UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

OR

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to _____

Commission File Number: 001-32433

PRESTIGE BRANDS HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	20-1297589
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

660 White Plains Road

Tarrytown, New York 10591

(Address of principal executive offices) (Zip Code)

(914) 524-6800

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  

Large accelerated filer x		Accelerated filer o
Non-accelerated filer o	(Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o No x

As of August 4, 2014, there were 51,970,741 shares of common stock outstanding.

Prestige Brands Holdings, Inc.

Form 10-Q

Index

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Income and Comprehensive Income for the three months ended June 30, 2014 and 2013 (unaudited)	2
	Consolidated Balance Sheets as of June 30, 2014 (unaudited) and March 31, 2014	3
	Consolidated Statements of Cash Flows for the three months ended June 30, 2014 and 2013 (unaudited)	4
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50
PART II.	OTHER INFORMATION
Item 1A.	Risk Factors	50
Item 5.	Other Information	56
Item 6.	Exhibits	56
	Signatures	57

Trademarks and Trade Names

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

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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Prestige Brands Holdings, Inc.

Consolidated Statements of Income and Comprehensive Income

(Unaudited)

	Three Months Ended June 30,
(In thousands, except per share data)	2014			2013
Revenues
Net sales	$	144,541		$	141,642
Other revenues	1,161			870
Total revenues	145,702			142,512
Cost of Sales
Cost of sales (exclusive of depreciation shown below)	63,836			59,488
Gross profit	81,866			83,024
Operating Expenses
Advertising and promotion	19,096			18,681
General and administrative	17,006			11,634
Depreciation and amortization	2,961			3,268
Total operating expenses	39,063			33,583
Operating income	42,803			49,441
Other (income) expense
Interest income	(32		)	(3		)
Interest expense	14,685			15,908
Total other expense	14,653			15,905
Income before income taxes	28,150			33,536
Provision for income taxes	11,418			12,844
Net income	$	16,732		$	20,692
Earnings per share:
Basic	$	0.32		$	0.40
Diluted	$	0.32		$	0.40
Weighted average shares outstanding:
Basic	51,956			51,222
Diluted	52,533			52,040
Comprehensive income, net of tax:
Currency translation adjustments	$	2,726		$	1
Total other comprehensive income	2,726			1
Comprehensive income	$	19,458		$	20,693

See accompanying notes.

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Prestige Brands Holdings, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands) Assets	June 30, 2014			March 31, 2014
Current assets
Cash and cash equivalents	$	15,675		$	28,331
Accounts receivable, net	58,238			65,050
Inventories	66,171			65,586
Deferred income tax assets	6,118			6,544
Prepaid expenses and other current assets	13,895			11,674
Total current assets	160,097			177,185
Property and equipment, net	10,673			9,597
Goodwill	192,632			190,911
Intangible assets, net	1,468,172			1,394,817
Other long-term assets	22,376			23,153
Total Assets	$	1,853,950		$	1,795,663
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	45,279		$	48,286
Accrued interest payable	9,449			9,626
Other accrued liabilities	23,591			26,446
Total current liabilities	78,319			84,358
Long-term debt
Principal amount	972,500			937,500
Less unamortized discount	(2,942		)	(3,086		)
Long-term debt, net of unamortized discount	969,558			934,414
Deferred income tax liabilities	219,908			213,204
Other long-term liabilities	358			327
Total Liabilities	1,268,143			1,232,303
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 - 52,209 shares at June 30, 2014 and 52,021 shares at March 31, 2014	522			520
Additional paid-in capital	418,488			414,387
Treasury stock, at cost - 240 shares at June 30, 2014 and 206 shares at March 31, 2014	(2,545		)	(1,431		)
Accumulated other comprehensive income, net of tax	3,465			739
Retained earnings	165,877			149,145
Total Stockholders' Equity	585,807			563,360
Total Liabilities and Stockholders' Equity	$	1,853,950		$	1,795,663

 See accompanying notes.

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Prestige Brands Holdings, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended June 30,
(In thousands)	2014			2013
Operating Activities
Net income	$	16,732		$	20,692
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,961			3,268
Deferred income taxes	7,140			6,797
Amortization of deferred financing costs	851			892
Stock-based compensation costs	1,858			1,193
Amortization of debt discount	144			345
(Gain) on sale or disposal of property and equipment	—			(2		)
Changes in operating assets and liabilities, net of effects from acquisitions
Accounts receivable	6,956			11,070
Inventories	1,540			(6,716		)
Prepaid expenses and other current assets	(2,203		)	187
Accounts payable	(3,096		)	(9,147		)
Accrued liabilities	(3,212		)	(5,781		)
Net cash provided by operating activities	29,671			22,798
Investing Activities
Purchases of property and equipment	(496		)	(1,364		)
Proceeds from the sale of property and equipment	—			2
Acquisition of the Hydralyte brand	(77,991		)	—
Net cash used in investing activities	(78,487		)	(1,362		)
Financing Activities
Repayments under revolving credit agreement	(30,000		)	(18,000		)
Borrowings under revolving credit agreement	65,000			—
Payment of deferred financing costs	(74		)	(280		)
Proceeds from exercise of stock options	1,294			309
Proceeds from restricted stock exercises	57			—
Excess tax benefits from share-based awards	950			452
Fair value of shares surrendered as payment of tax withholding	(1,171		)	(278		)
Net cash provided by (used in) financing activities	36,056			(17,797		)
Effects of exchange rate changes on cash and cash equivalents	104			(3		)
(Decrease) increase in cash and cash equivalents	(12,656		)	3,636
Cash and cash equivalents - beginning of period	28,331			15,670
Cash and cash equivalents - end of period	$	15,675		$	19,306
Interest paid	$	13,867		$	14,826
Income taxes paid	$	707		$	657

See accompanying notes.

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Prestige Brands Holdings, Inc.

Notes to Consolidated Financial Statements (unaudited)

1. Business and Basis of Presentation

Nature of Business

Prestige Brands Holdings, Inc. (referred to herein as the “Company” or “we”, which reference shall, unless the context requires otherwise, be deemed to refer to Prestige Brands Holdings, Inc. and all of its direct and indirect 100% owned subsidiaries on a consolidated basis) is engaged in the marketing, sales and distribution of over-the-counter (“OTC”) healthcare and household cleaning products to mass merchandisers, drug stores, supermarkets, club, convenience, and dollar stores in the United States, Australia and Canada and in certain other international markets.  Prestige Brands Holdings, Inc. is a holding company with no operations and is also the parent guarantor of the senior credit facility and the senior notes described in Note 9 to 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 the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  All significant intercompany transactions and balances have been eliminated in the Consolidated Financial Statements.  In the opinion of management, the Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments that are considered necessary for a fair statement of our consolidated financial position, results of operations and cash flows for the interim periods presented.  Our fiscal year ends on March 31^st of each year. References in these Consolidated Financial Statements or related notes to a year (e.g., “2015”) mean our fiscal year ending or ended on March 31^st of that year. Operating results for the three months ended June 30, 2014 are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2015.  These unaudited Consolidated Financial Statements and related notes should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

Revision

We revised the classification of certain promotional expenses that were incurred in the prior year to correctly present the amounts as a reduction to net sales. The amounts were not material to any of the periods presented.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.  Although these estimates are based on our knowledge of current events and actions that we may undertake in the future, actual results could differ materially from these estimates.  As discussed below, our most significant estimates include those made in connection with the valuation of intangible assets, stock-based compensation, fair value of debt, sales returns and allowances, trade promotional allowances, inventory obsolescence, and the recognition of income taxes using an estimated annual effective tax rate.

Cash and Cash Equivalents

We consider all short-term deposits and investments with original maturities of three months or less to be cash equivalents.  Substantially all of our cash is held by a large regional bank with headquarters in California.  We do not believe that, as a result of this concentration, we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. The Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation (“SIPC”) insure these balances up to $250,000 and $500,000, with a $250,000 limit for cash, respectively. Substantially all of the Company's cash balances at June 30, 2014 are uninsured.

Accounts Receivable

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

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Inventories

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

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method based on the following estimated useful lives:

	Years
Machinery	5
Computer equipment and software	3
Furniture and fixtures	7
Leasehold improvements	*

* Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful life of the related asset.

Expenditures for maintenance and repairs are charged to expense as incurred.  When an asset is sold or otherwise disposed of, we remove the cost and associated accumulated depreciation from the respective accounts and recognize the resulting gain or loss in the Consolidated Statements of Income and Comprehensive Income.

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

Goodwill

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

Intangible Assets

Intangible assets, which are comprised primarily of trademarks, are stated at cost less accumulated amortization.  For intangible assets with finite lives, amortization is computed using the straight-line method over estimated useful lives ranging from 3 to 30 years and 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. Indefinite-lived intangible assets are tested for impairment at least annually in the fourth fiscal quarter of each year, or more frequently if events or changes in circumstances indicate that the asset may be impaired.   If the carrying amount of the asset exceeds its fair value, an impairment loss is recognized.

Deferred Financing Costs

We have incurred debt origination costs in connection with the issuance of long-term debt.  These costs are capitalized as deferred financing costs and amortized using the effective interest method over the term of the related debt.

Revenue Recognition

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

As is customary in the consumer products industry, we participate in the promotional programs of our customers to enhance the sale of our products.  The cost of these promotional programs varies based on the actual number of units sold during a finite period of time.  These promotional programs consist of direct-to-consumer incentives, such as coupons and temporary price reductions,

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as well as incentives to our customers, such as allowances for new distribution, including slotting fees, and cooperative advertising.  Estimates of the costs of these promotional programs are based on (i) historical sales experience, (ii) the current promotional offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel. We recognize the cost of such sales incentives by recording an estimate of such cost as a reduction of revenue, at the later of (a) the date the related revenue is recognized, or (b) the date when a particular sales incentive is offered. At the completion of a promotional program, the estimated amounts are adjusted to actual results.

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

Cost of Sales

Cost of sales includes product costs, warehousing costs, inbound and outbound shipping costs, and handling and storage costs.  Shipping, warehousing and handling costs were $7.7 million for the three months ended June 30, 2014 and $6.6 million for the three months ended June 30, 2013.

Advertising and Promotion Costs

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

Stock-based Compensation

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

Income Taxes

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

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

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

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

Earnings Per Share

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

Recently Issued Accounting Standards

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

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

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers - Topic 606, which supersedes the revenue recognition requirements in FASB ASC 605. The new guidance primarily states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are evaluating the impact of adopting this prospective guidance on our consolidated results of operations and financial condition.

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

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

2. Acquisitions

Acquisition of Insight Pharmaceuticals

On April 25, 2014, we announced that we had entered into a definitive agreement for the acquisition of Insight Pharmaceuticals Corporation, a marketer and distributor of feminine care and other OTC healthcare products for $750.0 million in cash. As of the date of this filing, we have not yet completed the acquisition. We anticipate closing on this transaction during the second quarter of fiscal 2015, subject to customary closing conditions, including clearance under the Hart-Scott Rodino Antitrust Improvements Act of 1976. Financing for the transaction is expected to come from a combination of cash on the balance sheet, use of our existing revolving credit facility, and an amendment to our existing term loan facility.

Acquisition of the Hydralyte brand

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

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

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

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

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(In thousands)	April 30, 2014
Inventories	$	1,970
Property, plant and equipment, net	1,267
Goodwill	1,224
Intangible assets, net	73,580
Total assets acquired	78,041
Accrued expenses	38
Other long term liabilities	12
Total liabilities assumed	50
Net assets acquired	$	77,991

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

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

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

Acquisition of Care Pharmaceuticals Pty Ltd.

On July 1, 2013, we completed the acquisition of Care Pharmaceuticals Pty Ltd. ("Care Pharma"), which was funded through a combination of our existing senior secured credit facility and cash on hand.

The Care Pharma brands include the Fess line of cold/allergy and saline nasal health products, which is the leading saline spray for both adults and children in Australia. Other key brands include Painstop analgesic, Rectogesic for rectal discomfort, and the Fab line of nutritional supplements. Care Pharma also includes a line of brands for children including Little Allergies, Little Eyes,and Little Coughs. The brands acquired are complementary to our OTC Healthcare portfolio and are included in our International OTC Healthcare segment.

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

We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the July 1, 2013 acquisition date.

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(In thousands)	July 1, 2013
Cash acquired	$	1,546
Accounts receivable	1,658
Inventories	2,465
Deferred income taxes	283
Prepaids and other current assets	647
Property, plant and equipment	163
Goodwill	23,122
Intangible assets	31,502
Total assets acquired	61,386
Accounts payable	1,537
Accrued expenses	2,788
Other long term liabilities	300
Total liabilities assumed	4,625
Net assets acquired	$	56,761

Based on this analysis, we allocated $29.8 million to non-amortizable intangible assets and $1.7 million to amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of 15.1 years. The weighted average remaining life for amortizable intangible assets at June 30, 2014 was 14.5 years.

We also recorded goodwill of $23.1 million based on the amount by which the purchase price exceeded the fair value of the net assets acquired. The full amount of goodwill is deductible for income tax purposes.

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

3. Accounts Receivable

Accounts receivable consist of the following:

(In thousands)	June 30, 2014			March 31, 2014
Components of Accounts Receivable
Trade accounts receivable	$	65,044		$	73,632
Other receivables	1,470			1,360
	66,514			74,992
Less allowances for discounts, returns and uncollectible accounts	(8,276		)	(9,942		)
Accounts receivable, net	$	58,238		$	65,050

4. Inventories

Inventories consist of the following:

(In thousands)	June 30, 2014		March 31, 2014
Components of Inventories
Packaging and raw materials	$	1,973	$	3,099
Work in process	93		—
Finished goods	64,105		62,487
Inventories	$	66,171	$	65,586

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Inventories are carried at the lower of cost or market, which includes a reduction in inventory values of $1.6 million and $1.1 million at June 30, 2014 and March 31, 2014, respectively, related to obsolete and slow-moving inventory. As part of the acquisition of the Hydralyte brand on April 30, 2014, we manufacture certain of the Hydralyte products in Australia.

5. Property and Equipment

Property and equipment consist of the following:

(In thousands)	June 30, 2014			March 31, 2014
Components of Property and Equipment
Machinery	$	3,241		$	1,927
Computer equipment and software	9,310			8,923
Furniture and fixtures	1,957			1,858
Leasehold improvements	4,734			4,734
	19,242			17,442
Accumulated depreciation	(8,569		)	(7,845		)
Property and equipment, net	$	10,673		$	9,597

We recorded depreciation expense of $0.7 million and $0.6 million for the three months ended June 30, 2014 and June 30, 2013, respectively.

6. Goodwill

As described in Note 18 to the Consolidated Financial Statements, we have realigned our reportable segments with how we currently operate, review and evaluate the results of our business. A reconciliation of the activity affecting goodwill by reportable segment is as follows:

(In thousands)	North American OTC Healthcare		International OTC Healthcare		Household Cleaning		Consolidated
Balance — March 31, 2014	$	160,157	23,365		$	7,389	$	190,911
Additions	—		1,224		—		1,224
Effects of foreign currency exchange rates	—		497		—		497
Balance — June 30, 2014	$	160,157	$	25,086	$	7,389	$	192,632

As discussed in Note 2, on April 30, 2014, we completed the acquisition of the Hydralyte brand. In connection with this acquisition, we recorded goodwill of $1.2 million reflecting the amount by which the purchase price exceeded the preliminary estimate of fair value of the net assets acquired.

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

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

At March 31, 2014, during our annual test for goodwill impairment, there were no indicators of impairment under the analysis. Accordingly, no impairment charge was recorded in fiscal 2014. As of June 30, 2014, there have been no triggering events that would indicate potential impairment of goodwill.

The discounted cash flow methodology is a widely-accepted valuation technique to estimate fair value utilized by market participants in the transaction evaluation process and has been applied consistently. We also considered our market capitalization at March 31, 2014, as compared to the aggregate fair values of our reporting units, to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology. The estimates and assumptions made in assessing the fair value of our reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. Consequently,

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changing rates of interest and inflation, declining sales or margins, increases in competition, changing consumer preferences, technical advances, or reductions in advertising and promotion may require an impairment charge to be recorded in the future.

7. Intangible Assets

A reconciliation of the activity affecting intangible assets is as follows:

(In thousands)	Indefinite Lived Trademarks		Finite Lived Trademarks			Totals
Gross Carrying Amounts
Balance — March 31, 2014	$	1,273,878	$	204,740		$	1,478,618
Additions	73,580		—			73,580
Reductions	—		—			—
Effects of foreign currency exchange rates	1,981		29			2,010
Balance — June 30, 2014	1,349,439		204,769			1,554,208
Accumulated Amortization
Balance — March 31, 2014	—		83,801			83,801
Additions	—		2,237			2,237
Reductions	—		—			—
Effects of foreign currency exchange rates	—		(2		)	(2		)
Balance — June 30, 2014	—		86,036			86,036
Intangible assets, net - June 30, 2014	$	1,349,439	$	118,733		$	1,468,172
Intangible Assets, net by Reportable Segment:
North American OTC Healthcare	$	1,123,898	$	91,407		$	1,215,305
International OTC Healthcare	105,721		1,596			107,317
Household Cleaning	119,820		25,730			145,550
Intangible assets, net - June 30, 2014	$	1,349,439	$	118,733		$	1,468,172

As discussed in Note 2, on April 30, 2014, we completed the acquisition of the Hydralyte brand. In connection with this acquisition, we allocated $73.6 million to intangible assets based on our preliminary analysis.

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

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

In a manner similar to goodwill, we completed our annual test for impairment of our indefinite-lived intangible assets during the three months ended March 31, 2014.  We did not record an impairment charge, as facts and circumstances indicated that the fair values of the intangible assets for our brands exceeded their carrying values. Additionally, for the indefinite-lived intangible assets, an evaluation of the facts and circumstances as of June 30, 2014 continues to support an indefinite useful life for these assets. Therefore, no impairment charge was recorded for the three months ended June 30, 2014.

The weighted average remaining life for finite-lived intangible assets at June 30, 2014 was approximately 13.3 years, and the amortization expense for the three months ended June 30, 2014 was $2.2 million. At June 30, 2014, finite-lived intangible assets are being amortized over a period of 3 to 30 years, and the associated amortization expense is expected to be as follows:

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(In thousands)
Year Ending March 31,	Amount
2015 (Remaining nine months ending March 31, 2015)	$	6,715
2016	8,953
2017	8,953
2018	8,953
2019	8,953
Thereafter	76,206
	$	118,733

8. Other Accrued Liabilities

Other accrued liabilities consist of the following:

(In thousands)	June 30, 2014		March 31, 2014
Accrued marketing costs	$	11,271	$	11,812
Accrued compensation costs	2,552		6,232
Accrued broker commissions	799		1,019
Income taxes payable	1,653		1,854
Accrued professional fees	1,257		2,002
Deferred rent	1,168		1,258
Accrued production costs	1,635		1,506
Other accrued liabilities	3,256		763
	$	23,591	$	26,446

9. Long-Term Debt

2012 Senior Notes:

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

2012 Term Loan and 2012 ABL Revolver:

On January 31, 2012, the Borrower also entered into a new senior secured credit facility, which consists of (i) a $660.0 million term loan facility (the “2012 Term Loan”) with a seven-year maturity and (ii) a $50.0 million asset-based revolving credit facility (the “2012 ABL Revolver”) with a five-year maturity. In subsequent years, we have utilized portions of our accordion feature to increase the amount of our borrowing capacity under the 2012 ABL Revolver by $45.0 million to $95.0 million and reduced our borrowing rate on the 2012 ABL Revolver by 0.25%. The 2012 Term Loan was issued with an original issue discount of 1.5% of the principal amount thereof, resulting in net proceeds to the Borrower of $650.1 million. In connection with these loan facilities, we incurred $20.6 million of costs, which were capitalized as deferred financing costs and are being amortized over the terms of the facilities. The 2012 Term Loan is unconditionally guaranteed by Prestige Brands Holdings, Inc. and certain of its domestic 100% owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company.

On February 21, 2013, the Borrower entered into Amendment No. 1 (the "Amendment") to the 2012 Term Loan. The Amendment provided for the refinancing of all of the Borrower's existing Term B Loans with new Term B-1 Loans. The interest rate on the Term B-1 Loans is based, at the Borrower's option, on a LIBOR rate plus a margin of 2.75% per annum, with a LIBOR floor of 1.00%, or an alternate base rate plus a margin. The new Term B-1 Loans will mature on the same date as the Term B Loans' original

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maturity date. In addition, the Amendment provided the Borrower with certain additional capacity to prepay subordinated debt, the 2012 Senior Notes and certain other unsecured indebtedness permitted to be incurred under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver. In connection with the Amendment, during the fourth quarter ended March 31, 2013, we recognized a $1.4 million loss on the extinguishment of debt.

The 2012 Term Loan, as amended, bears interest at a rate per annum equal to an applicable margin plus, at our option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus 1.00% and (d) a floor of 2.00% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, with a floor of 1.00%. For the three months ended June 30, 2014, the average interest rate on the 2012 Term Loan was 4.3%.

Under the 2012 Term Loan, we were originally required to make quarterly payments each equal to 0.25% of the original principal amount of the 2012 Term Loan, with the balance expected to be due on the seventh anniversary of the closing date. However, since we have previously made significant optional payments that exceeded all of our required quarterly payments, we will not be required to make a payment until the maturity date of January 31, 2019.

Borrowings under the 2012 ABL Revolver, as amended, bear interest at a rate per annum equal to an applicable margin, plus, at our option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus 1.00% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs. The initial applicable margin for borrowings under the 2012 ABL Revolver is 1.75% with respect to LIBOR borrowings and 0.75% with respect to base-rate borrowings. The applicable margin for borrowings under the 2012 ABL Revolver may be increased to 2.00% or 2.25% for LIBOR borrowings and 1.00% or 1.25% for base-rate borrowings, depending on average excess availability under the 2012 ABL Revolver during the prior fiscal quarter. In addition to paying interest on outstanding principal under the 2012 ABL Revolver, we are required to pay a commitment fee to the lenders under the 2012 ABL Revolver in respect of the unutilized commitments thereunder. The initial commitment fee rate is 0.50% per annum. The commitment fee rate will be reduced to 0.375% per annum at any time when the average daily unused commitments for the prior quarter is less than a percentage of total commitments by an amount set forth in the credit agreement covering the 2012 ABL Revolver. We may voluntarily repay outstanding loans under the 2012 ABL Revolver at any time without a premium or penalty. For the three months ended June 30, 2014, the average interest rate on the amounts borrowed under the 2012 ABL Revolver was 4.2%.

2013 Senior Notes:

On December 17, 2013, the Borrower issued $400.0 million of senior unsecured notes, with an interest rate of 5.375% and a maturity date of December 15, 2021 (the "2013 Senior Notes"). The Borrower may redeem some or all of the 2013 Senior Notes at redemption prices set forth in the indenture governing the 2013 Senior Notes. The 2013 Senior notes are guaranteed by Prestige Brands Holdings, Inc. and certain of its 100% domestic owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company. In connection with the 2013 Senior Notes offering, we incurred $7.2 million of costs, which were capitalized as deferred financing costs and are being amortized over the term of the 2013 Senior Notes.

Redemptions and Restrictions:

At any time prior to February 1, 2016, we may redeem the 2012 Senior Notes in whole or in part at a redemption price equal to 100% of the principal amount of the notes redeemed, plus a "make-whole premium" calculated as set forth in the indenture governing the 2012 Senior Notes, together with accrued and unpaid interest, if any, to the date of redemption. On or after February 1, 2016, we may redeem the 2012 Senior Notes in whole or in part at redemption prices set forth in the indenture governing the 2012 Senior Notes. In addition, at any time prior to February 1, 2015, we may redeem up to 35% of the aggregate principal amount of the 2012 Senior Notes at a redemption price equal to 108.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of certain equity offerings, provided that certain conditions are met. Subject to certain limitations, in the event of a change of control, as defined in the indenture governing the 2012 Senior Notes, the Borrower will be required to make an offer to purchase the 2012 Senior Notes at a price equal to 101% of the aggregate principal amount of the 2012 Senior Notes repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.

At any time prior to December 15, 2016, we may redeem the 2013 Senior Notes in whole or in part at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, if any, on the 2013 Senior Notes plus an applicable "make-whole premium" calculated as set forth in the indenture governing the 2013 Senior Notes, together with accrued and unpaid interest, if any. On or after December 15, 2016, we may redeem some or all of the 2013 Senior Notes at redemption prices set forth in the indenture governing the 2013 Senior Notes. In addition, at any time prior to December 15, 2016, we may redeem up to 35% of

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

The indentures governing the 2012 Senior Notes and the 2013 Senior Notes contain provisions that restrict us from undertaking specified corporate actions, such as asset dispositions, acquisitions, dividend payments, repurchases of common shares outstanding, changes of control, incurrences of indebtedness, issuance of equity, creation of liens, making of loans and transactions with affiliates. Additionally, the credit agreement with respect to the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2012 Senior Notes and the 2013 Senior Notes contain cross-default provisions, whereby a default pursuant to the terms and conditions of certain indebtedness will cause a default on the remaining indebtedness under the credit agreement and the indentures governing the 2012 Senior Notes and the 2013 Senior Notes. At June 30, 2014, we were in compliance with the covenants under our long-term indebtedness.

At June 30, 2014, we had an aggregate of $22.4 million of unamortized debt issuance costs and $2.9 million of unamortized debt discount, the total of which is comprised of $9.7 million related to the 2012 Senior Notes, $6.8 million related to the 2013 Senior Notes, $7.6 million related to the 2012 Term Loan, and $1.2 million related to the 2012 ABL Revolver.

During the three months ended June 30, 2014, we borrowed a net amount of $35.0 million against the 2012 ABL Revolver.

Long-term debt consists of the following, as of the dates indicated:

(In thousands, except percentages)	June 30, 2014			March 31, 2014
2013 Senior Notes bearing interest at 5.375%, with interest payable on June 15 and December 15 of each year, commencing June 15, 2014. The 2013 Senior Notes mature on December 15, 2021.	$	400,000		$	400,000
2012 Senior Notes bearing interest at 8.125%, with interest payable on February 1 and August 1 of each year. The 2012 Senior Notes mature on February 1, 2020.	250,000			250,000
2012 Term Loan bearing interest at the Company's option at either a base rate with a floor of 2.00% plus applicable margin or LIBOR with a floor of 1.00% plus applicable margin, due on January 31, 2019.	287,500			287,500
2012 ABL Revolver bearing interest at the Company's option at either a base rate plus applicable margin or LIBOR plus applicable margin. Any unpaid balance is due on January 31, 2017.	35,000			—
	972,500			937,500
Current portion of long-term debt	—			—
	972,500			937,500
Less: unamortized discount	(2,942		)	(3,086		)
Long-term debt, net of unamortized discount	$	969,558		$	934,414

As of June 30, 2014, aggregate future principal payments required in accordance with the terms of the 2012 Term Loan, 2012 ABL Revolver and the indentures governing the 2013 Senior Notes and the 2012 Senior Notes are as follows:

(In thousands)
Year Ending March 31,	Amount
2015 (remaining nine months ending March 31, 2015)	$	—
2016	—
2017	35,000
2018	—
2019	287,500
Thereafter	650,000
	$	972,500

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10. Fair Value Measurements

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

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

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

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

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

The market values have been determined based on market values for similar instruments adjusted for certain factors. As such, the 2012 Term Loan, the 2013 Senior Notes, the 2012 Senior Notes, and the 2012 ABL Revolver are measured in Level 2 of the above hierarchy. At June 30, 2014 and March 31, 2014, we did not have any assets or liabilities measured in Level 1 or 3. During any of the periods presented, there were no transfers of assets or liabilities between Levels 1, 2 and 3.

At June 30, 2014 and March 31, 2014, the carrying value of our 2013 Senior Notes was $400.0 million. The fair value of our 2013 Senior Notes was $409.0 million and $408.5 million at June 30, 2014 and March 31, 2014, respectively.

At June 30, 2014 and March 31, 2014, the carrying value of our 2012 Senior Notes was $250.0 million. The fair value of our 2012 Senior Notes was $277.8 million and $280.6 million at June 30, 2014 and March 31, 2014, respectively.

At June 30, 2014 and March 31, 2014, the carrying value of the 2012 Term Loan was $287.5 million. The fair value of the 2012 Term Loan was $288.2 million and $288.9 million at June 30, 2014 and March 31, 2014, respectively.

At June 30, 2014, the carrying value and fair value of the 2012 ABL Revolver was $35.0 million. There were no outstanding borrowings under the 2012 ABL Revolver at March 31, 2014.

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 June 30, 2014.

During the three months ended June 30, 2014 and June 30, 2013, we repurchased 33,740shares and 10,726 shares, respectively, of restricted common stock from our employees pursuant to the provisions of various employee restricted stock awards. The repurchases were at an average price of $33.03. All of the repurchased shares have been recorded as treasury stock.

12. Accumulated Other Comprehensive Income

The table below presents accumulated other comprehensive income (“AOCI”), which is comprised of various items that affect equity and results from recognized transactions and other economic events, other than transactions with owners in their capacity as owners.

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AOCI consisted of the following at June 30, 2014 and March 31, 2014:

	June 30,		March 31,
(In thousands)	2014		2014
Components of Accumulated Other Comprehensive Income
Cumulative translation adjustment	$	3,465	$	739
Total accumulated other comprehensive income, net of tax	$	3,465	$	739

13. Earnings Per Share

Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted-average number of shares of common stock outstanding plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method, which includes stock options, restricted stock awards, and restricted stock units. The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended June 30,
(In thousands, except per share data)	2014		2013
Numerator
Net income	$	16,732	$	20,692
Denominator
Denominator for basic earnings per share — weighted average shares outstanding	51,956		51,222
Dilutive effect of unvested restricted common stock (including restricted stock units) and options issued to employees and directors	577		818
Denominator for diluted earnings per share	52,533		52,040
Earnings per Common Share:
Basic net earnings per share	$	0.32	$	0.40
Diluted net earnings per share	$	0.32	$	0.40

For the three months ended June 30, 2014 and 2013, there were 0.3 million and 0.2 million shares, respectively, attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

14. Share-Based Compensation

In connection with our initial public offering, the Board of Directors adopted the 2005 Long-Term Equity Incentive Plan (the “Plan”), which provides for the grant of up to a maximum of 5.0 million shares of restricted stock, stock options, restricted stock units and other equity-based awards.  Directors, officers and other employees of the Company and its subsidiaries, as well as others performing services for the Company, are eligible for grants under the Plan.

During the three months ended June 30, 2014, pre-tax share-based compensation costs charged against income were $1.9 million and the related income tax benefit recognized was $0.7 million. During the three months ended June 30, 2013, pre-tax share-based compensation costs charged against income were $1.2 million and the related income tax benefit recognized was $0.5 million.

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Restricted Shares

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

On May 12, 2014, the Compensation Committee of our Board of Directors granted 96,638 restricted stock units to certain executive officers and employees under the Plan. Of those grants, 75,638 restricted stock units vest in their entirety on the three-year anniversary of the date of grant and 21,000 restricted stock units vest 33.3% per year over three years.

The fair value of the restricted stock units is determined using the closing price of our common stock on the day of grant. The weighted-average grant-date fair value of restricted stock units granted during the three months ended June 30, 2014 and 2013 was $33.50 and $29.94, respectively.

A summary of the Company's restricted shares granted under the Plan is presented below:

Restricted Shares	Shares (in thousands)		Weighted- Average Grant-Date Fair Value
Three months ended June 30, 2013
Outstanding at March 31, 2013	421.3		$	11.01
Granted	113.6		29.94
Vested and issued	(27.7	)	9.03
Forfeited	(3.6	)	13.24
Outstanding at June 30, 2013	503.6		15.38
Vested at June 30, 2013	83.1		9.63
Three months ended June 30, 2014:
Outstanding at March 31, 2014	437.5		$	16.76
Granted	96.6		33.50
Vested and issued	(93.7	)	15.12
Forfeited	(14.4	)	20.78
Outstanding at June 30, 2014	426.0		20.78
Vested at June 30, 2014	69.6		9.34

Options

The Plan provides that the exercise price of options granted shall be no less than the fair market value of the Company's common stock on the date the options are granted.  Options granted have a term of no greater than ten years from the date of grant and vest in accordance with a schedule determined at the time the option is granted, generally three to five years.  The option awards provide for accelerated vesting if there is a change in control, as defined in the Plan.

The fair value of each option award is estimated on the date of grant using the Black-Scholes Option Pricing Model that uses the assumptions noted in the table below.  Expected volatilities are based on the historical volatility of our common stock and other factors, including the historical volatilities of comparable companies.  We use appropriate historical data, as well as current data, to estimate option exercise and employee termination behaviors.  Employees that are expected to exhibit similar exercise or termination behaviors are grouped together for the purposes of valuation.  The expected terms of the options granted are derived from management's estimates and consideration of information derived from the public filings of companies similar to us and represent the period of time that options granted are expected to be outstanding.  The risk-free rate represents the yield on U.S. Treasury bonds with a maturity equal to the expected term of the granted option.  On May 12, 2014, the Compensation Committee

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of our Board of Directors granted stock options to acquire 307,490 shares of our common stock to certain executive officers and employees under the Plan. The stock options will vest 33.3% per year over three years and are exercisable for up to ten years from the date of grant. These stock options were granted at an exercise price of $33.50 per share, which is equal to the closing price for our common stock on the day of the grant. Termination of employment prior to vesting will result in forfeiture of the unvested stock options. Vested stock options will remain exercisable by the employee after termination, subject to the terms of the Plan.

The weighted-average grant-date fair value of the options granted during the three months ended June 30, 2014 and 2013 was $15.93 and $13.94, respectively.

	Three Months Ended June 30,
	2014			2013
Expected volatility	47.3		%	48.0		%
Expected dividends	$	—		$	—
Expected term in years	6.0			6.0
Risk-free rate	2.2		%	1.3		%

A summary of option activity under the Plan is as follows:

Options	Shares (in thousands)		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Three months ended June 30, 2013:
Outstanding at March 31, 2013	1,386.4		$	10.43
Granted	227.7		29.94
Exercised	(25.0	)	12.40
Forfeited or expired	(8.0	)	13.24
Outstanding at June 30, 2013	1,581.1		13.19		6.2	$	9,840
Exercisable at June 30, 2013	515.9		11.27		7.2	3,715
Three months ended June 30, 2014:
Outstanding at March 31, 2014	994.9		$	15.24
Granted	307.5		33.50
Exercised	(93.8	)	13.80
Forfeited or expired	(31.6	)	25.49
Outstanding at June 30, 2014	1,177.0		19.85		7.8	$	16,527
Exercisable at June 30, 2014	375.1		15.23		7.3	6,998

The aggregate intrinsic value of options exercised in the three months ended June 30, 2014 was $1.9 million.

At June 30, 2014, there were $8.7 million of unrecognized compensation costs related to nonvested share-based compensation arrangements under the Plan, based on management's estimate of the shares that will ultimately vest.  We expect to recognize such costs over a weighted-average period of 1.1 years.  The total fair value of options and restricted shares vested during the three months ended June 30, 2014 and 2013 was $4.7 million and $1.9 million, respectively.  For the three months ended June 30, 2014 and 2013, cash received from the exercise of stock options was $1.3 million and $0.3 million, respectively, and we realized $1.0 million and $0.5 million, respectively, in tax benefits from the tax deductions resulting from these option exercises. At June 30, 2014, there were 1.2 million shares available for issuance under the Plan.

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15. Income Taxes

Income taxes are recorded in our quarterly financial statements based on our estimated annual effective income tax rate, subject to adjustments for discrete events, should they occur.  The effective tax rate used in the calculation of income taxes was 40.6% and 38.3% for the three months ended June 30, 2014 and June 30, 2013, respectively. The increase in the effective tax rate for the three months ended June 30, 2014 was primarily due to the impact of certain non-deductible items related to acquisitions.

At June 30, 2014, a wholly-owned subsidiary had a net operating loss carryforward of approximately $0.9 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 of approximately $0.2 million pursuant to Internal Revenue Code Section 382.

We had no change in our uncertain tax liability during the three months ended June 30, 2014. Therefore, the balance in our uncertain tax liability was $1.2 million at June 30, 2014 and March 31, 2014. We recognize interest and penalties related to uncertain tax positions as a component of income tax expense.  We did not incur any material interest or penalties related to income taxes in any of the periods presented.

16. Commitments and Contingencies

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

Lease Commitments

We have operating leases for office facilities and equipment in New York and Wyoming, which expire at various dates through fiscal 2021. In anticipation of the closing of the acquisition of Insight Pharmaceuticals that we announced in April we will require additional office space. Therefore, in the first quarter of fiscal 2015, we amended our existing New York office lease to include an additional 15,470 square feet beginning September 2014 and extended the expiration of the combined lease through August 2020. These amounts have been included in the schedule below.

The following summarizes future minimum lease payments for our operating leases as of June 30, 2014:

(In thousands)
Year Ending March 31,	Facilities		Equipment		Total
2015 (Remaining nine months ending March 31, 2015)	$	947	$	150	$	1,097
2016	1,189		160		1,349
2017	1,346		74		1,420
2018	1,423		—		1,423
2019	1,423		—		1,423
Thereafter	2,198		—		2,198
	$	8,526	$	384	$	8,910

Rent expense for each of the three months ended June 30, 2014 and 2013 was $0.4 million and $0.3 million, respectively.

Purchase Commitments

Effective November 1, 2009, we entered into a ten year supply agreement for the exclusive manufacture of a portion of one of our Household Cleaning products.  Although we are committed under the supply agreement to pay the minimum amounts set forth in the table below, the total commitment is less than 10% of the estimated purchases that we expect to make during the course of the agreement.

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(In thousands)
Year Ending March 31,	Amount
2015 (Remaining nine months ending March 31, 2015)	$	826
2016	1,074
2017	1,044
2018	1,013
2019	982
Thereafter	560
	$	5,499

17. Concentrations of Risk

Our revenues are concentrated in the areas of OTC Healthcare and Household Cleaning products.  We sell our products to mass merchandisers, food and drug stores, and dollar and club stores.  During the three months ended June 30, 2014, approximately 42.0% of our total revenues were derived from our five top selling brands.  During the three months ended June 30, 2013, approximately 44.4% of our total revenues were derived from our five top selling brands. One customer, Walmart, accounted for more than 10% of our gross revenues for each of the periods presented. Walmart accounted for approximately 19.2% of our gross revenues for the three months ended June 30, 2014, and approximately 12.5% of our gross revenues for the three months ended June 30, 2013. At June 30, 2014, approximately 22.4% of accounts receivable were owed by the same customer.

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

At June 30, 2014, we had relationships with 61 third-party manufacturers.  Of those, we had long-term contracts with 27 manufacturers that produced items that accounted for approximately 84.5% of gross sales for the three months ended June 30, 2014. At June 30, 2013, we had relationships with 50 third-party manufacturers.  Of those, we had long-term contracts with 21 manufacturers that produced items that accounted for approximately 79.6% of gross sales for the three months ended June 30, 2013. The fact that we do not have long-term contracts with certain manufacturers means they could cease manufacturing our products at any time and for any reason or initiate arbitrary and costly price increases, which could have a material adverse effect on our business, financial condition and results from operations.

18. Business Segments

Beginning April 1, 2014, we began managing and reporting certain of our businesses separately and have therefore realigned our reportable segments to align with how we manage and evaluate the results of our business. These reportable segments consist of (i) North American OTC Healthcare (ii) International OTC Healthcare and (iii) Household Cleaning. The results of our previously reported OTC Healthcare segment is now separated into two reporting segments, the North American OTC Healthcare segment and the International OTC Healthcare segment, largely to reflect our international expansion due to recent acquisitions. Prior year amounts were reclassified to conform to the current reportable segments discussed above. Segment information has been prepared in accordance with the Segment Reporting topic of the FASB ASC 280. We evaluate the performance of our operating segments and allocate resources to these segments based primarily on contribution margin, which we define as gross profit less advertising and promotional expenses.

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The tables below summarize information about our reportable segments.

	Three Months Ended June 30, 2014
(In thousands)	North American OTC Healthcare			International OTC Healthcare		Household Cleaning		Consolidated
Gross segment revenues	$	110,973		$	13,692	$	20,593	$	145,258
Elimination of intersegment revenues	(717		)	—		—		(717		)
Third-party segment revenues	110,256			13,692		20,593		144,541
Other revenues	177			35		949		1,161
Total segment revenues	110,433			13,727		21,542		145,702
Cost of sales	42,340			5,078		16,418		63,836
Gross profit	68,093			8,649		5,124		81,866
Advertising and promotion	16,353			2,339		404		19,096
Contribution margin	$	51,740		$	6,310	$	4,720	62,770
Other operating expenses								19,967
Operating income								42,803
Other expense								14,653
Income before income taxes								28,150
Provision for income taxes								11,418
Net income								$	16,732

	Three Months Ended June 30, 2013
(In thousands)	North American OTC Healthcare		International OTC Healthcare		Household Cleaning		Consolidated
Gross segment revenues	$	118,936	$	3,414	$	19,292	$	141,642
Elimination of intersegment revenues	—		—		—		—
Third-party segment revenues	118,936		3,414		19,292		141,642
Other revenues	150		7		713		870
Total segment revenues	119,086		3,421		20,005		142,512
Cost of sales	43,546		1,465		14,477		59,488
Gross profit	75,540		1,956		5,528		83,024
Advertising and promotion	17,551		263		867		18,681
Contribution margin	$	57,989	$	1,693	$	4,661	64,343
Other operating expenses							14,902
Operating income							49,441
Other expense							15,905
Income before income taxes							33,536
Provision for income taxes							12,844
Net income							$	20,692

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The tables below summarize information about our segment revenues from similar product groups.

	Three Months Ended June 30, 2014
(In thousands)	North American OTC Healthcare		International OTC Healthcare		Household Cleaning		Consolidated
Analgesics	$	25,031	$	665	$	—	$	25,696
Cough & Cold	20,041		4,759		—		24,800
Gastrointestinal	20,638		2,897		—		23,535
Eye & Ear Care	20,726		4,642		—		25,368
Dermatologicals	11,418		142		—		11,560
Oral Care	10,198		62		—		10,260
Other OTC	2,381		560		—		2,941
Household Cleaning	—		—		21,542		21,542
Total segment revenues	$	110,433	$	13,727	$	21,542	$	145,702

	Three Months Ended June 30, 2013
(In thousands)	North American OTC Healthcare		International OTC Healthcare		Household Cleaning		Consolidated
Analgesics	$	28,137	$	29	$	—	$	28,166
Cough & Cold	20,499		983		—		21,482
Gastrointestinal	21,758		10		—		21,768
Eye & Ear Care	20,332		2,260		—		22,592
Dermatologicals	13,786		91		—		13,877
Oral Care	11,085		48		—		11,133
Other OTC	3,489		—		—		3,489
Household Cleaning	—		—		20,005		20,005
Total segment revenues	$	119,086	$	3,421	$	20,005	$	142,512

During the three months ended June 30, 2014 and June 30, 2013, approximately 84.5% and 89.0%, respectively of our total segment revenues were made to customers in the United States. Other than the United States, no individual geographical area accounted for more than 10% of net sales in any of the periods presented. During the three months ended June 30, 2014, our Canada and Australia sales accounted for approximately 5.6% and 5.2%, respectively, of our total segment revenues, while during the three months ended June 30, 2013 approximately 8.2% of our total segment revenues was attributable to sales to Canada.

At June 30, 2014, approximately 92.0% of our consolidated goodwill and intangible assets were located in the United States and approximately 8.0% were located in Australia. These consolidated goodwill and intangible assets have been allocated to the reportable segments as follows:

(In thousands)	North American OTC Healthcare		International OTC Healthcare		Household Cleaning		Consolidated
Goodwill	$	160,157	$	25,086	$	7,389	$	192,632
Intangible assets
Indefinite-lived	1,123,898		105,721		119,820		1,349,439
Finite-lived	91,407		1,596		25,730		118,733
Intangible assets, net	1,215,305		107,317		145,550		1,468,172
Total	$	1,375,462	$	132,403	$	152,939	$	1,660,804

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19. Condensed Consolidating Financial Statements

As described in Note 9, Prestige Brands Holdings, Inc., together with certain of our 100% owned subsidiaries, has fully and unconditionally guaranteed, on a joint and several basis, the obligations of Prestige Brands, Inc. (a 100% owned subsidiary of the Company) set forth in the indentures governing the 2013 Senior Notes and the 2012 Senior Notes, including, without limitation, the obligation to pay principal and interest with respect to the 2013 Senior Notes and the 2012 Senior Notes. The 100% owned subsidiaries of the Company that have guaranteed the 2013 Senior Notes and the 2012 Senior Notes are as follows: Prestige Services Corp., Prestige Brands Holdings, Inc. (a Virginia corporation), Prestige Brands International, Inc., Medtech Holdings, Inc., Medtech Products Inc., The Cutex Company, The Spic and Span Company, and Blacksmith Brands, Inc. (collectively, the "Subsidiary Guarantors"). A significant portion of our operating income and cash flow is generated by our subsidiaries. As a result, funds necessary to meet Prestige Brands, Inc.'s debt service obligations are provided in part by distributions or advances from our subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of our subsidiaries, could limit Prestige Brands, Inc.'s ability to obtain cash from our subsidiaries for the purpose of meeting our debt service obligations, including the payment of principal and interest on the 2013 Senior Notes and the 2012 Senior Notes. Although holders of the 2013 Senior Notes and the 2012 Senior Notes will be direct creditors of the guarantors of the 2013 Senior Notes and the 2012 Senior Notes by virtue of the guarantees, we have indirect subsidiaries located primarily in the United Kingdom, the Netherlands and Australia (collectively, the "Non-Guarantor Subsidiaries") that have not guaranteed the 2013 Senior Notes or the 2012 Senior Notes, and such subsidiaries will not be obligated with respect to the 2013 Senior Notes or the 2012 Senior Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of the holders of the 2013 Senior Notes and the 2012 Senior Notes.

Presented below are supplemental Condensed Consolidating Balance Sheets as of June 30, 2014 and March 31, 2014, Condensed Consolidating Statements of Income and Comprehensive Income for the three months ended June 30, 2014 and 2013, and Condensed Consolidating Statements of Cash Flows for the three months ended June 30, 2014 and 2013. Such consolidating information includes separate columns for:

a)  Prestige Brands Holdings, Inc., the parent,

b)  Prestige Brands, Inc., the issuer,

c)  Combined Subsidiary Guarantors,

d)  Combined Non-Guarantor Subsidiaries, and

e)  Elimination entries necessary to consolidate the Company and all of its subsidiaries.

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

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Condensed Consolidating Statements of Income and Comprehensive Income

Three Months Ended June 30, 2014

(In thousands)	Prestige Brands Holdings, Inc.			Prestige Brands, Inc., the issuer			Combined Subsidiary Guarantors			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Net sales	$	—		$	25,410		$	108,898		$	10,951		$	(718	)	$	144,541
Other revenues	—			130			1,099			402			(470		)	1,161
Total revenues	—			25,540			109,997			11,353			(1,188		)	145,702
Cost of Sales
Cost of sales (exclusive of depreciation shown below)	—			9,448			50,515			4,023			(150		)	63,836
Gross profit	—			16,092			59,482			7,330			(1,038		)	81,866
Operating Expenses
Advertising and promotion	—			2,689			14,066			2,341			—			19,096
General and administrative	1,145			2,473			8,990			4,398			—			17,006
Depreciation and amortization	642			145			2,089			85			—			2,961
Total operating expenses	1,787			5,307			25,145			6,824			—			39,063
Operating income (loss)	(1,787		)	10,785			34,337			506			(1,038		)	42,803
Other (income) expense
Interest income	(12,133		)	(14,225		)	(762		)	(29		)	27,117			(32		)
Interest expense	8,548			14,685			17,805			764			(27,117		)	14,685
Equity in (income) loss of subsidiaries	(15,679		)	(10,898		)	959			—			25,618			—
Total other (income) expense	(19,264		)	(10,438		)	18,002			735			25,618			14,653
Income before income taxes	17,477			21,223			16,335			(229		)	(26,656		)	28,150
Provision (benefit) for income taxes	745			3,717			6,226			730			—			11,418
Net income (loss)	$	16,732		$	17,506		$	10,109		$	(959	)	$	(26,656	)	$	16,732
Comprehensive income, net of tax:
Currency translation adjustments	2,726			2,726			2,726			2,726			(8,178		)	2,726
Total other comprehensive income (loss)	2,726			2,726			2,726			2,726			(8,178		)	2,726
Comprehensive income (loss)	$	19,458		$	20,232		$	12,835		$	1,767		$	(34,834	)	$	19,458

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Condensed Consolidating Statements of Income and Comprehensive Income

Three Months Ended June 30, 2013

(In thousands)	Prestige Brands Holdings, Inc.			Prestige Brands, Inc., the issuer			Combined Subsidiary Guarantors		Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Net sales	$	—		$	24,150		$	116,269	$	1,223		$	—		$	141,642
Other revenues	—			68			863		434			(495		)	870
Total revenues	—			24,218			117,132		1,657			(495		)	142,512
Cost of Sales
Cost of sales (exclusive of depreciation shown below)	—			9,458			49,989		536			(495		)	59,488
Gross profit	—			14,760			67,143		1,121			—			83,024
Operating Expenses
Advertising and promotion	—			3,331			15,143		207			—			18,681
General and administrative	1,499			1,643			8,457		35			—			11,634
Depreciation and amortization	517			142			2,595		14			—			3,268
Total operating expenses	2,016			5,116			26,195		256			—			33,583
Operating income (loss)	(2,016		)	9,644			40,948		865			—			49,441
Other (income) expense
Interest income	(12,213		)	(14,323		)	—		(2		)	26,535			(3		)
Interest expense	8,607			15,908			17,928		—