periods ending on
September 30, 2009; however, the adoption of the new guidance did not have a
material impact on the Company’s financial position, results from operations or
cash flows.
 
 In May
2009, guidance was issued under the topic Subsequent Events related to the
accounting for and disclosure of events that occur after the balance sheet date,
but before the financial statements are issued or are available to be
issued.  Additionally, the new guidance requires the Company to
disclose the date through which subsequent
 
 
 events
have been evaluated, as well as whether that date is the date the financial
statements were issued or the date the financial statements were available to be
issued.  For the three and six month periods ended September 30, 2009,
the Company evaluated, for potential recognition and disclosure, events that
occurred prior to the filing of the Company’s Quarterly Report on Form 10-Q for
the three and six month periods ended September 30, 2009 on November 6,
2009.  As discussed in Note 2, subsequent to the period end the
Company sold certain personal care products to an unrelated third party. The
related assets and operating results were reclassified accordingly.
 
 The
Financial Instruments Topic of the FASB ASC requires disclosures about the fair
values of financial instruments at interim reporting periods in addition to
annual financial statements.  Effective April 1, 2009, the new
guidance involves in regard to the fair values of financial instruments only
enhanced disclosures and did not have any impact on the Company’s financial
position, results from operations or cash flows.
 
 The
Investments-Debt and Equity Securities topic of the FASB ASC modified the
threshold a company must meet to avoid recognizing other-than-temporary
impairments of debt securities purchased as investments.  Effective
April 1, 2009, the implementation of the new guidance did not have any impact on
the Company’s financial position, results from operations or cash
flows.
 
 The
Derivatives and Hedging Topic of the FASB ASC requires a company with derivative
instruments to disclose information to enable users of the financial statements
to understand (i) how and why the company uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for, and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  Accordingly, the
Derivatives and Hedging Topic requires qualitative disclosures about objectives
and strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements.  The
Derivatives and Hedging Topic is effective for financial statements issued for
fiscal years and interim periods beginning after November 15,
2008.  The implementation of the Derivatives and Hedging guidance
involves enhanced disclosures of derivative instruments and the Company’s
hedging activities and did not have any impact on the Company’s financial
position, results from operations or cash flows.
 
 In
September 2006, the FASB issued guidance on Fair Value Measurements and
Disclosures to address inconsistencies in the definition and determination of
fair value pursuant to GAAP.  The guidance provides a single
definition of fair value, establishes a framework for measuring fair value in
GAAP and expands disclosures about fair value measurements in an effort to
increase comparability related to the recognition of market-based assets and
liabilities and their impact on earnings.  The Fair Value Measurements
and Disclosures guidance was effective for the Company’s interim financial
statements issued after April 1, 2008.  However, on November 14, 2007,
the FASB deferred the effective date of the guidance for one year for
non-financial assets and non-financial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring
basis.  The implementation of the guidance, effective April 1, 2008,
did not have a material effect on financial assets and liabilities included in
the Company’s consolidated financial statements as fair value is based on
readily available market prices.  Additionally, the implementation of
the guidance did not have a material effect as it relates to non-financial
assets and non-financial liabilities that are recognized or disclosed at fair
value in the Company’s financial statements on a non-recurring
basis.
 
 Management
has reviewed and continues to monitor the actions of the various financial and
regulatory reporting agencies and is currently not aware of any other
pronouncement that could have a material impact on the Company’s consolidated
financial position, results of operations or cash flows.
 
 
 2.
Discontinued Operations and Assets Held for Sale
 
 In
October 2009, the Company sold certain assets previously included in its
Personal Care products segment to an unrelated third party.  In
accordance with the Discontinued Operations Topic of the ASC, the Company
classified the related assets as held for sale in the consolidated balance
sheets as of September 30, and March 31, 2009 and classified the related
operating results as discontinued in the consolidated financial statements and
related notes for all periods presented.  The Company
will recognize a gain of approximately $150,000, net of tax effects, on the
sale in the quarter ended December 31, 2009.
 
 
 The
following table presents the assets related to the discontinued operations as of
September 30, 2009 and March 31, 2009 (in thousands):
 
 
 September
      30,
                2009
              
              
              March
      31,
                2009Inventory
              
              $
              1,535
              
              
              $
              1,038Intangible
      assets
              
              
              7,574
              
              
              
              8,472Total
      assets held for sale
              
              $
              9,109
              
              
              $
              9,510
 
 The
following table summarizes the results of discontinued operations (in
thousands):
 
 Three
      Months Ended September 30
              
              
              Six
      Months Ended September 302009
              
              
              2008
              
              
              2009
              
              
              2008Components
      of  IncomeRevenues
              
              $
              2,135
              
              
              $
              2,511
              
              
              $
              4,347
              
              
              $
              5,048Income
      before income taxes
              
              
              391
              
              
              
              577
              
              
              
              924
              
              
              
              1,218
 
 The total
purchase price for the assets was $9 million, subject to adjustments for
inventory, as defined, with $8 million received upon closing, and the remaining
$1 million to be paid on the first anniversary of the closing.
 
 
 3.      Accounts
Receivable
 
 Accounts
receivable consist of the following (in thousands):
 September
      30,
                2009
              
              
              March
      31,
                2009Accounts
      receivable
              
              $
              41,672
              
              
              $
              37,521Other
      receivables
              
              
              486
              
              
              
              1,08142,158
              
              
              
              38,602Less
      allowances for discounts, returns and
                uncollectible
      accounts
              
              
              (3,006
              )
              
              
              (2,577
              )$
              39,152
              
              
              $
              36,025
 
 
 
 4.
              Inventories
 
 Inventories
consist of the following (in thousands):
 September
      30,
                2009
              
              
              March
      31,
                2009Packaging
      and raw materials
              
              $
              1,858
              
              
              $
              1,955Finished
      goods
              
              
              23,097
              
              
              
              23,984$
              24,955
              
              
              $
              25,939
 
 Inventories
are shown net of allowances for obsolete and slow moving inventory of $2.7
million and $1.4 million at September 30, 2009 and March 31, 2009,
respectively.
 
 
 5.
              Property
      and Equipment
 
 Property
and equipment consist of the following (in thousands):
 September
      30,
                2009
              
              
              March
      31,
                2009Machinery
              
              $
              1,610
              
              
              $
              1,556Computer
      equipment
              
              
              1,189
              
              
              
              1,021Furniture
      and fixtures
              
              
              239
              
              
              
              239Leasehold
      improvements
              
              
              367
              
              
              
              3573,405
              
              
              
              3,173Accumulated
      depreciation
              
              
              (2,114
              )
              
              
              (1,806
              )$
              1,291
              
              
              $
              1,367
 
 
 6.
              Goodwill
 
 A
reconciliation of the activity affecting goodwill by operating segment is as
follows (in thousands):
 Over-the-Counter
                
                
                Household
                
                
                PersonalHealthcare
                
                
                Cleaning
                
                
                Care
                
                
                ConsolidatedBalance
      – March 31, 2009Goodwill
                
                $
                229,627
                
                
                $
                72,549
                
                
                $
                2,751
                
                
                $
                304,927Accumulated
      impairment losses
                
                
                (125,527
                )
                
                
                (65,160
                )
                
                
                --
                
                
                
                (190,687
                )104,100
                
                
                
                7,389
                
                
                
                2,751
                
                
                
                114,240Net
      adjustments
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Balance
      – September 30, 2009Goodwill
                
                
                229,627
                
                
                
                72,549
                
                
                
                2,751
                
                
                
                304,927Accumulated
      impairment losses
                
                
                (125,527
                )
                
                
                (65,160
                )
                
                
                --
                
                
                
                (190,687
                )$
                104,100
                
                
                $
                7,389
                
                
                $
                2,751
                
                
                $
                114,240
 At March
31, 2009, in conjunction with the annual test for goodwill impairment, the
Company recorded an impairment charge aggregating $190.7 million to adjust the
carrying amounts of goodwill related to several reporting units within the
Over-the-Counter Healthcare and Household Cleaning segments to their respective
fair values.  These charges were a consequence of the challenging
economic environment experienced in during our fiscal year ended March 31, 2009,
the dislocation of the debt and equity markets, and contracting consumer demand
for the Company’s product offerings.  Although the impairment charges
represent management’s best estimate, the estimates and assumptions made in
assessing the fair value of the Company’s reporting units and the valuation of
the underlying assets and liabilities are inherently subject to significant
uncertainties.  Consequently, changing rates of interest and
inflation, declining sales or margins, increases in competition, changing
consumer preferences, technical advances or reductions in advertising and
promotion may require additional impairments in the future.
 
 
 
 7.
              Intangible
      Assets
 
 A
reconciliation of the activity affecting intangible assets is as follows (in
thousands):
 
 Six
      Months Ended September 30, 2009Indefinite
                Lived
              
              
              Finite
                Lived
              
              
              Non
                CompeteTrademarks
              
              
              Trademarks
              
              
              Agreement
              
              
              TotalsCarrying
      AmountsBalance
      – March 31, 2009
              
              $
              500,176
              
              
              $
              106,773
              
              
              $
              158
              
              
              $
              607,107Reclassifications
              
              
              (45,605
              )
              
              
              45,605
              
              
              
              --
              
              
              
              --Balance
      – September 30, 2009
              
              $
              454,571
              
              
              $
              152,378
              
              
              $
              158
              
              
              $
              607,107Accumulated
      AmortizationBalance
      – March 31, 2009
              
              $
              --
              
              
              $
              37,828
              
              
              $
              142
              
              
              $
              37,970Additions
              
              
              --
              
              
              
              4,862
              
              
              
              16
              
              
              
              4,878Balance
      – September 30, 2009
              
              $
              --
              
              
              $
              42,690
              
              
              $
              158
              
              
              $
              42,848
 
 At March
31, 2009, in a manner similar to goodwill, the Company completed a test for
impairment of its intangible assets.  Accordingly, the Company
recorded an impairment charge aggregating $58.9 million during the three month
period ended March 31, 2009 to the Over-the-Counter Healthcare and Household
Cleaning segments as facts and circumstances indicated that the carrying values
of the assets exceeded their fair values and may not be
recoverable.
 
 The
economic events experienced during the fiscal year ended March 31, 2009, as well
as the Company’s plans and projections for its brands indicated that several of
such brands can no longer support indefinite useful lives.  Each of
these brands incurred an impairment charge during the three month period ended
March 31, 2009 and has been adversely affected by increased competition and the
macroeconomic environment in the United States.  Consequently, at
April 1, 2009, management reclassified $45.6 million of previously indefinite
lived intangibles to intangibles with definite lives.  Management
estimates the useful lives of these intangibles to be 20 years.
 
 The fair
values and the annual amortization charges of the reclassified intangibles are
as follows (in thousands):
 
 Intangible
              
              
              Fair
                Value
      as of March 31, 2009
              
              
              Annual
                AmortizationHousehold
      Trademarks
              
              $
              34,888
              
              
              $
              1,745OTC
      Healthcare Trademark
              
              
              10,717
              
              
              
              536$
              45,605
              
              
              $
              2,281
 
 At
September 30, 2009, intangible assets are expected to be amortized over a period
of 3 to 30 years as follows (in thousands):
 
 Year Ending September 302010
              
              $
              9,7252011
              
              
              9,5132012
              
              
              9,0172013
              
              
              8,1672014
              
              
              6,807Thereafter
              
              
              66,459$
              109,688
 
 
 
 8.
              Other
      Accrued Liabilities
 
 Other
accrued liabilities consist of the following (in thousands):
 
 September
      30,
                2009
              
              
              March
      31,
                2009Accrued
      marketing costs
              
              $
              6,510
              
              
              $
              3,519Accrued
      payroll
              
              
              2,969
              
              
              
              750Accrued
      commissions
              
              
              331
              
              
              
              312Accrued
      income taxes
              
              
              1,819
              
              
              
              679Accrued
      professional fees
              
              
              2,678
              
              
              
              1,906Interest
      rate swap obligation
              
              
              1,572
              
              
              
              2,152Severance
              
              
              2,067
              
              
              
              -Other
              
              
              5
              
              
              
              89$
              17,951
              
              
              $
              9,407
 
 During
the second quarter of 2009, the Company completed a staff reduction program to
eliminate approximately 10% of its workforce. The accrued severance balance as
of September 30, 2009 is related to this reduction in workforce and consists
primarily of salaries, bonuses and other benefits.
 
 The
Company has reclassified the interest rate swap liability of $2.2 million as of
March 31, 2009 from accounts payable to accrued
liabilities.
 9.
              Long-Term
      Debt
 
 Long-term
debt consists of the following (in thousands):
 September
      30,
                2009
              
              
              March
      31,
                2009Senior
      secured term loan facility (“Tranche B Term Loan Facility”) that bears
      interest at the Company’s option at either the prime rate plus a margin of
      1.25% or LIBOR plus a margin of 2.25%.  At September 30, 2009, the
      average interest rate on the Tranche B Term Loan Facility was
      2.51%.  The interest rate is adjusted either monthly or
      quarterly at the Company’s option.  Principal payments of
      $887,500 plus accrued interest are payable quarterly.  Current
      amounts outstanding under the Tranche B Term Loan Facility mature on April
      6, 2011 and are collateralized by substantially all of the Company’s
      assets.
              
              $
              212,337
              
              
              $
              252,337Senior
      Subordinated Notes that bear interest at 9.25% which is payable on April
      15th
      and October 15th
      of each year.  The Senior Subordinated Notes mature on April 15,
      2012; however, the Company may redeem some or all of the Senior
      Subordinated Notes at redemption prices set forth in the indenture
      governing the Senior Subordinated Notes.  The Senior
      Subordinated Notes are unconditionally guaranteed by Prestige Brands
      Holdings, Inc., and its domestic wholly-owned subsidiaries other than
      Prestige Brands, Inc., the issuer.  Each of these guarantees is
      joint and several.  There are no significant restrictions on the
      ability of any of the guarantors to obtain funds from their
      subsidiaries.
              
              
              126,000
              
              
              
              126,000338,337
              
              
              
              378,337Current
      portion of long-term debt
              
              
              (3,550
              )
              
              
              (3,550
              )$
              334,787
              
              
              $
              374,787
 
 The
Tranche B Term Loan Facility contains various financial covenants, including
provisions that require the Company to maintain certain leverage ratios,
interest coverage ratios and fixed charge coverage ratios.  The
Tranche B Term Loan Facility and the Senior Subordinated Notes also contain
provisions that restrict the Company from undertaking certain specified
corporate actions, such as asset dispositions, acquisitions, dividend payments,
repurchase of common shares outstanding, changes of control, incurrence of
indebtedness, creation of liens, making of loans and transactions with
affiliates.  Additionally, the Tranche B Term Loan Facility and the
Senior Subordinated Notes contain cross-default provisions whereby a default
pursuant to the terms and conditions of either indebtedness will cause a default
on the remaining indebtedness.  At September 30, 2009, the Company was
in compliance with its applicable financial and other covenants under the
Tranche B Term Loan Facility and the Senior Subordinated Notes.
 
 Future
principal payments required in accordance with the terms of the Tranche B Term
Loan Facility and the Senior Subordinated Notes are as follows (in
thousands):
 
 Year Ending September 302010
              
              $
              3,5502011
              
              
              208,7872012
              
              
              126,000$
              338,337
 
 
 
 10.
              Fair
      Value Measurements
 
 As deemed
appropriate, the Company uses derivative financial instruments to mitigate the
impact of changing interest rates associated with its long-term debt
obligations.  At September 30, 2009, the outstanding obligation under
the Company’s variable rate Tranche B Term Loan Facility was $212.3
million.  Although the Company does not enter into derivative
financial instruments for trading purposes, all of the Company’s derivatives are
over-the-counter instruments with liquid markets.  The notional, or
contractual, amount of the Company’s derivative financial instruments is used to
measure the amount of interest to be paid or received and does not represent an
actual liability.  The Company is accounting for the interest rate cap
and swap agreements as cash flow hedges.
 
 The
Company entered into an interest rate swap agreement, effective March 26, 2008,
in the notional amount of $175.0 million that decreased to $125.0 million at
March 26, 2009.  The Company has agreed to pay a fixed rate of 2.88%
while receiving a variable rate based on LIBOR.  The agreement
terminates on March 26, 2010.
 
 As more fully described in
Note 1, the Company adoptedfair value accounting for all financial
instruments.  The Fair Value Measurements and Disclosures Topic of the
FASB ASC requires fair value to be determined based on the exchange price that
would be received for an asset or paid to transfer a liability in the principal
or most advantageous market assuming an orderly transaction between market
participants.  The Fair Value Measurements and Disclosures Topic
established market (observable inputs) as the preferred source of fair value to
be followed by the Company’s assumptions of fair value based on hypothetical
transactions (unobservable inputs) in the absence of observable market
inputs.
 
 Based
upon the above, the following fair value hierarchy was created:
  Level 1
      –
              Quoted market prices
      for identical instruments in active
markets,
  Level
      2 –
              Quoted
      prices for similar instruments in active markets, as well as quoted prices
      for identical or similar instruments in markets that are not considered
      active, and
 
 Level
      3 –
              Unobservable
      inputs developed by the Company using estimates and assumptions reflective
      of those that would be utilized by a market
  participant.
 
 Quantitative
disclosures about the fair value of the Company’s derivative hedging instruments
are as follows (in thousands):
 
 Fair
      Value Measurements at September 30, 2009Description
              
              September
      30, 2009
              
              
              Quoted
      Prices
                in
      Active
                Markets
      for
                Identical
                Assets
                (Level
      1)
              
              
              Significant
                Other
                Observable
                Inputs
                (Level
      2)
              
              
              Significant
                Unobservable
                Inputs
                (Level
      3)Interest
      Rate Swap Liability
              
              $
              1,572
              
              
              $
              --
              
              
              $
              1,572
              
              
              $
              --
 
 
 Fair
      Value Measurements at March 31, 2009Description
              
              March
      31, 2009
              
              
              Quoted
      Prices
                in
      Active
                Markets
      for
                Identical
                Assets
                (Level
      1)
              
              
              Significant
                Other
                Observable
                Inputs
                (Level
      2)
              
              
              Significant
                Unobservable
                Inputs
                (Level
      3)Interest
      Rate Swap Liability
              
              $
              2,152
              
              
              $
              --
              
              
              $
              2,152
              
              
              $
              --
 
 
 A summary
of the fair value of the Company’s derivative instruments, their impact on the
consolidated statements of operations and comprehensive income and the amounts
reclassified from other comprehensive income is as follows (in
thousands):
 
 For
      the Three Months Ended September 30, 2009September
      30, 2009
              
              Income
                Statement
                Account
              
              Amount
                Income
              
              
              Amount
                GainsCash
      Flow Hedging
                Instruments
              
              Balance
                Sheet
                Location
              
              Notional
                Amount
              
              
              Fair
      Value
                Asset/
                (Liability)
              
              Gains/
                Losses
                Charged
              
              (Expense)
                Recognized
                In
      Income
              
              
              (Losses)
                Recognized
                In
      OCIInterest
      Rate Swap
              Other
                Accrued
                Liabilities
              
              $
              125,000
              
              
              $
              (1,572
              )
              Interest
                Expense
              
              $
              (729
              )
              
              $
              444
 
 
 For
      the Six Months Ended September 30, 2009September
      30, 2009
              
              Income
                Statement
                Account
              
              Amount
                Income
              
              
              Amount
                GainsCash
      Flow Hedging
                Instruments
              
              Balance
                Sheet
                Location
              
              Notional
                Amount
              
              
              Fair
      Value
                Asset/
                (Liability)
              
              Gains/
                Losses
                Charged
              
              (Expense)
                Recognized
                In
      Income
              
              
              (Losses)
                Recognized
                In
      OCIInterest
      Rate Swap
              Other
                Accrued
                Liabilities
              
              $
              125,000
              
              
              $
              (1,572
              )
              Interest
                Expense
              
              $
              (1,260
              )
              
              $
              580
 
 
 For
      the Three Months Ended September 30, 2008September
      30, 2008
              
              Income
                Statement
                Account
              
              Amount
                Income
              
              
              Amount
                GainsCash
      Flow Hedging
                Instruments
              
              Balance
                Sheet
                Location
              
              Notional
                Amount
              
              
              Fair
      Value
                Asset/
                (Liability)
              
              Gains/
                Losses
                Charged
              
              (Expense)
                Recognized
                In
      Income
              
              
              (Losses)
                Recognized
                In
      OCIInterest
      Rate Swap
              Prepaid
                expenses
              
              $
              175,000
              
              
              $
              775
              
              Interest
                Expense
              
              $
              (19
              )
              
              $
              (329
              )
 
 
 For
      the Six Months Ended September 30, 2008September
      30, 2008
              
              Income
                Statement
                Account
              
              Amount
                Income
              
              
              Amount
                GainsCash
      Flow Hedging
                Instruments
              
              Balance
                Sheet
                Location
              
              Notional
                Amount
              
              
              Fair
      Value
                Asset/
                (Liability)
              
              Gains/
                Losses
                Charged
              
              (Expense)
                Recognized
                In
      Income
              
              
              (Losses)
                Recognized
                In
      OCIInterest
      Rate Swap
              Prepaid
                expenses
              
              $
              175,000
              
              
              $
              775
              
              Interest
                Expense
              
              $
              (136
              )
              
              $
              2,302
 
 
 The
Company recorded charges to interest expense of $729,000 and $19,000 during the
three month periods ended September 30, 2009 and 2008, respectively, and $1.3
million and $136,000 during the six month periods ended September 30, 2009 and
2008, respectively, in connection with this interest rate swap
agreement.  Assuming that the LIBOR rate does not fluctuate subsequent
to September 30, 2009, the Company estimates that it will recognize
approximately $1.6 million in additional interest expense during the remaining
six months of its fiscal year ending March 31, 2010.
 
 At
September 30, 2009 and March 31, 2009, the fair values of the interest rate swap
were $1.6 million and $2.2 million, respectively.  Such amounts were
included in other accrued liabilities.  The determination of fair
value is based on closing prices for similar instruments traded in liquid
over-the-counter markets.  The changes in the fair value of this
interest rate swap are recorded in Accumulated Other Comprehensive Income in the
balance sheet due to its designation as a cash flow hedge.
 
 For
certain of our financial instruments, including cash, accounts receivable,
accounts payable and other current liabilities, the carrying amounts approximate
their respective fair values due to the relatively short maturity of these
amounts.
 
 At
September 30, 2009, the carrying value of the Tranche B Term Loan Facility was
$212.3 million.  The terms of the facility provide that the interest
rate is adjusted, at the Company’s option, on either a monthly or quarterly
basis, to the prime rate plus a margin of 1.25% or LIBOR plus a margin of
2.25%.  The market value of the Company’s Tranche B Term Loan Facility
was approximately $207.5 million and $244.8 million at September 30, 2009 and
March 31, 2009, respectively.  At September 30, 2009 and March 31,
2009, the carrying value of the Company’s 9.25% Senior Subordinated Notes was
$126.0 million.  The market value of these notes was approximately
$128.5 million and $119.7 million at September 30, 2009 and March 31, 2009,
respectively.  The market values of the notes have been determined
from market transactions in the Company’s debt securities.
  11.
Stockholders’ Equity
 
 The
Company is authorized to issue 250.0 million shares of common stock, $0.01 par
value per share, and 5.0 million shares of preferred stock, $0.01 par value per
share.  The Board of Directors may direct the issuance of the
undesignated preferred stock in one or more series and determine preferences,
privileges and restrictions thereof.
 
 Each
share of common stock has the right to one vote on all matters submitted to a
vote of stockholders.  The holders of common stock are also entitled
to receive dividends whenever funds are legally available and when declared by
the Board of Directors, subject to prior rights of holders of all classes of
stock outstanding having priority rights as to dividends.  No
dividends have been declared or paid on the Company’s common stock through
September 30, 2009.
 
 During
the year ended March 31, 2009, the Company repurchased 65,000 shares of
restricted common stock from former employees pursuant to the provisions of the
various employee stock purchase agreements.  All of such shares have
been recorded as treasury stock.  There were no share repurchases
during the three or six month periods ended September 30, 2009.
 
 
 
 12.
              Earnings
      Per Share
 
 The
following table sets forth the computation of basic and diluted earnings per
share (in thousands):
 
 
 Three
      Months Ended September 30
              
              
              Six
      Months Ended September 302009
              
              
              2008
              
              
              2009
              
              
              2008NumeratorIncome
      from continuing operations
              
              $
              9,680
              
              
              $
              8,163
              
              
              $
              17,674
              
              
              $
              15,547Income
      from discontinued operations
              
              
              243
              
              
              
              359
              
              
              
              574
              
              
              
              756Net
      income
              
              $
              9,923
              
              
              $
              8,522
              
              
              $
              18,248
              
              
              $
              16,303DenominatorDenominator
      for basic earnings per share – weighted average shares
              
              
              50,012
              
              
              
              49,924
              
              
              
              49,997
              
              
              
              49,902Dilutive
      effect of unvested restricted common stock, options and stock appreciation
      rights issued to employees and directors
              
              
              43
              
              
              
              113
              
              
              
              83
              
              
              
              134Denominator
      for diluted earnings per share
              
              
              50,055
              
              
              
              50,037
              
              
              
              50,080
              
              
              
              50,036Earnings
      per Common Share:Basic
      earnings per share from continuing operations
              
              $
              0.19
              
              
              $
              0.16
              
              
              $
              0.35
              
              
              $
              0.31Basic
      earnings per share from discontinued operations
              
              
              0.01
              
              
              
              0.01
              
              
              
              0.01
              
              
              
              0.02Basic
      net earnings per share
              
              $
              0.20
              
              
              $
              0.17
              
              
              $
              0.36
              
              
              $
              0.33Diluted
      earnings per share from continuing operations
              
              $
              0.19
              
              
              $
              0.16
              
              
              $
              0.35
              
              
              $
              0.31Diluted
      earnings per share from discontinued operations
              
              
              0.01
              
              
              
              0.01
              
              
              
              0.01
              
              
              
              0.02Diluted
      net earnings per share
              
              $
              0.20
              
              
              $
              0.17
              
              
              $
              0.36
              
              
              $
              0.33
 
 
 At
September 30, 2009, 209,952 shares of restricted stock granted to employees,
subject only to time vesting, were unvested and excluded from the calculation of
basic earnings per share; however, such shares were included in the calculation
of diluted earnings per share.  Additionally, 101,802 shares of
restricted stock granted to employees have been excluded from the calculation of
both basic and diluted earnings per share because vesting of such shares is
subject to contingencies which have not been met as of the Balance Sheet date.
Lastly, at September 30, 2009, there were options to purchase 1,391,172 shares
of common stock outstanding that were not included in the computation of diluted
earnings per share because their exercise price was greater than the average
market price of the common stock, and therefore, their inclusion would be
antidilutive.
 
 At
September 30, 2008, 226,000 shares of restricted stock granted to employees,
subject only to time-vesting, were unvested and excluded from the calculation of
basic earnings per share; however, such shares were included in the calculation
of diluted earnings per share.  Additionally, 442,000 shares of
restricted stock granted to employees, as well as 15,000 stock appreciation
rights have been excluded from the calculation of both basic and diluted
earnings per share because vesting of such shares is subject to
contingencies.  Lastly, at September 30, 2008, there were options to
purchase 667,000 shares of common stock outstanding that were not included in
the computation of diluted earnings because their exercise price was greater
than the average market price of the common stock, and therefore, their
inclusion would be antidilutive.
 
 
 
 13.      Comprehensive
Income
 
 The
following table describes the components of comprehensive income for each of the
three and six month periods ended September 30, 2009 and 2008 (in
thousands):
 
 Three
      Months Ended September 302009
                
                
                2008Components
      of Comprehensive IncomeNet
      income
                
                $
                9,923
                
                
                $
                8,522Unrealized
      gain/(loss) on interest rate caps, net of income tax of $168 (2009) and
      ($125) (2008)
                
                
                276
                
                
                
                (204
                )Comprehensive
      Income
                
                $
                10,199
                
                
                $
                8,318
 Six
      Months Ended September 302009
              
              
              2008Components
      of Comprehensive IncomeNet
      income
              
              $
              18,248
              
              
              $
              16,303Amortization
      of interest rate caps reclassified into earnings, net of income tax of
      $32
              
              
              --
              
              
              
              53Unrealized
      gain on interest rate caps, net of income tax of $220 (2009) and $876
      (2008)
              
              
              360
              
              
              
              1,426Comprehensive
      Income
              
              $
              18,608
              
              
              $
              17,782
 
 
 14.
              Share-Based
      Compensation
 
 In
connection with the Company’s initial public offering, the Board of Directors
adopted the 2005 Long-Term Equity Incentive Plan (“Plan”) which provides for the
grant, to a maximum of 5.0 million shares, of restricted stock, stock options,
restricted stock units, deferred stock units and other equity-based
awards.  Directors, officers and other employees of the Company and
its subsidiaries, as well as others performing services for the Company, are
eligible for grants under the Plan.  The Company believes that such
awards better align the interests of its employees with those of its
stockholders.
 
 During
the six month period ended September 30, 2009, net compensation costs charged
against income and the related income tax benefit recognized were $848,000 and
$321,000, respectively.  During the six month period ended September
30, 2008, net compensation costs charged against income, and the related tax
benefits recognized were $1.6 million and $591,000, respectively.
 
 Restricted
Shares
 Restricted
shares granted to employees under the Plan generally vest in 3 to 5 years,
contingent on attainment by the Company of revenue and earnings before income
taxes, depreciation and amortization growth targets, or the attainment of
certain time vesting thresholds.  Certain restricted share awards
provide for automatic accelerated vesting if there is a change of
control.  The fair value of nonvested restricted shares is determined
as the closing price of the Company’s common stock on the day preceding the
grant date.  The weighted-average fair values of restricted shares
granted during the six month periods ended September 30, 2009 and 2008 were
$7.16 and $10.85, 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
      ValueNonvested
      at March 31, 2009
              
              
              342.4
              
              
              $
              11.31Granted
              
              
              171.6
              
              
              
              7.16Vested
              
              
              (47.8
              )
              
              
              10.97Forfeited
              
              
              (152.2
              )
              
              
              11.54Nonvested
      at September 30, 2009
              
              
              314.0
              
              
              
              8.94Nonvested
      at March 31, 2008
              
              
              484.7
              
              
              
              11.78Granted
              
              
              303.5
              
              
              
              10.85Vested
              
              
              (29.9
              )
              
              
              10.88Forfeited
              
              
              (128.0
              )
              
              
              12.30Nonvested
      at September 30, 2008
              
              
              630.3
              
              
              
              11.27
 
 
 
 Options
 The Plan
provides that the exercise price of the option granted shall be no less than the
fair market value of the Company’s common stock on the date the option is
granted.  Options granted have a term of no greater than 10 years from
the date of grant and vest in accordance with a schedule determined at the time
the option is granted, generally 3 to 5 years.  Certain option awards
provide for automatic accelerated vesting if there is a change in
control.
 
 The fair
value of each option award is estimated on the date of grant using the
Black-Scholes Option Pricing Model (“Black-Scholes Model”) that uses the
assumptions noted in the following table.  Expected volatilities are
based on the historical volatility of the Company’s common stock and other
factors, including the historical volatilities of comparable
companies.  The Company uses both historical and current data to
estimate option exercise and employee termination
behaviors.  Employees that are expected to exhibit similar exercise or
termination behaviors are grouped together for the purposes of
valuation.  The expected terms of the options granted are derived from
management’s estimates and consideration of information derived from the public
filings of companies similar to the Company and represent the period of time
that options granted are expected to be outstanding.  The risk-free
rate represents the yield on U.S. Treasury bonds with a maturity equal to the
expected term of the granted option.  The weighted-average grant-date
fair value of the options granted during the six month period ended September
30, 2009 and 2008 was $3.64 and $5.04, respectively.
 
 Six
      Month Period Ended September 302009
              
              
              2008Expected
      volatility
              
              
              45.6
              %
              
              
              43.3
              %Expected
      dividends
              
              
              --
              
              
              
              --Expected
      term in years
              
              
              7.0
              
              
              
              6.0Risk-free
      rate
              
              
              2.8
              %
              
              
              3.2
              %
 
 
 A summary
of option activity under the Plan is as follows:
 
 Options
              
              Shares
                (in
      thousands)
              
              
              Weighted-Average
                Exercise
                Price
              
              
              Weighted-
                Average
                Remaining
                Contractual
      Term
              
              
              Aggregate
                Intrinsic
                Value
                (in
      thousands)Outstanding
      at March 31, 2008
              
              
              253.5
              
              
              $
              12.86
              
              
              
              9.2
              
              
              $
              --Granted
              
              
              413.3
              
              
              
              10.91
              
              
              
              10.0
              
              
              
              --Exercised
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --Forfeited
      or expired
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --Outstanding
      at September 30, 2008
              
              
              666.8
              
              
              
              11.65
              
              
              
              9.3
              
              
              
              --Outstanding
      at March 31, 2009
              
              
              662.6
              
              
              
              11.65
              
              
              
              8.8
              
              
              
              --Granted
              
              
              1,125.0
              
              
              
              7.16
              
              
              
              10.0
              
              
              
              --Exercised
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --Forfeited
      or expired
              
              
              (142.6
              )
              
              
              11.26
              
              
              
              1.5
              
              
              
              --Outstanding
      at September 30, 2009
              
              
              1,645.0
              
              
              
              8.61
              
              
              
              9.4
              
              
              
              --Exercisable
      at September 30, 2009
              
              
              304.7
              
              
              
              11.98
              
              
              
              8.1
              
              
              
              --
 
 
 Stock
Appreciation Rights (“SARs”)
 In July
2006, the Board of Directors granted SARs to a group of selected executives;
however, no SARs have been granted since that date.  The terms of the
SARs provided that on the vesting date, the executive would receive for each SAR
awarded to an executive the excess of the market price of the Company’s common
stock on such date over the market price of the Company’s common stock on the
date of issuance.  The Board of Directors, in its sole discretion, may
settle the Company’s obligation to the executive in shares of the Company’s
common stock, cash, other securities of the Company or any combination
thereof.
 
 The Plan
provides that the issuance price of a SAR shall be no less than the market price
of the Company’s common stock on the date the SAR is granted.  SARs
may be granted with a term of no greater than 10 years from the date of grant
and will vest in accordance with a schedule determined at the time the SAR is
granted, generally 3 to 5 years.  The weighted-average grant date fair
value of the SARs granted was $3.68.  The fair value of each SAR award
was estimated on the date of grant using the Black-Scholes Model.  The
SARs vested on March 31, 2009; however, no compensation was paid because the
grant-date market price of the Company’s common stock exceeded the market value
of the Company’s common stock on the vesting date.
 
 A summary
of SAR activity under the Plan is as follows:
 
 SARs
              
              Shares
                (in
      thousands)
              
              
              Grant
                Date
                Stock
                Price
              
              
              Weighted-
                Average
                Remaining
                Contractual
      Term
              
              
              Aggregate
                Intrinsic
                Value
                (in
      thousands)Outstanding
      at March 31, 2008
              
              
              16.1
              
              
              $
              9.97
              
              
              
              1.00
              
              
              $
              --Granted
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --Forfeited
      or expired
              
              
              (1.2
              )
              
              
              9.97
              
              
              
              0.25
              
              
              
              --Outstanding
      at September 30, 2008
              
              
              14.9
              
              
              
              9.97
              
              
              
              0.25
              
              
              
              --Outstanding
      at March 31, 2009
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --Granted
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --Forfeited
      or expired
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --Outstanding
      at September 30, 2009
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --Exercisable
      at September 30, 2009
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
 
 At
September 30, 2009, there was $6.3 million of unrecognized compensation costs
related to nonvested share-based compensation arrangements under the Plan based
on management’s estimate of the shares that will ultimately vest.  The
Company expects to recognize such costs over the next 4.4
years.  However, certain of the restricted shares vest upon the
attainment of Company performance goals and if such goals are not met, no
compensation costs would ultimately be recognized and any previously recognized
compensation cost would be reversed.  The total fair value of shares
vested during the six months ended September 30, 2009 and 2008 was $525,000 and
$300,000, respectively.  There were no options exercised during either
of the six month periods ended September 30, 2009 and 2008; hence, there were no
tax benefits realized during these periods.  At September 30, 2009,
there were 2.9 million shares available for issuance under the
Plan.
 
 
 
 15.
              Income
      Taxes
 
 Income
taxes are recorded in the Company’s quarterly financial statements based on the
Company’s estimated annual effective income tax rate subject to adjustments for
discrete events should they occur.  The effective tax rates used in
the calculation of income taxes were 37.9% for the three and six month period
ended September 30, 2009 and 2008.
 
 At
September 30, 2009, Medtech Products Inc., a wholly-owned subsidiary of the
Company, had a net operating loss carryforward of approximately $2.0 million
which may be used to offset future taxable income of the consolidated group and
which begins to expire in 2020.  The net operating loss carryforward
is subject to an annual limitation as to usage pursuant to Internal Revenue Code
Section 382 of approximately $240,000.
 
 Uncertain
tax liability activity is as follows:
 
 2009
              
              
              2008(In
      thousands)Balance
      - March 31
              
              $
              225
              
              
              $
              --Adjustments
      based on tax positions related to
                the current year
              
              
              --
              
              
              
              --Balance
      - September 30
              
              $
              225
              
              
              $
              --
 
 The
Company recognizes interest and penalties related to uncertain tax positions as
a component of income tax expense.  The Company does not anticipate
any significant events or circumstances that would cause a change to these
uncertainties during the ensuing year.
 
 
 16.
              Commitments
      and Contingencies
 
 Securities Class Action
Litigation
 
 The
Company and certain of its officers and directors are defendants in a
consolidated securities class action lawsuit filed in the United States District
Court for the Southern District of New York (the “Consolidated
Action”).  The first of the six consolidated cases was filed on August
3, 2005.  Plaintiffs purport to represent a class of stockholders of
the Company who purchased shares from February 9, 2005 through November 15, 2005
(the “Class Period”).  Plaintiffs also name as defendants the
underwriters in the Company’s initial public offering and a private equity fund
that was a selling stockholder in the offering.  The District Court
has appointed a Lead Plaintiff.  On December 23, 2005, the Lead
Plaintiff filed a Consolidated Class Action Complaint, which asserted claims
under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections
10(b), 20(a) and 20A of the Securities Exchange Act of 1934.  The Lead
Plaintiff generally alleged that the Company issued a series of materially false
and misleading statements in connection with its initial public offering and
thereafter in regard to the following areas: the accounting issues described in
the Company’s press release issued on or about November 15, 2005; and the
alleged failure to disclose that demand for certain of the Company’s products
was declining and that the Company was planning to withdraw several products
from the market.  Plaintiffs seek an unspecified amount of
damages.  The Company filed a motion to dismiss the Consolidated Class
Action Complaint in February 2006.  On July 10, 2006, the Court
dismissed all claims against the Company and the individual defendants arising
under the Securities Exchange Act of 1934.
 
 On June
1, 2007, a hearing before the Court was held regarding Plaintiffs’ pending
motion for class certification in the Consolidated Action.  On
September 4, 2007, the United States District Court for the Southern District of
New York issued an Order certifying a class consisting of all persons who
purchased the Company’s common stock pursuant, or traceable to, the Company’s
initial public offering during the Class Period and were damaged
thereby.
 
 On
January 16, 2009, the Court ordered that notice of the pending class action
lawsuit be sent to all persons who purchased the Company’s common stock during
the Class Period pursuant or traceable to the Company’s initial public
offering.  In March 2009, the notice of class action law suit was
mailed.  The defendants and the lead plaintiffs have reached an
agreement in principle to settle the class action lawsuit without any admission
of liability by the defendants, subject to the execution of appropriate
settlement documents and court approval.  It is expected that the
settlement funds will come entirely out of insurance proceeds. The settlement
has received preliminary fairness approval by the Court and class members have
been notified. The settlement is expected to be presented to the Court for a
final fairness determination at a hearing scheduled for December 4, 2009. If
final approval of the settlement is obtained from the Court, the settlement
would result in dismissal of all claims against the Company, our officers and
directors and the other defendants in the action with prejudice.  If
the settlement is not completed, then the parties may attempt to reach agreement
on another settlement or resume the litigation.
  21
 DenTek
Litigation
 
 In April
2007, the Company filed a lawsuit in the United States District Court in the
Southern District of New York against DenTek Oral Care, Inc. (“DenTek”) alleging
(i) infringement of intellectual property associated with The Doctor’s®NightGuardTMdental protector which is used for the protection of teeth from nighttime
teeth grinding; and (ii) the violation of unfair competition and consumer
protection laws.  On October 4, 2007, the Company
filed a Second Amended Complaint in which it named Kelly M. Kaplan, Raymond
Duane and C.D.S. Associates, Inc. (“CDS”) as additional defendants in this
action and added other claims to the previously filed
complaint.  Kaplan and Duane were formerly employed by the Company,
and CDS is a corporation controlled by Duane through which Duane provided
services to the Company.  In the Second Amended Complaint, the Company
has asserted claims for patent, trademark and copyright infringement, unfair
competition, unjust enrichment, violation of New York’s Consumer Protection Act,
breach of contract, tortious interference with contractual and business
relations, civil conspiracy and trade secret misappropriation.  On
October 19, 2007, the Company filed a motion for preliminary injunction, asking
the Court to enjoin the defendants from (i) continuing to improperly use the
Company’s trade secrets; (ii) continuing to breach any contractual agreements
with the Company; and (iii) marketing and selling any dental protector products
or other products in which Duane or Kaplan has had any involvement or provided
any assistance to DenTek.  A hearing date for the motion for
preliminary injunction has not yet been set by the
Court.
 
 On
September 30, 2008, after considering the defendants’ motions to dismiss, the
Company’s responses (including a motion to strike the motions to dismiss) and
the Magistrate’s Report and Recommendations, the Court granted in part and
denied in part the defendants’ Motions to Dismiss, with the following claims
being dismissed without prejudice: (1) breach of the Proprietary Information and
Inventions Agreement (“PIIA”) against Duane; (2) breach of the PIIA against
Kaplan; (3) tortious interference with contractual relations against DenTek; (4)
tortious interference with contractual relations against Duane; and (5) tortious
interference with advantageous business relationship/economic advantage against
all defendants.  The Court denied the Company’s Motions to Strike the
Motions to Dismiss filed by DenTek and CDS.  The following claims
included in the Company’s Second Amended Complaint remain in the action: (1)
patent, trademark and copyright infringement against DenTek; (2) unjust
enrichment against DenTek; (3) violation of a New York consumer protection
statute against DenTek; (4) breach of the consulting agreement against Duane;
(5) breach of the PIIA against CDS; (6) breach of the release against Kaplan and
Duane; and (7) trade secret misappropriation against DenTek, Kaplan, Duane and
CDS.
 
 In
October 2008, DenTek, Kaplan, Duane and CDS filed Answers to the Second Amended
Complaint.  In their Answers, each of DenTek, Duane and CDS has
asserted counterclaims against the Company.  DenTek’s counterclaims
allege false advertising, violation of New York consumer protection statutes and
unfair competition relating to The Doctor’s® NightGuardTM
ClassicTM dental protector.  Duane’s counterclaim is a
contractual indemnity claim seeking to recover attorneys’ fees pursuant to the
release between Duane and Dental Concepts LLC (“Dental Concepts”), a
predecessor-in-interest to Medtech Products Inc., plaintiff in the DenTek
litigation and another wholly-owned subsidiary of Prestige Brands Holdings,
Inc.  CDS’s counterclaim alleges a breach of the consulting agreement
between CDS and Dental Concepts.
  In
November 2008, in response to the counterclaims filed against the Company by
DenTek, Duane and CDS, the Company filed a Motion to Dismiss and Strike the
counterclaims made by DenTek, which motion is currently pending before the
Court.  In addition, in November 2008, the Company filed an Answer to
the counterclaims asserted by Duane and CDS.
 
 On March
24, 2009, Duane submitted a petition for a Chapter 7 bankruptcy with the United
States Bankruptcy Court for the District of Nevada (the “Nevada Bankruptcy
Court”) which automatically stayed the DenTek litigation in which Duane is a
defendant.  On July 21, 2009, the Nevada Bankruptcy Court granted the
Company’s motion for relief from automatic stay with respect to the DenTek
litigation against DenTek, Kaplan, Duane and CDS.  Accordingly, the
DenTek litigation has resumed although the Nevada Bankruptcy Court retains
exclusive jurisdiction over any damage claims and other issues which may affect
Duane’s bankruptcy proceeding, except for orders of injunctive relief that may
be issued in the DenTek litigation.
 On
November 5, 2009, the Court issued an Opinion and Order construing one of the
claims of the Company’s U.S. Patent No. 6,830,051, which forms the basis for the patent
infringement claims in the DenTek litigation.  The Company believes
the Opinion and Order issued by the Court is favorable to the Company’s patent
infringement claim against DenTek.
  The
Company’s management believes that the counterclaims asserted by DenTek, Duane
and CDS are legally deficient and that it has meritorious defenses to the
counterclaims.  The Company intends to vigorously defend against the
counterclaims; however, the Company cannot, at this time, reasonably estimate
the potential range of loss, if any.
 
 In
addition to the matters described above, the Company is involved from time to
time in other routine legal matters and other claims incidental to its
business.  The Company reviews outstanding claims and proceedings
internally and with external counsel as necessary to assess probability and
amount of potential loss.  These
 
 
 assessments
are re-evaluated at each reporting period and as new information becomes
available to determine whether a reserve should be established or if any
existing reserve should be adjusted.  The actual cost of resolving a
claim or proceeding ultimately may be substantially different than the amount of
the recorded reserve.  In addition, because it is not permissible
under GAAP to establish a litigation reserve until the loss is both probable and
estimable, in some cases there may be insufficient time to establish a reserve
prior to the actual incurrence of the loss (upon verdict and judgment at trial,
for example, or in the case of a quickly negotiated settlement).  The
Company believes the resolution of routine matters and other incidental claims,
taking into account reserves and insurance, will not have a material adverse
effect on its business, financial condition or results from
operations.
 
 Lease
Commitments
 The
Company has operating leases for office facilities and equipment in New York and
Wyoming, which expire at various dates through 2014.
 
 The
following summarizes future minimum lease payments for the Company’s operating
leases (in thousands):
 
 Facilities
              
              
              Equipment
              
              
              TotalYear Ending September 302010
              
              $
              694
              
              
              $
              83
              
              
              $
              7772011
              
              
              591
              
              
              
              80
              
              
              
              6712012
              
              
              568
              
              
              
              54
              
              
              
              6222013
              
              
              587
              
              
              
              36
              
              
              
              6232014
              
              
              348
              
              
              
              --
              
              
              
              348$
              2,788
              
              
              $
              253
              
              
              $
              3,041
 
 Rent
expense for the three and six month periods ended September 30, 2009 was
$158,000 and $348,000, respectively, while rent expense for the three and six
month periods ended September 30, 2008 was $148,000 and $306,000,
respectively.
 
 Purchase
Commitments
 The
Company has entered into a 10 year supply agreement for the exclusive
manufacture of a portion of one of its household cleaning
products.  Although the Company is committed under the supply
agreement to pay the minimum amounts set forth in the table below, the Company
estimates that it will purchase in excess of $270.0 million of the product
during the term of the agreement.
 
 (In
thousands)
 Year Ending September 302010
              
              $
              10,7532011
              
              
              9,9212012
              
              
              1,1922013
              
              
              1,1482014
              
              
              1,105Thereafter
              
              
              4,801$
              28,920
 
 
 17.
              Concentrations
      of Risk
 
 The
Company’s sales are concentrated in the areas of over-the-counter healthcare,
household cleaning and personal care products.  The Company sells its
products to mass merchandisers, food and drug accounts, and dollar and club
stores.  During the three and six month periods ended September 30,
2009, approximately 63.2% and 63.1%, respectively, of the Company’s total sales
were derived from its four major brands, while during the three and six month
periods ended September 30, 2008 approximately 59.5% and 60.4%, respectively, of
the Company’s total sales were derived from its four major
brands.  During the three and six month periods ended September 30,
2009, approximately 24.4% and 25.0%, respectively, of the Company’s sales were
made to one customer, while during the three and six month periods ended
September 30, 2008, 24.5% and 25.6%,
 
 
 respectively,
of sales were to this customer.  At September 30, 2009, approximately
22.6% of accounts receivable were owed by the same customer.
 
 The
Company manages product distribution in the continental United States through a
main distribution center in St. Louis, Missouri.  A serious
disruption, such as a flood or fire, to the main distribution center could
damage the Company’s inventories and could materially impair the Company’s
ability to distribute its products to customers in a timely manner or at a
reasonable cost.  The Company could incur significantly higher costs
and experience longer lead times associated with the distribution of its
products to its customers during the time that it takes the Company to reopen or
replace its distribution center.  As a result, any such disruption
could have a material adverse affect on the Company’s sales and
profitability.
 
 The
Company has relationships with over 36 third-party manufacturers.  Of
those, the top 10 manufacturers produced items that accounted for approximately
79% of the Company’s gross sales for the six months ended September 30, 2009
compared to 75% during the six months ended September 30, 2008. The Company did
not have long-term contracts with manufacturers of product of approximately 20%
of our gross sales for the six months ended September 30, 2009 compared to 20%
during the six months ended September 30, 2008.  The lack of
manufacturing agreements for these products exposes the Company to the risk that
a manufacturer could stop producing the Company’s products at any time for any
reason, increase the cost we are charged for our products, or fail to provide
the Company with the level of products the Company needs to meet its customers’
demands.  Should one or more of our manufacturers stop producing
product on our behalf or increase our costs in excess of our ability to increase
our sales price, it could have a material adverse effect on our business,
financial condition and results from operations.
 
 
 18.
              Business
      Segments
 
 Segment
information has been prepared in accordance with the Segment Topic of the FASB
ASC. The Company’s operating and reportable segments consist of (i)
Over-the-Counter Healthcare, (ii) Household Cleaning and (iii) Personal
Care.
 
 There
were no inter-segment sales or transfers during any of the periods
presented.  The Company evaluates the performance of its operating
segments and allocates resources to them based primarily on contribution
margin.
 
 The table
below summarizes information about the Company’s operating and reportable
segments.
 
 Three
      Months Ended September 30, 2009Over-the-
                Counter
              
              
              Household
              
              
              PersonalHealthcare
              
              
              Cleaning
              
              
              Care
              
              
              Consolidated(In
      thousands)Net
      sales
              
              $
              51,368
              
              
              $
              28,602
              
              
              $
              3,767
              
              
              $
              83,737Other
      revenues
              
              
              9
              
              
              
              411
              
              
              
              24
              
              
              
              444Total
      revenues
              
              
              51,377
              
              
              
              29,013
              
              
              
              3,791
              
              
              
              84,181Cost
      of sales
              
              
              19,217
              
              
              
              18,483
              
              
              
              2,147
              
              
              
              39,847Gross
      profit
              
              
              32,160
              
              
              
              10,530
              
              
              
              1,644
              
              
              
              44,334Advertising
      and promotion
              
              
              7,378
              
              
              
              2,285
              
              
              
              119
              
              
              
              9,782Contribution
      margin
              
              $
              24,782
              
              
              $
              8,245
              
              
              $
              1,525
              
              
              
              34,552Other
      operating expenses
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              13,322Operating
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              21,230Other
      (income) expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,642Provision
      for income taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,908Income
      from continuing operations
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,680Income
      from discontinued operations (assets held for sale), net of income
      tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              243Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              9,923
   Six
      Months Ended September 30, 2009Over-the-
                Counter
              
              
              Household
              
              
              PersonalHealthcare
              
              
              Cleaning
              
              
              Care
              
              
              Consolidated(In
      thousands)Net
      sales
              
              $
              91,640
              
              
              $
              55,443
              
              
              $
              7,050
              
              
              $
              154,133Other
      revenues
              
              
              20
              
              
              
              1,017
              
              
              
              23
              
              
              
              1,060Total
      revenues
              
              
              91,660
              
              
              
              56,460
              
              
              
              7,073
              
              
              
              155,193Cost
      of sales
              
              
              32,745
              
              
              
              36,284
              
              
              
              4,000
              
              
              
              73,029Gross
      profit
              
              
              58,915
              
              
              
              20,176
              
              
              
              3,073
              
              
              
              82,164Advertising
      and promotion
              
              
              14,118
              
              
              
              4,204
              
              
              
              225
              
              
              
              18,547Contribution
      margin
              
              $
              44,797
              
              
              $
              15,972
              
              
              $
              2,848
              
              
              
              63,617Other
      operating expenses
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              23,861Operating
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              39,756Other
      (income) expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,295Provision
      for income taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,787Income
      from continuing operations
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              17,674Income
      from discontinued operations (assets held for sale), net of income
      tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              574Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              18,248
 
 
 
 Three
      Months Ended September 30, 2008Over-the-
                Counter
              
              
              Household
              
              
              PersonalHealthcare
              
              
              Cleaning
              
              
              Care
              
              
              Consolidated(In
      thousands)Net
      sales
              
              $
              50,318
              
              
              $
              31,482
              
              
              $
              3,058
              
              
              $
              84,858Other
      revenues
              
              
              24
              
              
              
              658
              
              
              
              --
              
              
              
              682Total
      revenues
              
              
              50,342
              
              
              
              32,140
              
              
              
              3,058
              
              
              
              85,540Cost
      of sales
              
              
              17,567
              
              
              
              20,937
              
              
              
              1,898
              
              
              
              40,402Gross
      profit
              
              
              32,775
              
              
              
              11,203
              
              
              
              1,160
              
              
              
              45,138Advertising
      and promotion
              
              
              10,654
              
              
              
              2,731
              
              
              
              158
              
              
              
              13,543Contribution
      margin
              
              $
              22,121
              
              
              $
              8,472
              
              
              $
              1,002
              
              
              
              31,595Other
      operating expenses
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,671Operating
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              19,924Other
      (income) expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,779Provision
      for income taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,982Income
      from continuing operations
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,163Income
      from discontinued operations (assets held for sale), net of income
      tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              359Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              8,522
 
 
 Six
      Months Ended September 30, 2008Over-the-
                Counter
              
              
              Household
              
              
              PersonalHealthcare
              
              
              Cleaning
              
              
              Care
              
              
              Consolidated(In
      thousands)Net
      sales
              
              $
              89,564
              
              
              $
              59,886
              
              
              $
              5,787
              
              
              $
              155,237Other
      revenues
              
              
              24
              
              
              
              1,276
              
              
              
              --
              
              
              
              1,300Total
      revenues
              
              
              89,588
              
              
              
              61,162
              
              
              
              5,787
              
              
              
              156,537Cost
      of sales
              
              
              30,775
              
              
              
              38,860
              
              
              
              3,674
              
              
              
              73,309Gross
      profit
              
              
              58,813
              
              
              
              22,302
              
              
              
              2,113
              
              
              
              83,228Advertising
      and promotion
              
              
              15,691
              
              
              
              4,801
              
              
              
              288
              
              
              
              20,780Contribution
      margin
              
              $
              43,122
              
              
              $
              17,501
              
              
              $
              1,825
              
              
              
              62,448Other
      operating expenses
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              21,951Operating
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              40,497Other
      (income) expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              15,462Provision
      for income taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,488Income
      from continuing operations
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              15,547Income
      from discontinued operations (assets held for sale), net of income
      tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              756Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              16,303
 
 
 During
the three and six month periods ended September 30, 2009, approximately 94.9%
and 95.9%, respectively, of the Company’s sales were made to customers in the
United States and Canada while during the three and six month periods ended
September 30, 2008, approximately 97.0% and 96.4%, respectively, of sales were
made to customers in the United States and Canada.  Other than the
United States, no individual geographical area accounted for more than 10% of
net sales in any of the periods presented.
 
 At
September 30, 2009, substantially all of the Company’s long-term assets were
located in the United States of America and have been allocated to the operating
segments as follows:
 
 Over-the-
                Counter
              
              
              Household
              
              
              Personal(In
      thousands)
              
              Healthcare
              
              
              Cleaning
              
              
              Care
              
              
              ConsolidatedGoodwill
              
              $
              104,100
              
              
              $
              7,389
              
              
              $
              2,751
              
              
              $
              114,240Intangible
      assetsIndefinite-lived
              
              
              334,750
              
              
              
              119,821
              
              
              
              --
              
              
              
              454,571Finite-lived
              
              
              69,572
              
              
              
              34,016
              
              
              
              6,100
              
              
              
              109,688404,322
              
              
              
              153,837
              
              
              
              6,100
              
              
              
              564,259$
              508,422
              
              
              $
              161,226
              
              
              $
              8,851
              
              
              $
              678,499
 
 
 
 
 ITEM
2.                      MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
 
 
 The
following discussion of our financial condition and results of operations should
be read together with the 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, 2009.  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, 2009, as well as those
described in future reports filed with the SEC.  See also “Cautionary
Statement Regarding Forward-Looking Statements” on page 44 of this Quarterly
Report on Form 10-Q.
 
 General
 We are
engaged in the marketing, sales and distribution of brand name over-the-counter
healthcare, household cleaning and personal care products to mass merchandisers,
drug stores, supermarkets and club stores primarily in the United States and
Canada.  We continue to use the strength of our brands, our
established retail distribution network, a low-cost operating model and our
experienced management team as a competitive advantage to grow our presence in
these categories and, as a result, grow our sales and profits.
 
 We have
grown our brand portfolio by acquiring strong and well-recognized brands from
larger consumer products and pharmaceutical companies, as well as other brands
from smaller private companies.  While the brands we have purchased
from larger consumer products and pharmaceutical companies have long histories
of support and brand development, we believe that at the time we acquired them
they were considered “non-core” by their previous owners and did not benefit
from the focus of senior level management or strong marketing
support.  We believe that the brands we have purchased from smaller
private companies have been constrained by the limited resources of their prior
owners.  After acquiring a brand, we seek to increase its sales,
market share and distribution in both existing and new channels.  We
pursue this growth through increased spending on advertising and promotion, new
marketing strategies, improved packaging and formulations and innovative new
products.
 
 Discontinued Operations and
Assets Held for Sale
 
 In
October 2009, the Company sold certain assets previously included in its
Personal Care products segment to an unrelated third party.  In
accordance with the Discontinued Operations Topic of the Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC"), the Company
classified the related assets as held for sale in the consolidated balance
sheets as of September 30, and March 31, 2009 and classified the related
operating results as discontinued in the consolidated financial statements and
related notes for all periods presented.  The Company will recognize a
gain of approximately $150,000, net of tax effects, on the sale in the quarter
ended December 31, 2009.
 
 
 The
following table presents the assets related to the discontinued operations as of
September 30, 2009 and March 31, 2009 (in thousands):
 
 
 September
      30,
                2009
              
              
              March
      31,
                2009Inventory
              
              $
              1,535
              
              
              $
              1,038Intangible
      assets
              
              
              7,574
              
              
              
              8,472Total
      assets held for sale
              
              $
              9,109
              
              
              $
              9,510
 
 The
following table summarizes the results of discontinued operations (in
thousands):
 
 Three
      Months Ended September 30
              
              
              Six
      Months Ended September 302009
              
              
              2008
              
              
              2009
              
              
              2008Components
      of Comprehensive IncomeRevenues
              
              $
              2,135
              
              
              $
              2,511
              
              
              $
              4,347
              
              
              $
              5,048Income
      before income taxes
              
              
              391
              
              
              
              577
              
              
              
              924
              
              
              
              1,218
 
 The total
purchase price for the assets was $9 million, subject to adjustments for
inventory, as defined, with $8 million received upon closing, and the remaining
$1 million to be paid on the first anniversary of the closing.
 
 
 Three
      Month Period Ended September 30, 2009 compared to
  the
 Three
      Month Period Ended September 30,
2008
 
 Revenues
(in thousands)
 2009
                Revenues
              
              
              %
              
              
              2008
                Revenues
              
              
              %
              
              
              Increase
                (Decrease)
              
              
              %OTC
      Healthcare
              
              $
              51,377
              
              
              
              61.0
              
              
              $
              50,342
              
              
              
              58.8
              
              
              $
              1,035
              
              
              
              2.1Household
      Cleaning
              
              
              29,013
              
              
              
              34.5
              
              
              
              32,140
              
              
              
              37.6
              
              
              
              (3,127
              )
              
              
              (9.7
              )Personal
      Care
              
              
              3,791
              
              
              
              4.5
              
              
              
              3,058
              
              
              
              3.6
              
              
              
              733
              
              
              
              24.0$
              84,181
              
              
              
              100.0
              
              
              $
              85,540
              
              
              
              100.0
              
              
              $
              (1,359
              )
              
              
              (1.6
              )
 
 Revenues
for the three month period ended September 30, 2009 were $84.2 million, a
decrease of $1.4 million, or 1.6%, versus the three month period ended September
30, 2008. Revenues for both the Over-the-Counter and Personal Care segments
increased versus the comparable period in the prior year. Revenues for the
Household Cleaning segment declined during the period. Revenues from customers
outside of North America, which represent 5.2% of total revenues, increased by
$1.7 million or 64.5% during 2009 compared to 2008 due to timing of eye care
shipments to our Australian distributor and stronger sales of Chloraseptic in the United
Kingdom.
 
 Over-the-Counter
Healthcare Segment
 Revenues
of the Over-the-Counter Healthcare segment increased $1.0 million, or 2.1%,
during 2009 versus 2008.  Revenue increases for Clear Eyes, Murine Tears, Chloraseptic and Compound W were partially
offset by revenue decreases on Murine Ear, Allergen Block and Wartner. The increase in
revenues for Clear Eyes
is primarily the result of an increase in consumer consumption. The increase in
revenues for Murine
Tears was primarily the result of higher shipments to markets outside
North America.  Chloraseptic revenues
increased as a result of stronger shipments to customers in advance of the
anticipated strong Fall cough/cold flu season.  Compound W revenues increased
due to strong consumer consumption particularly in the Salicylic
acid product line.  Murine Ear's revenues decreased
primarily as the result of slowing consumer consumption, particularly on Earigate. Allergen Block revenues
decreased due to the anniversary of pipeline shipments from the introduction in
the same period last year. The Wartner revenues decrease was
primarily due to distribution losses.
 
 Household
Cleaning Segment
 Revenues
for the Household Cleaning segment decreased $3.1 million, or 9.7%, during 2009
versus 2008.  Comet’s revenues decreased
primarily due to softer consumer consumption of bathroom spray.  Chore Boy revenues declined
in line with weaker consumer consumption and distribution losses due to heavy
competitor activity.  Spic and Span’s revenues
decreased primarily due to softer consumer consumption in traditional
 
 
 channels
of trade and timing of promotional shipments to the dollar store class of
trade.
 
 Personal
Care Segment
 Revenues
of the Personal Care segment increased $733,000, or 24.0%, during 2009 versus
2008.  Increased revenues for Cutex were partially offset
by declines on other brands in this segment.  The revenue increase was
driven by Cutex and was
primarily due to increased consumer consumption in the nail polish remover
category.
 
 Gross
Profit (in thousands)
 2009
                Gross
      Profit
              
              
              %
              
              
              2008
                Gross
      Profit
              
              
              %
              
              
              Increase
                (Decrease)
              
              
              %OTC
      Healthcare
              
              $
              32,160
              
              
              
              62.6
              
              
              $
              32,775
              
              
              
              65.1
              
              
              $
              (615
              )
              
              
              (1.9
              )Household
      Cleaning
              
              
              10,530
              
              
              
              36.3
              
              
              
              11,203
              
              
              
              34.9
              
              
              
              (673
              )
              
              
              (6.0
              )Personal
      Care
              
              
              1,644
              
              
              
              43.4
              
              
              
              1,160
              
              
              
              37.9
              
              
              
              484
              
              
              
              41.7$
              44,334
              
              
              
              52.7
              
              
              $
              45,138
              
              
              
              52.8
              
              
              $
              (804
              )
              
              
              (1.8
              )
 
 Gross
profit from the three month period ended September 30, 2009 decreased $804,000,
or 1.8%, versus the three month period ended September 30, 2008.  As a
percent of total revenues, gross profit decreased from 52.8% in 2008 to 52.7% in
2009. The decrease in gross profit as a percent of revenues was primarily due to
increased obsolescence costs and costs associated with the transition to the new
Comet powder supplier,
offset by decreases in product and distribution costs.
 
 Over-the-Counter
Healthcare Segment
 Gross
profit for the Over-the-Counter Healthcare segment decreased $615,000, or 1.9%,
during 2009 versus 2008. The decrease in gross profit percentage was the result
of higher promotional and obsolescence costs and unfavorable sales
mix.  The increase in promotional costs was primarily the result of an
increase in trade promotion activity behind Chloraseptic, Little Remedies, Clear Eyes and Allergen Block
products.  The increase in obsolescence costs was a result of short
dated and slow moving eye care and Allergen Block inventory. As
a percent of Over-the-Counter Healthcare revenue, gross profit decreased from
65.1% during 2008 to 62.6% during 2009.
 
 Household
Cleaning Segment
 Gross
profit for the Household Cleaning segment decreased by $673,000, or 6.0%, during
2009 versus 2008. As a percent of Household Cleaning revenue, gross profit
increased from 34.9% during 2008 to 36.3% during 2009. The increase in gross
profit percentage was the result of decreased product costs for Chore Boy and Comet, lower distribution
costs for Comet and
Spic and Span partially
offset by costs associated with the transition to a new Comet powder
supplier.
 
 Personal
Care Segment
 Gross
profit for the Personal Care segment increased $484,000, or 41.7%, during 2009
versus 2008. As a percent of Personal Care revenues, gross profit increased from
37.9% during 2008 to 43.4% during 2009. The increase in gross profit percentage
was due to lower promotional allowances and lower distribution and obsolescence
costs for Cutex.
 
 
 
 Contribution
Margin (in thousands)
 2009
                Contribution
      Margin
              
              
              %
              
              
              2008
                Contribution
      Margin
              
              
              %
              
              
              Increase
                (Decrease)
              
              
              %OTC
      Healthcare
              
              $
              24,782
              
              
              
              48.2
              
              
              $
              22,121
              
              
              
              43.9
              
              
              $
              2,661
              
              
              
              12.0Household
      Cleaning
              
              
              8,245
              
              
              
              28.4
              
              
              
              8,472
              
              
              
              26.4
              
              
              
              (227
              )
              
              
              (2.7
              )Personal
      Care
              
              
              1,525
              
              
              
              40.2
              
              
              
              1,002
              
              
              
              32.8
              
              
              
              523
              
              
              
              52.2$
              34,552
              
              
              
              41.0
              
              
              $
              31,595
              
              
              
              36.9
              
              
              $
              2,957
              
              
              
              9.4
 
 Contribution
Margin, defined as gross profit less advertising and promotional expenses, for
the three month period ended September 30, 2009 increased $3.0 million, or 9.4%,
versus the three month period ended September 30, 2008. The contribution margin
increase was the result of a $3.8 million, or 27.8%, decrease in advertising and
promotional spending, partially offset by the decrease in gross profit as
previously discussed. The decrease in advertising and promotional spending was
primarily attributable to decreases in media support and market research
expenditures in the Over-the-Counter and Household Segments.
 
 Over-the-Counter
Healthcare Segment
 Contribution
margin for the Over-the-Counter Healthcare segment increased $2.7 or 12.0%,
during 2009 versus 2008. The contribution margin increase was the result of a
$3.3 million, or 30.7%, decrease in advertising and promotional spending,
partially offset by the decrease in gross margin as previously discussed. The
decrease in advertising and promotional spending was primarily attributable to a
decrease in media support for the Allergen Block products from
introductory levels in the prior year and Murine Earigate products, as
well as decreased market research expenditures for Clear Eyes and Compound W.
 
 Household
Cleaning Segment
 Contribution
margin for the Household Cleaning segment decreased $227,000 million, or 2.7%,
during 2009 versus 2008.  The contribution margin decrease was the
result of the decrease in gross profit as previously discussed, partially offset
by a decrease in media support for Comet Mildew Spray
Gel.
 
 Personal
Care Segment
 Contribution
margin for the Personal Care segment increased $523,000, or 52.2%, during 2009
versus 2008. The contribution margin increase was the result of the increase in
gross profit as previously discussed and a modest reduction in trade promotion
and market research for Cutex.
 
 General
and Administrative
 General
and administrative expenses were $10.5 million for the three month period ended
September 30, 2009 versus $9.4 million for the three month period ended
September 30, 2008. The increase in expense was due to a $2.5 million net charge
associated with the reduction in workforce and the CEO change, partially offset
by favorable currency translation costs and a reduction in legal
expenses.
  Depreciation
and Amortization
 Depreciation
and amortization expense was $2.8 million for the
three month period ended September 30, 2009 versus $2.3 million the three month
period ended September 30, 2008.  Amortization was impacted by the
transfer of two trademarks in the Household Cleaning segment and one trademark
in the Over-the-Counter segment, aggregating $45.6 million, from
indefinite-lived status to intangibles with finite lives. Commencing April 1,
2009, these intangibles are being amortized to operations over a 20 year
estimated useful life.  This increase in amortization expense was
partially offset by a reduction in amortization resulting from a trademark that
became fully amortized at March 31, 2009, resulting in a net increase in
depreciation and amortization expense of $533,000 for the period.
 
 Interest
Expense
 Net
interest expense was $5.6 million during the three month period ended September
30, 2009 versus $6.8 million during the three month period ended September 30,
2008. The reduction in interest expense was primarily the result of a lower
level of indebtedness combined with a reduction of variable interest rates
on our senior debt. The
 
 
 
 average
cost of funds decreased from 6.9% for 2008 to 6.4% for 2009 while the average
indebtedness decreased from $392.6 million during 2008 to $347.7 million during
2009.
 
 Income
Taxes
 The
provision for income taxes during 2009 was $5.9 million versus $5.0 million
during 2008.  The effective tax rate of 37.9% was unchanged
period-to-period.
 
 
 Six
      Month Period Ended September 30, 2009 compared to
  the
 Six
      Month Period Ended September 30,
2008
 
 Revenues
(in thousands)
 2009
                Revenues
              
              
              %
              
              
              2008
                Revenues
              
              
              %
              
              
              Increase
                (Decrease)
              
              
              %OTC
      Healthcare
              
              $
              91,660
              
              
              
              59.1
              
              
              $
              89,588
              
              
              
              57.2
              
              
              $
              2,072
              
              
              
              2.3Household
      Cleaning
              
              
              56,460
              
              
              
              36.4
              
              
              
              61,162
              
              
              
              39.1
              
              
              
              (4,702
              )
              
              
              (7.7
              )Personal
      Care
              
              
              7,073
              
              
              
              4.5
              
              
              
              5,787
              
              
              
              3.7
              
              
              
              1,286
              
              
              
              22.2$
              155,193
              
              
              
              100.0
              
              
              $
              156,537
              
              
              
              100.0
              
              
              $
              (1,344
              )
              
              
              (0.9
              )
 
 Revenues
for the six month period ended September 30, 2009 were $155.2 million, a
decrease of $1.3 million, or 0.9%, versus the six month period ended September
30, 2008. Revenues for both the Over-the-Counter and Personal Care segments
increased versus the comparable period. Revenues for the Household Cleaning
segment declined during the period. Revenues from customers outside of North
America, which represent 4.2% of total revenues, increased by $727,000 or 12.7%
during 2009 versus 2008.
 
 Over-the-Counter
Healthcare Segment
 Revenues
for the Over-the-Counter Healthcare segment increased $2.1 million, or 2.3%,
during 2009 versus 2008. Revenue increases for Clear Eyes, Chloraseptic, Compound W, Little Remediesand The Doctor's were partially
offset by revenue decreases on Murine Ear and Wartner.  Clear Eyes revenues increased
primarily due to the launch of a new line of Clear Eyes Tears products and
stronger shipments of the smaller convenience size item.  Chloraseptic revenues
increased as the result of a stronger Spring cough/cold season driving consumer
consumption and strong orders in advance of the Fall cough/cold season. Compound W revenues increased
due to increased consumer consumption, particularly behind the non-cryogenic
products. Little
Remedies revenues increased as the result of distribution gains and
increased consumer consumption of its non-medicated pediatric products. The Doctor's revenues
increased due to an increase in advertising and the absence of promotional
allowances related to the restage of TheAdvanced Comfort
NightGuard dental protector in 2008. Murine Ear's revenues
decreased primarily as the result of slowing consumer consumption, particularly
on Earigate. Wartner's revenues decreased
as the result of lost distribution and softness in the cryogenic segment of the
wart treatment category. Allergen Block revenues
decreased as current year sales did not equal the pipeline orders during the
fiscal year ended March 31, 2009 introductory period.
 
 Household
Cleaning Segment
 Revenues
for the Household Cleaning segment decreased $4.7 million, or 7.7%, during 2009
versus 2008. Comet's
revenues decreased primarily due to softer consumer consumption of bathroom
spray. Chore Boy and
Spic and Span revenues
declined as a result of weaker consumer consumption.
 
 Personal
Care Segment
 Revenues
for the Personal Care segment increased $1.3 million, or 22.2%, during 2009
versus 2008. The revenue increase was driven by Cutex and was due to
improving consumption across most classes of trade.
 
 
 Gross
Profit (in thousands)
 2009
                Gross
      Profit
              
              
              %
              
              
              2008
                Gross
      Profit
              
              
              %
              
              
              Increase
                (Decrease)
              
              
              %OTC
      Healthcare
              
              $
              58,915
              
              
              
              64.3
              
              
              $
              58,813
              
              
              
              65.6
              
              
              $
              102
              
              
              
              0.2Household
      Cleaning
              
              
              20,176
              
              
              
              35.7
              
              
              
              22,302
              
              
              
              36.5
              
              
              
              (2,126
              )
              
              
              (9.5
              )Personal
      Care
              
              
              3,073
              
              
              
              43.4
              
              
              
              2,113
              
              
              
              36.5
              
              
              
              960
              
              
              
              45.4$
              82,164
              
              
              
              52.9
              
              
              $
              83,228
              
              
              
              53.2
              
              
              $
              (1,064
              )
              
              
              (1.3
              )
 
 Gross
profit from the six month period ended September 30, 2009 decreased $1.1
million, or 1.3%, versus the six month period ended September 30,
2008.  As a percent of total revenue, gross profit decreased from
53.2% in 2008 to 52.9% in 2009. The decrease in gross profit as a percent of
revenues was primarily due to increased obsolescence costs and supplier
transitional costs, partially offset by decreases in distribution
costs.
 
 Over-the-Counter
Healthcare Segment
 Gross
profit for the Over-the-Counter Healthcare segment increased $102,000, or 0.2%,
during 2009 versus 2008. As a percent of Over-the-Counter Healthcare revenue,
gross profit decreased from 65.6% during 2008 to 64.3% during 2009. The decrease
in gross profit percentage was primarily the result of increased obsolescence
costs partially offset by lower distribution costs.  The increase in
obsolescence costs is a result of short dated and slow moving eye care and Allergen Block
inventory.
 
 Household
Cleaning Segment
 Gross
profit for the Household Cleaning segment decreased $2.1 million, or 9.5%,
during 2009 versus 2008. As a percent of Household Cleaning revenue, gross
profit decreased from 36.5% during 2008 to 35.7% during 2009. The decrease in
gross profit percentage was the result of increased product costs for Comet and Spic and Span and costs
associated with the transition to a new Comet powder supplier,
partially offset by decreased product costs for Chore Boy and lower
distribution costs for Comet and Spic and Span.
 
 Personal
Care Segment
 Gross
profit for the Personal Care segment increased $960,000, or 45.4%, during 2009
versus 2008. As a percent of Personal Care revenues, gross profit increased from
36.5% during 2008 to 43.4% during 2009. The increase in gross profit percentage
was due to lower promotional allowances, lower distribution costs, and absence
of obsolescence costs for Cutex.
 
 
 
 Contribution
Margin (in thousands)
 2009
                Contribution
      Margin
              
              
              %
              
              
              2008
                Contribution
      Margin
              
              
              %
              
              
              Increase
                (Decrease)
              
              
              %OTC
      Healthcare
              
              $
              44,797
              
              
              
              48.9
              
              
              $
              43,122
              
              
              
              48.1
              
              
              $
              1,675
              
              
              
              3.9Household
      Cleaning
              
              
              15,972
              
              
              
              28.3
              
              
              
              17,501
              
              
              
              28.6
              
              
              
              (1,529
              )
              
              
              (8.7
              )Personal
      Care
              
              
              2,848
              
              
              
              40.3
              
              
              
              1,825
              
              
              
              31.5
              
              
              
              1,023
              
              
              
              56.1$
              63,617
              
              
              
              41.0
              
              
              $
              62,448
              
              
              
              39.9
              
              
              $
              1,169
              
              
              
              1.9
 
 Contribution
Margin, defined as gross profit less advertising and promotional expenses, for
the six month period ended September 30, 2009 increased $1.2 million, or 1.9%,
versus the six month period ended September 30, 2008. The contribution margin
increase was the result of a $2.2 million, or 10.7%, decrease in advertising and
promotional spending, partially offset by the decrease in gross profit as
previously discussed. The decrease in advertising and promotional spending was
primarily attributable to decreases in media support for both the
Over-the-Counter and Household Cleaning segments, and market research for the
Over-the-Counter segment.
 
 Over-the-Counter
Healthcare Segment
 Contribution
margin for the Over-the-Counter Healthcare segment increased $1.7 million, or
3.9%, during 2009 versus 2008. The contribution margin increase was the result
of a $1.6 million, or 10.0%, decrease in advertising and promotional spending
and the increase in gross margin as previously discussed. The decrease in
advertising and promotional spending was primarily attributable to a decrease in
media support and consumer promotion for the Murine Earigate product,
which was partially offset by an increase in media support for the Allergen Block products and a
decrease in market research for Clear Eyes and Compound W.
 
 
 Household
Cleaning Segment
 Contribution
margin for the Household Cleaning segment decreased $1.5 million, or 8.7%,
during 2009 versus 2008. The contribution margin decrease was the result of the
decrease in gross profit as previously discussed, partially offset by a decrease
in media support for Comet
Mildew Spray Gel.
 
 Personal
Care Segment
 Contribution
margin for the Personal Care segment increased $1.0 million, or 56.1%, during
2009 versus 2008. The contribution margin increase was the result of the
increase in gross profit as previously discussed and a modest reduction in trade
promotion and market research for Cutex.
 
 General
and Administrative
 General
and administrative expenses were $18.7 million for the six month period ended
September 30, 2009 versus $17.3 million for the six month period ended September
30, 2008. The increase in expense was due to a $2.5 million net charge
associated with the reduction in workforce and the CEO change, partially offset
by favorable currency translation costs and a reduction in legal
expenses.
  Depreciation
and Amortization
 Depreciation
and amortization expense was $5.2 million for the
six month period ended September 30, 2009 versus $4.6 million for the six month
period ended September 30, 2008.  Amortization was impacted by the
transfer of two trademarks in the Household Cleaning segment and one trademark
in the Over-the-Counter segment, aggregating $45.6 million, from
indefinite-lived status to intangibles with finite lives. Commencing April 1,
2009, these intangibles are being amortized to operations over a 20 year
estimated useful life.  This increase in amortization expense was
partially offset by a reduction in amortization resulting from a trademark that
became fully amortized at March 31, 2009, resulting in a net increase in
depreciation and amortization expense of $571,000 for the period.
 
 Interest
Expense
 Net
interest expense was $11.3 million during the six month period ended September
30, 2009 versus $15.6 million during the six month period ended September 30,
2008. The reduction in interest expense was primarily the result of a lower
level of indebtedness combined with a reduction of interest rates on our senior
debt. The average cost of funds decreased from 7.7% for 2008 to 6.3% for 2009
while the average indebtedness decreased from $399.4 million during 2008 to
$359.0 million during 2009.
 
 Income
Taxes
 The
provision for income taxes during 2009 was $10.8 million versus $9.5 million in
2008. The effective tax rate of 37.9% was unchanged
period-to-period.
 
 
 Liquidity
and Capital Resources
 
 Liquidity
 We have
financed and expect to continue to finance our operations with a combination of
borrowings and funds generated from operations. Our principal uses of cash
are for operating expenses, debt service, brand acquisitions, working capital
and capital expenditures.  Because we allowed our revolving credit
facility to expire in April 2009 and due to the uncertain credit markets, the
Company has increased its cash reserves by an additional $30.0 million to
provide an additional margin of liquidity.
 
 Six
      Months Ended September 30(In
      thousands)
              
              2009
              
              
              2008Cash
      provided by (used for):Operating
      Activities
              
              $
              39,880
              
              
              $
              36,676Investing
      Activities
              
              
              (232
              )
              
              
              (4,109
              )Financing
      Activities
              
              
              (40,000
              )
              
              
              (26,015
              )
 
 
 
 Operating
Activities
 Net cash
provided by operating activities was $39.9 million for the six month period
ended September 30, 2009 compared to $36.7 million for the six month period
ended September 30, 2008.  The $3.2 million increase in net cash
provided by operating activities was primarily the result of the increases in
net income, accounts payable and accured liabilities.
 
 Consistent
with the six months ended September 30, 2008, the Company’s cash flow from
operations exceeded net income due to the substantial non-cash charges related
to depreciation and amortization of intangibles, increases in deferred income
tax liabilities resulting from differences in the amortization of intangible
assets and goodwill for income tax and financial reporting purposes, the
amortization of certain deferred financing costs, as well as stock-based
compensation costs.
 
 Investing
Activities
 Net cash
used for investing activities was $0.2 million for the six month period ended
September 30, 2009 compared to $4.1 million for the six month period ended
September 30, 2008.  The net cash used for investing activities during
the six month period ended September 30, 2009 was for the acquisition of
property and equipment. Net cash used for investing activities during the six
month period ended September 30, 2008 was primarily due to the $4.0 million
settlement of a purchase price adjustment associated with the Wartner USA BV
acquisition in 2006. The remainder was for the acquisition of property and
equipment.
 
 Financing
Activities
 Net cash
used for financing activities was $40.0 million for the six month period ended
September 30, 2009 compared to $26.0 million for the six month period ended
September 30, 2008.  During the six month period ended September 30,
2009, the Company repaid $38.2 million of indebtedness in excess of normal
maturities with cash generated from operations.  This reduced our
outstanding indebtedness to $338.3 million at September 30, 2009 from $378.3
million at March 31, 2009.
 
 
 Capital
Resources
 
 As of
September 30, 2009, we had an aggregate of $338.3 million of outstanding
indebtedness, which consisted of the following:
 
 ·
              $212.3
      million of borrowings under the Tranche B Term Loan Facility,
      and
 
 ·
              $126.0
      million of 9.25% Senior Subordinated Notes due
  2012.
 
 All loans
under the senior secured term loan facility (“Senior Credit Facility”) bear
interest at floating rates, based on either the prime rate, or at our option,
the LIBOR rate, plus an applicable margin.  At September 30, 2009, an
aggregate of $212.3 million was outstanding under the Senior Credit Facility at
a weighted average interest rate of 2.51%.
 
 The
Company uses derivative financial instruments to mitigate the impact of changing
interest rates associated with its long-term debt
obligations.  Although the Company does not enter into derivative
financial instruments for trading purposes, all of the Company’s derivatives are
straightforward over-the-counter instruments with liquid markets.  The
notional, or contractual, amount of the Company’s derivative financial
instruments is used to measure the amount of interest to be paid or received and
does not represent an actual liability.  The Company accounts for
these financial instruments as cash flow hedges.
 
 In
February 2008, the Company entered into an interest rate swap agreement in the
notional amount of $175.0 million, decreasing to $125.0 million at March 26,
2009 to replace and supplement a $50.0 million interest rate cap agreement that
expired on May 30, 2008.  Under this swap, the Company agreed to pay a
fixed rate of 2.88% while receiving a variable rate based on
LIBOR.  The agreement terminates on March 26, 2010.  The
fair value of the interest rate swap agreement is included in either other
assets or accrued liabilities at the balance sheet date.  At September
30, 2009 and March 31, 2009, the fair values of the interest rate swap were $1.6
million and $2.2 million, respectively.  Such amounts were included in
other accrued liabilities.
 
 
 The
Senior Credit Facility contains various financial covenants, including
provisions that require us to maintain certain leverage ratios, interest
coverage ratios and fixed charge coverage ratios.  The Senior Credit
Facility, as well as the Indenture governing the Senior Subordinated 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 the Company’s equity securities in the public markets,
incurrence of indebtedness, creation of liens, making loans and investments and
transactions with affiliates.  Specifically, we must:
 
 ·
              Have
      a leverage ratio of less than 4.0 to 1.0 for the quarter ended September
      30, 2009, decreasing over time to 3.75 to 1.0 for the quarter ending
      September 30, 2010, and remaining level
  thereafter,
 
 ·
              Have
      an interest coverage ratio of greater than 3.0 to 1.0 for the quarter
      ended September 30, 2009, increasing over time to 3.25 to 1.0 for the
      quarter ending March 31, 2010, and remaining level thereafter,
      and
 
 ·
              Have
      a fixed charge coverage ratio of greater than 1.5 to 1.0 for the quarter
      ended September 30, 2009, and for each quarter thereafter until the
      quarter ending March 31, 2011.
 
 At
September 30, 2009, we were in compliance with the applicable financial and
restrictive covenants under the Senior Credit Facility and the Indenture
governing the Senior Subordinated Notes.  Additionally, management
anticipates that in the normal course of operations, the Company will be in
compliance with the financial and restrictive covenants during the ensuing
year.
 
 At
September 30, 2009, we had $212.3 million outstanding under the Tranche B Term
Loan Facility which matures in April 2011.  We are obligated to make
quarterly principal payments on the Tranche B Term Loan Facility equal to
$887,500, representing 0.25% of the initial principal amount of the term
loan.
 
 As a
result of the expiration of certain credit facilities, the current economic
environment and the state of the credit markets, the Company established and
reached its goal of enhancing its liquidity position and used its strong cash
flow generated from operations to build its cash reserves.  Management
estimates that cash reserves of approximately $30.0 million are sufficient to
provide adequate liquidity, allowing the Company to meet its current and future
obligations as they come due.  Accordingly, management made repayments
against outstanding indebtedness of $29.3 million in excess of scheduled
maturities during the year ended March 31, 2009 and $38.2 million in excess of
scheduled maturities during the six month period ended September 30,
2009.  While management intends to replace these credit facilities
during the ensuing year, the uncertainties of the credit markets could impede
our ability to do so.  As an example, the following factors could
influence the amounts available to us and the interest rates associated with
such an effort:
 
 ·
              A
      deterioration of the Company’s earnings and its strong cash flows from
      operations,
 
 ·
              Prevailing
      interest rates in the market for similar offerings by companies with
      comparable credit ratings,
 
 ·
              Total
      amount borrowed and the Company’s intended use of such
      proceeds,
 
 ·
              Ratio
      of amounts bearing fixed and variable rates of interest,
    and
 
 ·
              Total
      amount outstanding at the time, giving effect to the Company’s ability to
      refinance its existing
indebtedness.
 
 In the
current credit environment, management would expect the average interest rate
associated with such a refinancing to be in excess of the Company’s current
average borrowing rate of 4.86%.  However, we can give no assurances
that financing will be available, or if available, that it can be obtained on
terms favorable to us or on a basis that is not dilutive to our
stockholders.
 
 
 Off-Balance
Sheet Arrangements
 
 We do not
have any off-balance sheet arrangements or financing activities with
special-purpose entities.
 
 
 Inflation
 
 Inflationary
factors such as increases in the costs of raw materials, packaging materials,
purchased product and overhead may adversely affect our operating
results.  Although we do not believe that inflation has had a material
impact on our financial condition or results from operations for the periods
referred to above, a high rate of inflation in the future could have a material
adverse effect on our business, financial condition or results from
operations.  The recent volatility in crude oil prices has had an
adverse impact on transportation costs, as well as certain petroleum based raw
materials and packaging material.  Although the Company takes efforts
to minimize the impact of inflationary factors, including raising prices to our
customers, a high rate of pricing volatility associated with crude oil supplies
may continue to have an adverse effect on our operating results.
 
 
 Critical
      Accounting Policies and Estimates
 
 The
Company’s significant accounting policies are described in the notes to the
unaudited financial statements included elsewhere in this Quarterly Report on
Form 10-Q, as well as in our Annual Report on Form 10-K for the year ended March
31, 2009.  While all significant accounting policies are important to
our consolidated financial statements, certain of these policies may be viewed
as being critical.  Such policies are those that are both most
important to the portrayal of our financial condition and results from
operations and require our most difficult, subjective and complex estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses or the related disclosure of contingent assets and
liabilities.  These estimates are based upon our historical experience
and on various other assumptions that we believe to be reasonable under the
circumstances.  Actual results may differ materially from these
estimates under different conditions.  The most critical accounting
estimates are as follows:
 
 Revenue
Recognition
 We
recognize revenue when the following revenue recognition criteria are met: (i)
persuasive evidence of an arrangement exists; (ii) the product has been shipped
and the customer takes ownership and assumes the risk of loss; (iii) the selling
price is fixed or determinable; and (iv) collection of the resulting receivable
is reasonably assured.  We have determined that the transfer of risk
of loss generally occurs when product is received by the customer, and,
accordingly recognize revenue at that time.  Provision is made for
estimated discounts related to customer payment terms and estimated product
returns at the time of sale based on our historical experience.
 
 As is
customary in the consumer products industry, we participate in the promotional
programs of our customers to enhance the sale of our products.  The
cost of these promotional programs is recorded as either advertising and
promotional expenses or as a reduction of sales.  Such costs vary from
period-to-period based on the actual number of units sold during a finite period
of time.  We estimate the cost of such promotional programs at their
inception based on historical experience and current market conditions and
reduce sales by such estimates.  These promotional programs consist of
direct to consumer incentives such as coupons and temporary price reductions, as
well as incentives to our customers, such as slotting fees and cooperative
advertising.  We do not provide incentives to customers for the
acquisition of product in excess of normal inventory quantities since such
incentives increase the potential for future returns, as well as reduce sales in
the subsequent fiscal periods.
 
 Estimates
of costs of promotional programs are based on (i) historical sales experience,
(ii) the current offering, (iii) forecasted data, (iv) current market
conditions, and (v) communication with customer purchasing/marketing
personnel.  At the completion of the promotional program, the
estimated amounts are adjusted to actual results.  Our related
promotional expense for the year ended March 31, 2009 was $17.4 million. We
believe that the estimation methodologies employed, combined with the nature of
the promotional campaigns, makes the likelihood remote that our obligation would
be misstated by a material amount.  However, for illustrative
purposes, had we underestimated the promotional program rate by 10% for the year
ended March 31, 2009, our sales and operating income would have been adversely
affected by approximately $1.7 million.  Net income would have been
adversely affected by approximately $1.1 million.  Similarly, had we
underestimated the
 
 
 promotional
program rate by 10% for the three and six month periods ended September 30,
2009, our sales and operating income would have been adversely affected by
approximately $561,000, and $946,000, respectively.  Net income would
have been adversely affected by approximately $348,000 and $587,000 for the
three and six month periods ended September 30, 2009, respectively.
 
 We also
periodically run coupon programs in Sunday newspaper inserts or as on-package
instant redeemable coupons.  We utilize a national clearing house to
process coupons redeemed by customers.  At the time a coupon is
distributed, a provision is made based upon historical redemption rates for that
particular product, information provided as a result of the clearing house’s
experience with coupons of similar dollar value, the length of time the coupon
is valid, and the seasonality of the coupon drop, among other
factors.  During the year ended March 31, 2009, we had 16 coupon
events.  The amount recorded against revenues and accrued for these
events during the year was $1.4 million; redemptions during the year were $1.3
million.  During the six month period ended September 30, 2009, we had
16 coupon events.  The amounts recorded against revenue and accrued
for these events during the three and six month periods ended September 30, 2009
were $533,000 and $847,000, respectively. The redemption amounts during the
three and six month periods ended September 30, 2009 were $273,000 and $571,000,
respectively.
 
 Allowances
for Product Returns
 Due to
the nature of the consumer products industry, we are required to estimate future
product returns.  Accordingly, we record an estimate of product
returns concurrent with the recording of sales.  Such estimates are
made after analyzing (i) historical return rates, (ii) current economic trends,
(iii) changes in customer demand, (iv) product acceptance, (v) seasonality of
our product offerings, and (vi) the impact of changes in product formulation,
packaging and advertising.
 
 We
construct our returns analysis by looking at the previous year’s return history
for each brand.  Subsequently, each month, we estimate our current
return rate based upon an average of the previous six months’ return rate and
review that calculated rate for reasonableness giving consideration to the other
factors described above.  Our historical return rate has been
relatively stable; for example, for the years ended March 31, 2009, 2008 and
2007, returns represented 3.8%, 4.4% and 3.3%, respectively, of gross
sales.  The increase in the returns rate from 2007 to 2008 of 1.1% was
due to the voluntary withdrawal from the marketplace of Little Remedies medicated
pediatric cough and cold products in October 2007. Had the voluntary withdrawal
not occurred, the actual returns rate would have been 3.9%.  For the
three and six month periods ended September 30, 2009, product returns
represented 3.0% and 3.1% of gross sales, respectively.  At September
30, 2009 and March 31, 2009, the allowance for sales returns was $2.5 million
and $2.2 million, respectively.
 
 While we
utilize the methodology described above to estimate product returns, actual
results may differ materially from our estimates, causing our future financial
results to be adversely affected.  Among the factors that could cause
a material change in the estimated return rate would be significant unexpected
returns with respect to a product or products that comprise a significant
portion of our revenues in a manner similar to the Little Remedies voluntary
withdrawal discussed above.  Based upon the methodology described
above and our actual returns’ experience, management believes the likelihood of
such an event remains remote.  As noted, over the last three years our
actual product return rate has stayed within a range of 4.4% to 3.3% of gross
sales.  An increase of 0.1% in our estimated return rate as a
percentage of gross sales would have adversely affected our reported sales and
operating income for the year ended March 31, 2009 by approximately
$357,000.  Net income would have been adversely affected by
approximately $222,000.  An increase of 0.1% in our estimated return
rate as a percentage of gross sales for the three and six month period ended
September 30, 2009 would have adversely affected our reported sales and
operating income by approximately $100,000 and $184,000, respectively, while our
net income would have been adversely affected by approximately $62,000 and
$114,000, respectively.
 
 Allowances
for Obsolete and Damaged Inventory
 We value
our inventory at the lower of cost or market value.  Accordingly, we
reduce our inventories for the diminution of value resulting from product
obsolescence, damage or other issues affecting marketability equal to the
difference between the cost of the inventory and its estimated market
value.  Factors utilized in the determination of estimated market
value include (i) current sales data and historical return rates, (ii) estimates
of future demand, (iii) competitive pricing pressures, (iv) new product
introductions, (v) product expiration dates, and (vi) component and packaging
obsolescence.
  
 
 Many of
our products are subject to expiration dating.  As a general rule our
customers will not accept goods with expiration dating of less than 12 months
from the date of delivery.  To monitor this risk, management utilizes
a detailed compilation of inventory with expiration dating between zero and 15
months and reserves for 100% of the cost of any item with expiration dating of
12 months or less.  At September 30, 2009 and March 31, 2009, the
allowance for obsolete and slow moving inventory was $2.7 million and $1.4
million, representing 9.7% and 5.1%, respectively, of total
inventory.  Inventory obsolescence costs charged to operations were
$2.2 million for the year ended March 31, 2009, while for the three and six
month periods ended September 30, 2009, the Company recorded obsolescence costs
of $1.5 million and $1.8 million, respectively.  A 1.0% increase in
our allowance for obsolescence at March 31, 2009 would have adversely affected
our reported operating income and net income for the year ended March 31, 2009
by approximately $273,000 and $170,000, respectively.  Similarly, a
1.0% increase in our allowance at September 30, 2009 would have adversely
affected our reported operating income and net income for the three and six
month periods ended September 30, 2009 by approximately $276,000 and $171,000,
respectively.
 
 Allowance
for Doubtful Accounts
 In the
ordinary course of business, we grant non-interest bearing trade credit to our
customers on normal credit terms.  We maintain an allowance for
doubtful accounts receivable which is based upon our historical collection
experience and expected collectibility of the accounts receivable.  In
an effort to reduce our credit risk, we (i) establish credit limits for all of
our customer relationships, (ii) perform ongoing credit evaluations of our
customers’ financial condition, (iii) monitor the payment history and aging of
our customers’ receivables, and (iv) monitor open orders against an individual
customer’s outstanding receivable balance.
 
 We
establish specific reserves for those accounts which file for bankruptcy, have
no payment activity for 180 days or have reported major negative changes to
their financial condition.  The allowance for bad debts amounted to
0.5% and 0.3% of accounts receivable at September 30, 2009 and March 31, 2009,
respectively.  Bad debt expense for the year ended March 31, 2009 was
$130,000, while during the three and six month periods ended September 30, 2009,
the Company recorded bad debt expense of $50,000 and $100,000,
respectively.
 
 While
management believes that it is diligent in its evaluation of the adequacy of the
allowance for doubtful accounts, an unexpected event, such as the bankruptcy
filing of a major customer, could have an adverse effect on our future financial
results.  A 0.1% increase in our bad debt expense as a percentage of
sales during the year ended March 31, 2009 would have resulted in a decrease in
reported operating income of approximately $303,000, and a decrease in our
reported net income of approximately $188,000.  Similarly, a 0.1%
increase in our bad debt expense as a percentage of sales for the three and six
month periods ended September 30, 2009 would have resulted in a decrease in
reported operating income of approximately $84,000 and $155,000, respectively,
and a decrease in our reported net income of approximately $52,000 and $99,000,
respectively.
 
 Valuation
of Intangible Assets and Goodwill
 Goodwill
and intangible assets amounted to $678.5 million and $683.4 million at September
30, 2009 and March 31, 2009, respectively.  At September 30, 2009,
goodwill and intangible assets were apportioned among our three operating
segments as follows:
 
 
 Over-the-
                Counter
              
              
              Household
              
              
              Personal(In
      thousands)
              
              Healthcare
              
              
              Cleaning
              
              
              Care
              
              
              ConsolidatedGoodwill
              
              $
              104,100
              
              
              $
              7,389
              
              
              $
              2,751
              
              
              $
              114,240Intangible
      assetsIndefinite-lived
              
              
              334,750
              
              
              
              119,821
              
              
              
              --
              
              
              
              454,571Finite-lived
              
              
              69,572
              
              
              
              34,016
              
              
              
              6,100
              
              
              
              109,688404,322
              
              
              
              153,837
              
              
              
              6,100
              
              
              
              564,259$
              508,422
              
              
              $
              161,226
              
              
              $
              8,851
              
              
              $
              678,499
 
 
 Our Clear Eyes, New-Skin,
Chloraseptic,Compound
W and Wartnerbrands comprise the majority of the value of the intangible assets within
the Over-The-Counter Healthcare segment.  The Comet, Spic and Spanand
Chore Boybrands
comprise substantially all of the intangible asset value within the Household
Cleaning segment.  Cutexcomprised the majority
of the intangible asset value within the Personal Care segment.
 
 Goodwill
and intangible assets comprise substantially all of our
assets.  Goodwill represents the excess of the purchase price over the
fair value of assets acquired and liabilities assumed in a purchase business
combination.  Intangible assets generally represent our trademarks,
brand names and patents.  When we acquire a brand, we are required to
make judgments regarding the value assigned to the associated intangible assets,
as well as their respective useful lives.  Management considers many
factors, both prior to and after, the acquisition of an intangible asset in
determining the value, as well as the useful life, assigned to each intangible
asset that the Company acquires or continues to own and promote.  The
most significant factors are:
 
  ·
              Brand
      History
 A brand
that has been in existence for a long period of time (e.g.,25, 50 or 100 years)
generally warrants a higher valuation and longer life (sometimes indefinite)
than a brand that has been in existence for a very short period of
time.  A brand that has been in existence for an extended period of
time generally has been the subject of considerable investment by its previous
owner(s) to support product innovation and advertising and
promotion.
 ·
                Market
      Position
  Consumer
products that rank number one or two in their respective market generally have
greater name recognition and are known as quality product offerings, which
warrant a higher valuation and longer life than products that lag in the
marketplace.
 ·
                Recent
      and Projected Sales
Growth
  Recent
sales results present a snapshot as to how the brand has performed in the most
recent time periods and represent another factor in the determination of brand
value.  In addition, projected sales growth provides information about
the strength and potential longevity of the brand.  A brand that has
both strong current and projected sales generally warrants a higher valuation
and a longer life than a brand that has weak or declining
sales.  Similarly, consideration is given to the potential investment,
in the form of advertising and promotion, which is required to reinvigorate a
brand that has fallen from favor.
 ·
                History
      of and Potential for Product
Extensions
  Consideration
also is given to the product innovation that has occurred during the brand’s
history and the potential for continued product innovation that will determine
the brand’s future.  Brands that can be continually enhanced by new
product offerings generally warrant a higher valuation and longer life than a
brand that has always “followed the leader”.
 
 After
consideration of the factors described above, as well as current economic
conditions and changing consumer behavior, management prepares a determination
of the intangible’s value and useful life based on its
analysis.  Under accounting guidelines goodwill is not amortized, but
must be tested for impairment annually, or more frequently if an event or
circumstances change that would more likely than not reduce the fair value of
the reporting unit below the carrying amount.  In a similar manner,
indefinite-lived assets are no longer amortized.  They are also
subject to an annual impairment test, or more frequently if events or changes in
circumstances indicate that the asset may be impaired.  Additionally,
at each reporting period an evaluation must be made to determine whether events
and circumstances continue to support an indefinite useful
life.  Intangible assets with finite lives are amortized over their
respective estimated useful lives and must also be tested for impairment
whenever events or changes in circumstances indicate that the carrying value of
the asset may not be recoverable and exceeds its fair value.
 
 On an
annual basis, or more frequently if conditions indicate that the carrying value
of the asset may not be recovered, management performs a review of both the
values and useful lives assigned to goodwill and intangible assets and tests for
impairment.
 
 
 Finite-Lived
Intangible Assets
 As
mentioned above, when events or changes in circumstances indicate the carrying
value of the assets may not be recoverable, management performs a review to
ascertain the impact of events and circumstances on the estimated useful lives
and carrying values of our trademarks and trade names.  In connection
with this analysis, management:
  ·
              Reviews
      period-to-period sales and profitability by brand,·
              Analyzes
      industry trends and projects brand growth rates,·
              Prepares
      annual sales forecasts,·
              Evaluates
      advertising effectiveness,·
              Analyzes
      gross margins,·
              Reviews
      contractual benefits or limitations,·
              Monitors
      competitors’ advertising spend and product innovation,·
              Prepares
      projections to measure brand viability over the estimated useful life of
      the intangible asset, and·
              Considers
      the regulatory environment, as well as industry
  litigation.
  Should
analysis of any of the aforementioned factors warrant a change in the estimated
useful life of the intangible asset, management will reduce the estimated useful
life and amortize the carrying value prospectively over the shorter remaining
useful life.  Management’s projections are utilized to assimilate all
of the facts, circumstances and expectations related to the trademark or trade
name and estimate the cash flows over its useful life.  In the event
that the long-term projections indicate that the carrying value is in excess of
the undiscounted cash flows expected to result from the use of the intangible
assets, management is required to record an impairment charge.  Once
that analysis is completed, a discount rate is applied to the cash flows to
estimate fair value.  The impairment charge is measured as the excess
of the carrying amount of the intangible asset over fair value as calculated
using the discounted cash flow analysis.  Future events, such as
competition, technological advances and reductions in advertising support for
our trademarks and trade names could cause subsequent evaluations to utilize
different assumptions.
 
 Indefinite-Lived
Intangible Assets
 In a
manner similar to finite-lived intangible assets, at each reporting period,
management analyzes current events and circumstances to determine whether the
indefinite life classification for a trademark or trade name continues to be
valid.  Should circumstance warrant a finite life, the carrying value
of the intangible asset would then be amortized prospectively over the estimated
remaining useful life.
 
 The
economic events experienced during the year ended March 31, 2009, as well as the
Company’s plans and projections for its brands, indicated that several of our
brands could no longer support indefinite useful lives.  Each of these
brands incurred an impairment charge during the three month period ended March
31, 2009 and has been adversely affected by increased
competition.  Consequently, at April 1, 2009, management reclassified
$45.6 million of previously indefinite-lived intangibles to intangibles with
definite lives.  Management estimates the useful lives of these
intangibles to be 20 years.
 
 The fair
values and the annual amortization charges of the reclassified intangibles are
as follows (in thousands):
 
 Intangible
              
              Fair
                Value
      as of March 31, 2009
              
              
              Annual
                AmortizationHousehold
      Trademarks
              
              $
              34,888
              
              
              $
              1,745OTC
      Healthcare Trademark
              
              
              10,717
              
              
              
              536$
              45,605
              
              
              $
              2,281
 
 
 Management
tests the indefinite-lived intangible assets for impairment by comparing the
carrying value of the intangible asset to its estimated fair
value.  Since quoted market prices are seldom available for trademarks
and trade names such as ours, we utilize present value techniques to estimate
fair value.  Accordingly, management’s
 
 
 
 projections
are utilized to assimilate all of the facts, circumstances and expectations
related to the trademark or trade name and estimate the cash flows over its
useful life.  In performing this analysis, management considers the
same types of information as listed above in regards to finite-lived intangible
assets.  Once that analysis is completed, a discount rate is applied
to the cash flows to estimate fair value.  Future events, such as
competition, technological advances and reductions in advertising support for
our trademarks and trade names could cause subsequent evaluations to utilize
different assumptions.
 
 Goodwill
 As part
of its annual test for impairment of goodwill, management estimates the
discounted cash flows of each reporting unit, which is at the brand level, and
one level below the operating segment level, to estimate their respective fair
values.  In performing this analysis, management considers the same
types of information as listed above in regards to finite-lived intangible
assets.  In the event that the carrying amount of the reporting unit
exceeds the fair value, management would then be required to allocate the
estimated fair value of the assets and liabilities of the reporting unit as if
the unit was acquired in a business combination, thereby revaluing the carrying
amount of goodwill.  In a manner similar to indefinite-lived assets,
future events, such as competition, technological advances and reductions in
advertising support for our trademarks and trade names could cause subsequent
evaluations to utilize different assumptions.
 
 Impairment
Analysis
 In
estimating the value of trademarks and trade names, as well as goodwill at March
31, 2009, management applied a discount rate of 11.0%, the Company’s estimated
future weighted-average cost of funds, to the projected cash
flows.  This discounted cash flow methodology is a widely-accepted
valuation technique utilized by market participants in the valuation process and
has been applied consistently.  In addition, we considered the
Company’s market capitalization at March 31, 2009, as compared to the aggregate
fair values of our reporting units to assess the reasonableness of our estimates
pursuant to the discounted cash flow methodology.
 
 During
the three month period ended March 31, 2009, as a direct consequence of the
challenging economic environment, the dislocation of the debt and equity
markets, and contracting consumer demand for our branded products, we recorded a
non-cash charge in the amount of $249.6 million related to the impairment of
intangible assets and goodwill across the entire product line because the
carrying amount of these “branded” assets exceeded their respective fair
values.  A summary of the impairment activity by segment is as
follows:
 
 Over-the-
                Counter
                Healthcare
              
              
              Household
                Cleaning
              
              
              Personal
                Care
              
              
              Consolidated(In
      thousands)Goodwill
              
              $
              125,527
              
              
              $
              65,160
              
              
              $
              --
              
              
              $
              190,687Intangible
      assetsIndefinite-lived
              
              
              28,603
              
              
              
              16,184
              
              
              
              --
              
              
              
              44,787Finite-lived
              
              
              12,420
              
              
              
              --
              
              
              
              1,696
              
              
              
              14,11641,023
              
              
              
              16,184
              
              
              
              1,696
              
              
              
              58,903$
              166,550
              
              
              $
              81,344
              
              
              $
              1,696
              
              
              $
              249,590
 
 The
discount rate utilized in the analyses, as well as future cash flows may be
influenced by such factors as changes in interest rates and rates of
inflation.  Additionally, should the related fair values of goodwill
and intangible assets continue to be adversely affected as a result of declining
sales or margins caused by competition, changing consumer preferences,
technological advances or reductions in advertising and promotional expenses,
the Company may be required to record additional impairment charges in the
future.  However, the Company was not required to recognize an
additional impairment charge during the three or six month period ended
September 30, 2009.
 
 Stock-Based
Compensation
 The Compensation and
Equity Topics of the FASB ASCrequires the Company to measure
the cost of services to be rendered based on the grant-date fair value of the
equity award.  Compensation expense is to be recognized over the
period
 
 
 which an
employee is required to provide service in exchange for the award, generally
referred to as the requisite service period.  Information utilized in
the determination of fair value includes the following:
 
 ·
              Type
      of instrument (i.e.: restricted shares vs. an option, warrant or
      performance shares),
 ·
              Strike
      price of the instrument,
 ·
              Market
      price of the Company’s common stock on the date of
  grant,
 ·
              Discount
      rates,
 ·
              Duration
      of the instrument, and
 ·
              Volatility
      of the Company’s common stock in the public
  market.
 
 Additionally,
management must estimate the expected attrition rate of the recipients to enable
it to estimate the amount of non-cash compensation expense to be recorded in our
financial statements.  While management uses diligent analysis to
estimate the respective variables, a change in assumptions or market conditions,
as well as changes in the anticipated attrition rates, could have a significant
impact on the future amounts recorded as non-cash compensation
expense.  The Company recorded net non-cash compensation expense of
$2.4 million and $1.1 million during the years ended March 31, 2009 and 2008,
respectively.  However, during the year ended March 31, 2009,
management was required to reverse previously recorded stock-based compensation
costs of $193,000 and $705,000 related to the May 2008 and 2007 grants,
respectively, as it was determined that the Company would not meet the
performance goals associated with such grants of restricted
stock.  During the year ended March 31, 2008, management for the same
reasons was required to reverse previously recorded stock-based compensation
costs of $538,000, $394,000 and $166,000 related to the October 2005, July 2006
and May 2007 grants, respectively.  The Company recorded non-cash
compensation expense of $177,000 and $848,000 during the three and six month
periods ended September 30, 2009 and 2008, respectively, and non-cash
compensation of $948,000 and $1.6 million during the three and six month periods
ended September 30, 2008, respectively. During the six months ended September
30, 2009, management was required to reverse previously recorded stock-based
compensation costs of $564,000 recorded in 2009, as the service requirements
related to those grants were not met.
 
 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
August 2009, the FASB issued authoritative guidance to provide
clarification on measuring liabilities at fair value when a quoted price in an
active market is not available.  In these circumstances, a valuation
technique should be applied that uses either the quote of the liability when
traded as an asset, the quoted prices for similar liabilities or similar
liabilities when traded as assets, or another valuation technique consistent
with existing fair value measurement guidance, such as an income approach or a
market approach.  The new guidance also clarifies that when estimating the
fair value of a liability, a reporting entity is not required to include a
separate input or adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of the liability.  This guidance is
effective with the Company's fiscal 2010 third quarter.  The
Company does not anticipate this guidance will have a material impact on the
Company’s consolidated financial statements.
 
 In
June 2009, the FASB issued authoritative guidance to eliminate the
exception to consolidate a qualifying special-purpose entity, change the
approach to determining the primary beneficiary of a variable interest entity
and require companies to more frequently re-assess whether they must consolidate
variable interest entities.  Under the new guidance, the primary
beneficiary of a variable interest entity is identified qualitatively as the
enterprise that has both (a) the power to direct the activities of a
variable interest entity that most significantly
 
 
 impact
the entity’s economic performance, and (b) the obligation to absorb losses
of the entity that could potentially be significant to the variable interest
entity or the right to receive benefits from the entity that could potentially
be significant to the variable interest entity.  This guidance becomes
effective for the Company’s fiscal 2011 year-end and interim reporting periods
thereafter.  The Company does not expect this guidance to have a material
impact on its consolidated financial statements.
 
 In June
2009, the FASB established the FASB ASC as the source of authoritative
accounting principles recognized by the FASB to be applied in the preparation of
financial statements in conformity with generally accepted accounting
principles.  The new guidance explicitly recognizes rules and
interpretive releases of the SEC under federal securities laws as authoritative
accounting principles generally accepted in the United States of America
(“GAAP”) for SEC registrants.  The new guidance became effective for
our financial statements issued for the three and six month periods ending on
September 30, 2009; however, the adoption of the FASB ASC did not have a
material impact on the Company’s financial position, results from operations or
cash flows.
 
 In May
2009, guidance was issued under the topic Subsequent Events related to the
accounting for and disclosure of events that occur after the balance sheet date,
but before the financial statements are issued or are available to be
issued.  Additionally, the new guidance requires the Company to
disclose the date through which subsequent events have been evaluated, as well
as whether that date is the date the financial statements were issued or the
date the financial statements were available to be issued.  As
discussed above, subsequent to the period end the Company sold certain personal
care products to an unrelated third party. The related assets and operating
results were reclassified accordingly.
 
 The
Financial Instruments Topic of the FASB ASC requires disclosures about the fair
values of financial instruments at interim reporting periods in addition to
annual financial statements.  Effective April 1, 2009, the new
guidance involves in regard to the fair values of financial instruments only
enhanced disclosures and did not have any impact on the Company’s financial
position, results from operations or cash flows.
 
 The
Investments-Debt and Equity Securities topic of the FASB ASC modified the
threshold a company must meet to avoid recognizing other-than-temporary
impairments of debt securities purchased as investments.  Effective
April 1, 2009, the implementation of the new guidance did not have any impact on
the Company’s financial position, results from operations or cash
flows.
 
 The
Derivatives and Hedging Topic of the FASB ASC requires a company with derivative
instruments to disclose information to enable users of the financial statements
to understand (i) how and why the company uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for, and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  Accordingly, the new
guidance requires qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures about fair value amounts of and
gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements.  The
implementation of the new guidance at January 1, 2009 involved enhanced
disclosures of derivative instruments and the Company’s hedging activities and
did not have any impact on the Company’s financial position, results from
operations or cash flows.
 
 In
September 2006, the FASB issued guidance on Fair Value Measurements and
Disclosures, which provides a single definition of fair value, establishes a
framework for measuring fair value in GAAP and expands disclosures about fair
value measurements in an effort to increase comparability related to the
recognition of market-based assets and liabilities and their impact on
earnings.  The Fair Value Measurements and Disclosures guidance is
effective for the Company’s interim financial statements issued after April 1,
2008.  However, on February 12, 2008, the FASB deferred the effective
date of the guidance for one year for non-financial assets and non-financial
liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis.  The implementation of the
guidance, effective April 1, 2008, did not have a material effect on financial
assets and liabilities included in the Company’s consolidated financial
statements as fair value is based on readily available market
prices.  Additionally, the implementation of the Fair Value
Measurements and Disclosures guidance did not have a material effect as it
relates to non-financial assets and non-financial liabilities that are
recognized or disclosed at fair value in the Company’s financial statements on a
non-recurring basis.
 
 
 Management
has reviewed and continues to monitor the actions of the various financial and
regulatory reporting agencies and is currently not aware of any other
pronouncement that could have a material impact on the Company’s consolidated
financial position, results of operations or cash flows.
 
 
 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 Operation.  The
following cautionary statements are being made pursuant to the provisions of the
PSLRA and with the intention of obtaining the benefits of the “safe harbor”
provisions of the PSLRA.  Although we believe that our expectations
are based on reasonable assumptions, actual results may differ materially from
those in the forward-looking statements.
 
 Forward-looking
statements speak only as of the date of this Quarterly Report on Form
10-Q.  Except as required under federal securities laws and the rules
and regulations of the SEC, we do not have any intention to update any
forward-looking statements to reflect events or circumstances arising after the
date of this Quarterly Report on Form 10-Q, whether as a result of new
information, future events or otherwise.  As a result of these risks
and uncertainties, readers are cautioned not to place undue reliance on
forward-looking statements included in this Quarterly Report on Form 10-Q or
that may be made elsewhere from time to time by, or on behalf of,
us.  All forward-looking statements attributable to us are expressly
qualified by these cautionary statements.
 
 These
forward-looking statements generally can be identified by the use of words or
phrases such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “will
be,” “will continue,” “will likely result,” or other similar words and
phrases.  Forward-looking statements and our plans and expectations
are subject to a number of risks and uncertainties that could cause actual
results to differ materially from those anticipated, and our business in general
is subject to such risks.  For more information, see “Risk Factors”
contained in Part II, Item 1A. of this Quarterly Report on Form
10-Q.  In addition, our expectations or beliefs concerning future
events involve risks and uncertainties, including, without
limitation:
 
 ·
              General
      economic conditions affecting our products and their respective
      markets,
  ·
              Our
      ability to increase organic growth via new product introductions or line
      extensions,
  ·
              The
      high level of competition in our industry and
  markets,
  ·
              Our
      ability to invest in research and
development,
  ·
              Our
      dependence on a limited number of customers for a large portion of our
      sales,
  ·
              Disruptions
      in our distribution center,
  ·
              Acquisitions,
      dispositions or other strategic transactions diverting managerial
      resources, or incurrence of additional liabilities or integration problems
      associated with such transactions,
  ·
              Changing
      consumer trends or pricing pressures which may cause us to lower our
      prices,
  ·
              Increases
      in supplier prices,
  ·
              Increases
      in transportation and fuel charges,
  ·
              Changes
      in our senior management team,
  ·
              Our
      ability to protect our intellectual property
  rights,
  ·
              Our
      dependency on the reputation of our brand
names,
  ·
              Shortages
      of supply of sourced goods or interruptions in the manufacturing of our
      products,
  ·
              Our
      level of indebtedness, and ability to service our
  debt,
  ·
              Any
      adverse judgments rendered in any pending litigation or
      arbitration,
  ·
              Our
      ability to obtain additional financing,
and
  ·
              The
      restrictions imposed by our Senior Credit Facility and the indenture on
      our operations.
 
 
 
 ITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 We are
exposed to changes in interest rates because our Senior Credit Facility is
variable rate debt.  Interest rate changes generally do not affect the
market value of the Senior Credit Facility, but do affect the amount of our
interest payments and, therefore, our future earnings and cash flows, assuming
other factors are held constant.  At September 30, 2009 we had
variable rate debt of approximately $212.3 million related to our Tranche B term
loan.
 
 In
February 2008, the Company entered into an interest rate swap agreement,
effective March 26, 2008, in the notional amount of $175.0 million, decreasing
to $125.0 million at March 26, 2009, to replace and supplement a $50.0 million
interest rate cap agreement that expired on May 30, 2008.  Under the
swap agreement, the Company pays a fixed rate of 2.88% while receiving a
variable rate based on LIBOR.  The fair value of the
interest rate swap agreement of $1.6 million was included in other accrued
liabilities at September 30, 2009.The agreement terminates on
March 26, 2010.
 
 Holding
other variables constant, including levels of indebtedness, a one percentage
point increase in interest rates on our variable rate debt would have an adverse
impact on pre-tax earnings and cash flows for the twelve months ending September
30, 2010 of approximately $2.1 million.
  ITEM
      4.
              CONTROLS AND
      PROCEDURES
  Disclosure
Controls and Procedures
 
 The
Company’s management, with the participation of its Chief Executive Officer and
the Chief Financial Officer, evaluated the effectiveness of the Company’s
disclosure controls and procedures, as defined in Rule 13a–15(e) of the
Securities Exchange Act of 1934 (“Exchange Act”) as of September 30,
2009.  Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that, as of September 30, 2009, 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 September 30, 2009 in the
Company’s internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
 
 
 PART II.
              OTHER
      INFORMATION
 
 ITEM
      1.
              LEGAL
      PROCEEDINGS
 
 The legal
proceedings in which we are involved have been disclosed previously in our
Annual Report on Form 10-K for the fiscal year ended March 31, 2009 and our
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2009.  Except as set forth below, there have been no
material developments in our pending legal proceedings since June 30,
2009.  For more information regarding our pending legal proceedings
which we deem to be material to the Company, please see the legal proceedings
disclosure contained in Part I, Item 3. of our Annual Report on Form 10-K for
the fiscal year ended March 31, 2009 and Part II, Item 1. of our Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 2009.
 
 
 Securities
Class Action
 
 The
settlement agreed to by the Company and the lead plaintiffs has received
preliminary fairness approval by the Court and class members have been notified.
The settlement is expected to be presented to the Court for a final fairness
determination at a hearing scheduled for December 4, 2009.  If final
approval of the settlement is obtained from the Court, the settlement would
result in dismissal of all claims against us, our officers and directors and the
other defendants in the action with prejudice.  If the settlement is
not completed, then the parties may attempt to reach agreement on another
settlement or resume the litigation.
 DenTek
Litigation
 
 On
November 5, 2009, the Court issued an Opinion and Order construing one of the
claims of the Company’s U.S. Patent No. 6,830,051, which forms the basis for the patent
infringement claims in the DenTek litigation.  The Company believes
the Opinion and Order issued by the Court is favorable to the Company’s patent
infringement claim against DenTek Oral Care, Inc.
 In
addition, the Company is involved from time to time in other routine legal
matters and other claims incidental to its business.  The Company
reviews outstanding claims and proceedings internally and with external counsel
as necessary to assess probability and amount of potential
loss.  These assessments are re-evaluated at each reporting period and
as new information becomes available to determine whether a reserve should be
established or if any existing reserve should be adjusted.  The actual
cost of resolving a claim or proceeding ultimately may be substantially
different than the amount of the recorded reserve.  In addition,
because it is not permissible under GAAP to establish a litigation reserve until
the loss is both probable and estimable, in some cases there may be insufficient
time to establish a reserve prior to the actual incurrence of the loss (upon
verdict and judgment at trial, for example, or in the case of a quickly
negotiated settlement).  The Company believes the resolution of
routine matters and other incidental claims, taking into account reserves and
insurance, will not have a material adverse effect on its business, financial
condition, results from operations or cash flows.
 ITEM 1A.
                RISK
  FACTORS   There
have been no material changes to the risk factors previously disclosed in Part
I, Item 1A. of our Annual Report on Form 10-K for the year ended March 31,
2009.
  46
  ITEM
      4.
                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 The
Company’s 2009 Annual Meeting of Stockholders was held on August 4, 2009 (the
“Annual Meeting”).  Proxies for the Annual Meeting were solicited in
accordance with the Exchange Act to elect directors to serve until the 2010
Annual Meeting of Stockholders or until their earlier removal or resignation and
to ratify the appointment of PricewaterhouseCoopers LLP as the independent
registered public accounting firm for the fiscal year ending March 31,
2010.  The following nominees were elected to the Company’s Board of
Directors to serve until the 2010 Annual Meeting of Stockholders or until their
respective successors have been elected and qualified, or until their earlier
death, resignation or retirement.  The voting information for each
elected nominee is set forth below:
 
 For
                
                WithheldMark
      Pettie
                44,250,178
                
                1,919,571L.
      Dick Buell
                44,913,164
                
                1,256,585John
      E. Byom
                45,062,758
                
                1,106,991Gary
      E. Costley
                44,450,818
                
                1,718,931Vincent
      J. Hemmer
                42,152,920
                
                4,016,829Patrick
      Lonergan
                45,088,845
                
                1,080,904Peter
      C. Mann
                44,669,582
                
                1,500,167
 
 
 The votes
for the ratification of the appointment of PricewaterhouseCoopers LLP as the
Company’s independent registered public accounting firm for the audit of the
Company’s financial statements for the fiscal year ending March 31, 2010 were as
follows:
  For
                Against
                Abstain46,065,535
                55,475
                48,739
   ITEM
      6.
              EXHIBITS
 See
Exhibit Index immediately following signature page.
 
 
 
 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.RegistrantDate: 
      November 6, 2009
                By:  /s/ PETER J. ANDERSONPeter
      J. AndersonChief
      Financial Officer(Principal
      Financial Officer andDuly
      Authorized Officer)
 
 
 
  Exhibit
Index
 
 
 
 3.2
              Amended
      and Restated Bylaws of Prestige Brands Holdings, Inc., as
      amended.10.1
              Employment
      Agreement, dated as of September 2, 2009, by and between Prestige Brands
      Holdings, Inc. and Mathew Mannelly.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.