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 INFORMATION
Item 1.	Consolidated Financial Statements	2
	Consolidated Statements of Operations – three and six month periods ended September 30, 2009 and 2008 (unaudited)	2
	Consolidated Balance Sheets – September 30, 2009 and March 31, 2009 (unaudited)	3
	Consolidated Statements of Cash Flows – six month periods ended September 30, 2009 and 2008 (unaudited)	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	26
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	45
Item 4.	Controls and Procedures	45
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	46
Item 4.	Submission of Matters to a Vote of Security Holders	47
Item 6.	Exhibits	47
	Signatures	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.

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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		2008
Revenues
Net sales	$	83,737	$	84,858		$	154,133	$	155,237
Other revenues		444		682			1,060		1,300
Total revenues		84,181		85,540			155,193		156,537
Cost of Sales
Cost of sales		39,847		40,402			73,029		73,309
Gross profit		44,334		45,138			82,164		83,228
Operating Expenses
Advertising and promotion		9,782		13,543			18,547		20,780
General and administrative		10,481		9,363			18,675		17,336
Depreciation and amortization		2,841		2,308			5,186		4,615
Total operating expenses		23,104		25,214			42,408		42,731
Operating income		21,230		19,924			39,756		40,497
Other (income) expense
Interest income		-		(56	)		-		(129	)
Interest expense		5,642		6,835			11,295		15,591
Total other (income) expense		5,642		6,779			11,295		15,462
Income from continuing operations before income taxes		15,588		13,145			28,461		25,035
Provision for income taxes		5,908		4,982			10,787		9,488
Income from continuing operations		9,680		8,163			17,674		15,547
Discontinued Operations
Income from operations of assets held for sale, net of income tax		243		359			574		756
Net income	$	9,923	$	8,522		$	18,248	$	16,303
Basic earnings per share:
Income from continuing operations	$	0.19	$	0.16		$	0.35	$	0.31
Net income	$	0.20	$	0.17		$	0.36	$	0.33
Diluted earnings per share:
Income from continuing operations	$	0.19	$	0.16		$	0.35	$	0.31
Net income	$	0.20	$	0.17		$	0.36	$	0.33

Weighted average shares outstanding:
Basic	50,012	49,924	49,997	49,902
Diluted	50,055	50,037	50,080	50,036

See accompanying notes.

2

Prestige Brands Holdings, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands) Assets	September 30, 2009			March 31, 2009
Current assets
Cash and cash equivalents	$	34,829		$	35,181
Accounts receivable		39,152			36,025
Inventories		24,955			25,939
Deferred income tax assets		5,362			4,022
Prepaid expenses and other current assets		2,460			1,358
Inventories of operations held for sale		1,535			1,038
Total current assets		108,293			103,563
Property and equipment		1,291			1,367
Goodwill		114,240			114,240
Intangible assets		564,259			569,137
Other long-term assets		3,646			4,602
Intangible assets of operations held for sale		7,574			8,472
Total Assets	$	799,303		$	801,381
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	21,444		$	15,898
Accrued interest payable		5,360			5,371
Other accrued liabilities		17,951			9,407
Current portion of long-term debt		3,550			3,550
Total current liabilities		48,305			34,226
Long-term debt		334,787			374,787
Deferred income tax liabilities		103,231			97,983
Total Liabilities		486,323			506,996
Commitments and Contingencies – Note 16
Stockholders’ Equity
Preferred stock - $0.01 par value
Authorized - 5,000 shares
Issued and outstanding - None
Common stock - $0.01 par value
Authorized - 250,000 shares
Issued - 50,154 shares at September 30, 2009 and 50,060 shares at March 31, 2009		502			501
Additional paid-in capital		382,790			382,803
Treasury 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			294,385
Total Liabilities and Stockholders’ Equity	$	799,303		$	801,381

See accompanying notes.

3

Prestige Brands Holdings, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended September 30
(In thousands)	2009			2008
Operating Activities
Net income	$	18,248		$	16,303
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,084			5,513
Deferred income taxes		3,687			5,042
Amortization of deferred financing costs		956			1,159
Stock-based compensation		848			1,577
Changes in operating assets and liabilities
Accounts receivable		(3,127	)		1,725
Inventories		984			4,011
Inventories held for sale		(497	)		313
Prepaid expenses and other current assets		(1,102	)		(828	)
Accounts payable		5,546			(1,582	)
Accrued liabilities		8,253			3,443
Net cash provided by operating activities		39,880			36,676
Investing Activities
Purchases of equipment		(232	)		(109	)
Business acquisition purchase price adjustments		-			(4,000	)
Net cash used for investing activities		(232	)		(4,109	)
Financing Activities
Repayment 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	)		6,552
Cash - beginning of period		35,181			6,078
Cash - end of period	$	34,829		$	12,630
Interest paid	$	10,350		$	14,775
Income taxes paid	$	6,307		$	4,761

See accompanying notes.

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Prestige Brands Holdings, Inc.

Notes to Consolidated Financial Statements

1. Business and Basis of Presentation

Nature of Business

Prestige Brands Holdings, Inc. (referred to herein as the “Company” 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

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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:

	Years
Machinery	5
Computer equipment	3
Furniture and fixtures	7

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

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

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

Goodwill

The excess of the purchase price over the fair market value of assets acquired and liabilities assumed in purchase business combinations is classified as goodwill.  The Company does not amortize goodwill, but performs impairment tests of the carrying value at least annually.  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 participates in the promotional programs of its customers to enhance the sale of its products.  The cost of these promotional programs varies based on the actual number of units sold during a finite period of time.  The Company estimates the cost of such promotional

6

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 as coupons and temporary price reductions, as well as incentives to the Company’s customers, such as slotting fees and cooperative advertising.  Estimates of the costs of these promotional programs are based on (i) historical sales experience, (ii) the current offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel.  At the completion of the promotional program, the estimated amounts are adjusted to actual results.

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

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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

8

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.

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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, 2009
Inventory	$	1,535	$	1,038
Intangible assets		7,574		8,472
Total 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 30
	2009		2008		2009		2008
Components of  Income
Revenues	$	2,135	$	2,511	$	4,347	$	5,048
Income 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, 2009
Accounts receivable	$	41,672		$	37,521
Other receivables		486			1,081
		42,158			38,602
Less 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, 2009
Packaging and raw materials	$	1,858	$	1,955
Finished 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.

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5. Property and Equipment

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

	September 30, 2009			March 31, 2009
Machinery	$	1,610		$	1,556
Computer equipment		1,189			1,021
Furniture and fixtures		239			239
Leasehold improvements		367			357
		3,405			3,173
Accumulated 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			Personal
	Healthcare			Cleaning			Care		Consolidated
Balance – March 31, 2009
Goodwill	$	229,627		$	72,549		$	2,751	$	304,927
Accumulated impairment losses		(125,527	)		(65,160	)		--		(190,687	)
		104,100			7,389			2,751		114,240
Net adjustments		--			--			--		--
Balance – September 30, 2009
Goodwill		229,627			72,549			2,751		304,927
Accumulated 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.

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7. Intangible Assets

A reconciliation of the activity affecting intangible assets is as follows (in thousands):

	Six Months Ended September 30, 2009
	Indefinite Lived			Finite Lived		Non Compete
	Trademarks			Trademarks		Agreement		Totals
Carrying Amounts
Balance – March 31, 2009	$	500,176		$	106,773	$	158	$	607,107
Reclassifications		(45,605	)		45,605		--		--
Balance – September 30, 2009	$	454,571		$	152,378	$	158	$	607,107
Accumulated Amortization
Balance – March 31, 2009	$	--		$	37,828	$	142	$	37,970
Additions		--			4,862		16		4,878
Balance – 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 Amortization
Household Trademarks	$	34,888	$	1,745
OTC 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 30
2010	$	9,725
2011		9,513
2012		9,017
2013		8,167
2014		6,807
Thereafter		66,459
	$	109,688

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8. Other Accrued Liabilities

Other accrued liabilities consist of the following (in thousands):

	September 30, 2009		March 31, 2009
Accrued marketing costs	$	6,510	$	3,519
Accrued payroll		2,969		750
Accrued commissions		331		312
Accrued income taxes		1,819		679
Accrued professional fees		2,678		1,906
Interest rate swap obligation		1,572		2,152
Severance		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, 2009
Senior 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		$	252,337
Senior 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			126,000
		338,337			378,337
Current 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 30
2010	$	3,550
2011		208,787
2012		126,000
	$	338,337

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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 adopted fair 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, 2009
Description	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, 2009
Description	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	$	--

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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, 2009
	September 30, 2009						Income Statement Account	Amount Income			Amount Gains
Cash Flow Hedging Instruments	Balance Sheet Location	Notional Amount		Fair Value Asset/ (Liability)			Gains/ Losses Charged	(Expense) Recognized In Income			(Losses) Recognized In OCI
Interest Rate Swap	Other Accrued Liabilities	$	125,000	$	(1,572	)	Interest Expense	$	(729	)	$	444

							For the Six Months Ended September 30, 2009
	September 30, 2009						Income Statement Account	Amount Income			Amount Gains
Cash Flow Hedging Instruments	Balance Sheet Location	Notional Amount		Fair Value Asset/ (Liability)			Gains/ Losses Charged	(Expense) Recognized In Income			(Losses) Recognized In OCI
Interest Rate Swap	Other Accrued Liabilities	$	125,000	$	(1,572	)	Interest Expense	$	(1,260	)	$	580

						For the Three Months Ended September 30, 2008
	September 30, 2008					Income Statement Account	Amount Income			Amount Gains
Cash Flow Hedging Instruments	Balance Sheet Location	Notional Amount		Fair Value Asset/ (Liability)		Gains/ Losses Charged	(Expense) Recognized In Income			(Losses) Recognized In OCI
Interest Rate Swap	Prepaid expenses	$	175,000	$	775	Interest Expense	$	(19	)	$	(329	)

						For the Six Months Ended September 30, 2008
	September 30, 2008					Income Statement Account	Amount Income			Amount Gains
Cash Flow Hedging Instruments	Balance Sheet Location	Notional Amount		Fair Value Asset/ (Liability)		Gains/ Losses Charged	(Expense) Recognized In Income			(Losses) Recognized In OCI
Interest Rate Swap	Prepaid expenses	$	175,000	$	775	Interest Expense	$	(136	)	$	2,302

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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.

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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 30
	2009		2008		2009		2008
Numerator
Income from continuing operations	$	9,680	$	8,163	$	17,674	$	15,547
Income from discontinued operations		243		359		574		756
Net income	$	9,923	$	8,522	$	18,248	$	16,303
Denominator
Denominator for basic earnings per share – weighted average shares		50,012		49,924		49,997		49,902
Dilutive effect of unvested restricted common stock, options and stock appreciation rights issued to employees and directors		43		113		83		134
Denominator for diluted earnings per share		50,055		50,037		50,080		50,036
Earnings per Common Share:
Basic earnings per share from continuing operations	$	0.19	$	0.16	$	0.35	$	0.31
Basic earnings per share from discontinued operations		0.01		0.01		0.01		0.02
Basic net earnings per share	$	0.20	$	0.17	$	0.36	$	0.33
Diluted earnings per share from continuing operations	$	0.19	$	0.16	$	0.35	$	0.31
Diluted earnings per share from discontinued operations		0.01		0.01		0.01		0.02
Diluted 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.

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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 30
	2009		2008
Components of Comprehensive Income
Net income	$	9,923	$	8,522
Unrealized 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 30
	2009		2008
Components of Comprehensive Income
Net income	$	18,248	$	16,303
Amortization of interest rate caps reclassified into earnings, net of income tax of $32		--		53
Unrealized gain on interest rate caps, net of income tax of $220 (2009) and $876 (2008)		360		1,426
Comprehensive 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 Value
Nonvested at March 31, 2009		342.4		$	11.31
Granted		171.6			7.16
Vested		(47.8	)		10.97
Forfeited		(152.2	)		11.54
Nonvested at September 30, 2009		314.0			8.94
Nonvested at March 31, 2008		484.7			11.78
Granted		303.5			10.85
Vested		(29.9	)		10.88
Forfeited		(128.0	)		12.30
Nonvested at September 30, 2008		630.3			11.27

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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 30
	2009			2008
Expected volatility		45.6	%		43.3	%
Expected dividends		--			--
Expected term in years		7.0			6.0
Risk-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		--

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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.

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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.

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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®NightGuard™dental 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® NightGuard™ Classic™ 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

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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		Total
Year Ending September 30
2010	$	694	$	83	$	777
2011		591		80		671
2012		568		54		622
2013		587		36		623
2014		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 30
2010	$	10,753
2011		9,921
2012		1,192
2013		1,148
2014		1,105
Thereafter		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%,

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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, 2009
	Over-the- Counter		Household	Personal
	Healthcare		Cleaning	Care	Consolidated
(In thousands)
Net sales	$	51,368