Prestige Consumer Healthcare Inc (PBH) 2006 Q1 法說會逐字稿

Welcome to the Prestige Brands first quarter fiscal 2006 earnings teleconference. After initial remarks, there will be a question and answer session. During today's call, you may press the star, one, if you have a question. At the rest of Prestige Brands, today's conference is being recorded. If you have any objections, you may disconnect at this time.

Now I would like to turn the call over to Mr. Dean Siegal, Director of Investor Relations for Prestige Brands.

Thank you, Marla. Today's call will be hosted by Peter Mann, Chairman, President and Chief Executive Officer, Pete Anderson, Chief Financial Officer, as well as Jay Rogers, Finance Director, Charles Jolie (ph), General Counsel and Tom Howler (ph), Corporate Controller.

Before we get started, I am required to note that information to be discussed on this teleconference and Webcast will include forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results that differ materially from those anticipated. Our business in general is subject to risks that could affect the performance of the company. All statements other than statements of historical fact are statements that would be deemed forward-looking statements.

These risks, uncertainties and assumptions include risk associated with general economic conditions affecting our products and their respective markets, the high level of competition in our industry end markets, our dependence on a limited number of customers for a large portion of our sales, as well as disruptions in our distribution capabilities.

Further information on potential factors that could affect the financial results of Prestige Brands is included in the company's Form 10-K of June 15th of 2005, as filed with the Securities and Exchange Commission. Now I'd like to introduce Peter Mann, Chairman, President and CEO of Prestige Brands.

Thank you, Dean. Good morning, everybody, and thanks for joining us. By now, I'm sure you've all read our earnings release, which went out last night after the close of the market. As you also know, we issued this release a few days ahead of our normals schedule in order to make sure that we were providing as timely information about the company and its results as possible.

If you haven't seen the release, it's available at our Web site, which is www.prestigebrands.com, and it's in the investor relations section. Many of you tried to reach us last night, and I just want to tell you why we didn't return any of your calls. That it was the advice of our counsel, both inside and outside, as well as the unanimous direction of our board of directors, that we make every effort not to be involved in anything that could be construed as ...

Selective disclosure.

Selective disclosure. And that is not because we're in any way trying to hide from you, but rather it was the direction of counsel and the direction of the board. So, now, with that said, we're going to turn to the main topic for the day, which is really two main agenda items. First, the June quarter operating results, and then secondly the acquisition, or the upcoming acquisition, of the Chore Boy line. But first, to the quarter's results.

Due to the fact that these results were both disappointing and not in line with the general outlook we had provided, we're going to provide you with as much commentary and as much detail on those results as possible, while still maintaining our policy of not maintaining actual detailed sales and profits on a brand-by-brand basis. So, first, when you look at the overall corporate results, revenues declined 6% from last year, and this decline would have been 10% if pro forma results from Little Remedies were included in the prior year period.

Despite the shortfall in Remedies, operating profits for the quarter grew 7% to $17 million. The improvement in operating profits was driven by mostly the addition of Little Remedies, but combined with operating synergies and efficiencies realized. For the record, Little Remedies contributed $3.3 million of net sales and about $1.7 million of brand contribution in this quarter, compared to no sales and no contribution in last year's fiscal quarter, because we didn't own the business then.

The operating synergies and efficiencies were created by the acquisition of Prestige International, the Florida company whose name we retained. Because the quarter a year ago was the first quarter after the merger, many of the synergies that we ultimately realized were not yet contributing to last year's results in this quarter. Those synergies include things like a lower advertising agency and media buying fees, lower sales brokerage rates, more focused seasonal spending and greater focus on limiting returns.

And next, as Pete Anderson will take you through in a bit more detail, we were required to make a one-time adjustment to our deferred tax liability, which reduced net income by $1.2 million, or two cents a share, and Pete's going to go into that in much greater detail later in the call.

So we have improved operating profits, partially offset by the tax adjustment, yielding net income of almost exactly $4 million or eight cents per common share, and that $4 million compares to the reported loss last year of $5.1 million, but when we adjust last year's results to remove the one-time expenses associated with the acquisition of the Florida Prestige, the year over year improvement in net income is still 28%.

So, while profits grew during the quarter, revenues were unmistakably disappointing, and in order to give you a better feel for what happened during the quarter, we're going to spend a lot more time on a segment by segment and then a brand by brand review. But before we got to the individual segments and individual brands, I want to give you three overview comments as you think about the quarter and as you try to understand what happened. First, two of our categories, two important categories for us, wart removers and liquid bandages, during the quarter, suffered from a rather sudden and largely unexpected adjustment in rate of sales. Some people called it a correction.

Both of these categories in the year ago period had been growing very rapidly, and all of a sudden, during this quarter, that growth not only evaporated, but the categories turned negative. We had expected the categories' growth to slow, but we hadn't expected it to decline. Secondly, as we go through the individual brands, you'll hear time after time that our consumer consumption, as measured by IRI and where available major customer point of sale information, our consumer consumption, the amount of goods that are actually being taken off of the retail shelf by consumers, was trending better than our factory sales.

This is a phenomenon that occurs in consumer products companies fairly regularly. Sometimes factory volume is better than consumer sales, and as it was the case for us in this particular short-term quarter, factory volume lagged consumer sales trends. And then, finally, the third general factor that contributed to our sales weakness were a couple of one-time year on year abnormalities, and we'll go into those in great detail also. Those are one-off things which are not likely to be repeated.

Okay, with that said, we'll turn first to OTCs. As you know, OTCs is our largest segment of our business, accounting for just a little more than half of our revenues. And for this quarter, while brand contribution, and brand contribution is the metric we use to evaluate brand and segment profitability, brand contribution for OTCs was essentially flat versus year ago, revenues declined 5%. And if you do the math, you'll see that had Little Remedies been part of the portfolio in last year's first quarter, those OTC revenue declines would have been 12%.

And here it is in OTCs where both of the categories that I talked about before generally occurred. The first is wart remover. If you go back to the year-ago periods, you'll see that the wart remover category had been growing 35 to 40% over the past year, and even stronger in the year-ago quarter. All of a sudden, in the June quarter, and really in the month of June, or the period that ended mid June, that category turned suddenly negative.

The first two periods of the quarter were showing continued modest growth and then it turned sharply negative in the June quarter. And, as I said, we had expected category growth to decline, but we had not expected it to turn negative. The same phenomenon, in a sense, on an even more impressive scale, was the liquid bandage category, in which hour New Skin brand competes. Again, in the year-ago period, that category had been growing very rapidly, and during this quarter, the category declined almost 40%. And again, we had expected liquid bandage growth rates to slow, but not decline.

Turning now on a brand by brand basis. First Compound W, which at the end of the day accounted for almost all of the OTC segment decline. There were three reasons ultimately driving the decline of Compound W. The first is the category itself, and I've already been through those numbers. The category for the quarter declined 4%, and all of that was driven by weakness in the second half of the quarter.

Then, within that soft category, our brand, Compound W, was still measuring against year-ago period where the competitive environment was significantly less intense. It was just a year ago that Dr. Scholl's introduced their Freeze Away product. And so during the quarter, our Compound W consumer sales declined a bit more rapidly than the category. Again, we had anticipated because of the new competition, we had anticipated that our share of market would be lower than it was year ago, but we had not expected the category to contract.

And finally, and here's one of the two one-time abnormalities that affected the quarter, during the December and March quarter, one of our key - in fact, our key mass merchandiser customer - placed a significant order for a significant amount of Compound W Freeze Off in preparation for an early season major promotion. That promotion ran in February and March, and due to the cold and rainy spring, which caused the wart category to slow and begin later, the promotion occurred during that pre-season period and frankly had disappointing results.

It left this customer at the end of the quarter with a significant amount of inventory, and as a result, that inventory sharply reduced their purchases of Freeze Off during the June quarter. The good news is that Freeze Off continues to move through that customer's retail shelves, and most of that inventory, or much of that inventory, has now been depleted through the strong seasonal upswing, but there is still some excess inventory that's going to limit sales during the September quarter. That's Compound W.

Turning to New Skin, our other major issue within OTCs, that line also suffered during the quarter. As you know, New Skin is made up of two components, far and away the most important being the Liquid Bandage element in the line, but also includes our newer Scar Treatment SKU. That SKU, Scar Treatment, grew nicely during the quarter, but the larger Liquid Bandage items declined shortly.

This was, as I've noted before, driven by a sudden and very unexpected drop in overall category sales, which declined almost 40% during the quarter. Now New Skin performed a little bit better than the category trend, actually creating a modest improvement in the brand's share, but the New Skin absolute volume during the quarter was hurt badly. We've now begun marketing support for the season behind New Skin, and we're optimistic that this correction will gradually work its way out.

Okay, now as we turn to the other major brands in our OTC segment, the picture is much more positive. First, Chloraseptic. During the quarter, IRI and all outlet point of sale, this is all of the point of sale information that we get for customers who are outside the IRI channels, movement of Chloraseptic grew 20% during the quarter, but the corresponding U.S. factory volume grew only 5%. And while 5% is good growth, it is particularly good when you look at the strength that we had in the March quarter. And, I think equally important to note, that none of the growth, both consumer and factory for Chloraseptic was driven by the new and re-staged items for the upcoming cough-cold season, which aren't expected to ship until August and September.

So good results on Chloraseptic. Clear Eyes, consumption of Clear Eyes continued to grow. IRI and point of sale growing 3% during the quarter, again, today, eye care category that was essentially flat, so, again, Clear Eyes gained share. But factory sales in the U.S. declined very marginally, almost entirely due to the timing of some promotional orders for counter unit displays.

Our new item, Clear Eyes for Dry Eyes, two new SKUs, continued to gain distribution and are accelerating in adding consumer vitality to the brand. Advertising featuring Ben Stein has just now begun.

Dermoplast, our line of topical anesthetics and antiseptics, grew consumer sales nicely during the quarter and factory sales were up marginally, again, not as strong as consumption grew. And, finally, Little Remedies. Here the story is unmistakably good. Consumption for the quarter, again, IRI and point of sale data showed a 19% year over year growth, even though the year ago we didn't own the brand.

Revenues, factory revenues, lagged that slightly, and they were up 15% over the pro forma numbers from last year when we did not own the business. The new products that we've introduced in the last few months under the Little Remedies banner are contributing, numerous new distribution for existing items has been achieved. New print advertising is running, which better features the entire family of Little Remedies products. Professional marketing, directed at pediatricians, is now beginning, and as you know, additional new products are now being launched. So, Little Remedies was a very strong element within our OTC line.

Okay, turning now to household cleaners, for this segment, brand contribution grew nicely, growing 10% versus year ago, and importantly, our gross margins also improved by almost 400 basis points, reflecting the elimination of some of our lower-margin Comet Clean and Flush items, plus the contribution of the late March price increase on Comet powder. While brand contribution and margins grew, net sales for this segment also declined 6%, and again, these were driven almost entirely by one-time items.

First, looking at the more important Comet business, all outlet consumption, which includes IRI, mass merchandisers, club and dollar store point of sale, all of that was 3% for the quarter. So movement of the Comet line through to consumers grew 3% during the quarter. However, factory sales declined 4%. And almost all of this is attributable to the fact that last year's revenue included a significant amount of sales from the now-discontinued Comet Clean and Flush disposable toilet bowl cleaning line.

The basic Comet Powder, Comet Spray and Comet Cream lines, factory sales grew slightly, which to me is actually encouraging, given the fact that some large customers took a modest inventory position at the time of the Comet price increase in late March. So, Comet consumption up 3%, factory sales down 4%, but all of that attributable to the fact that last year included volume from the discontinued Clean and Flush line.

On the smaller, but still important, Spic and Span line, sales declined 13% on a relatively small base, but again, this is attributable to two one-time specific events. The first is the timing of dollar store orders. A number of our important dollar store customers order on a somewhat sporadic basis, and one dollar store basis who normally would have purchased a large amount of Spic and Span during the quarter delayed his purchase into the September quarter for their own internal budget reasons. And this one change in timing of promotional order accounted for almost 70% of the Spic and Span year to year drop, and we entirely expect business to return to business as usual with this customer.

And, secondly, less important, last year's results included the close-out of some obsolete packaging items dating back to the days when Procter & Gamble owned the business, which we were obligated to buy, and those sales accounted for the balance of the decline. Or, stated another way, sales for the Spic and Span business outside of these two phenomena were flat or up slightly, and with all of our other customers, which is very much in line with all outlet consumption trends.

Finally, turning to our smallest segment, personal care, here, profitability improved quite sharply versus year ago, driven by a return to more normal levels of advertising and promotion support.

The year ago period had some residual advertising and promotional support from the old Prestige brand, which is not part of our ongoing plan. Now, turning brand by brand, Cutex actually performed reasonably well, relying on the nail polish remover line growing 2%, factory volume growing 2%, and this is against a category, a nail polish remover category that continues to be quite soft. The category during the quarter declined 7%.

The reason the category is soft is almost entirely driven by a reduced usage of nail polish, which is a fashion-driven business that tends to be cyclical, so therefore the opportunity for Cutex continues to be to create innovative products to differentiate our line from private label brands and the factory sales performance during the quarter seems to bear that out.

Denorex, on the other hand, both consumption and revenue continue to be soft. As you know, this quarter is the seasonal low point for therapeutic dandruff shampoos, but double-digit decline, as we experienced on Denorex, are unwelcome, no matter when they occur. On the slightly more positive side, consumer consumption is clearly showing signs of improvement in response to the brand's very recent restage with new package graphics, new advertising and a new and much improved price-value relationship.

So, while the brand is still showing year over year losses in IRI, our major customer point of sale data is now showing modest positive trends, and this trend is also expected to show up or to begin showing up in IRI as we get into the peak dandruff season.

And, finally, Prell had significantly improved profitability, despite very minor volume losses. One of the main contributing factors to the Prell stability is the dollar store business. So that's a reasonably detailed look at the performance of the brand and the segments during the quarter. I'm going to turn the meeting now over to Pete Anderson, our CFO, who is going to provide a fair amount of additional financial data and thoughts. And then when Pete is finished, I'm going to come back and talk about the outlook for the future, plus, of course, giving you some color commentary on what we think is a very exciting brand-new acquisition of Chore Boy.

Thanks, Peter. Good morning, everyone. My remarks will be confined this morning to comparing our first quarter results for this year to the pro forma results for the first quarter last year. And by that, I mean that last year's results that I speak about are going to exclude a $5.2 million expense related to inventory step up and a $7.6 million loss on extinguishment of debt related to the acquisition of Bonita Bay Holdings last April. So what I intend to do is compare, as much as I can, apples to apples for you.

Sales for the just ended quarter, as Peter has said, of 63.5 million were 6.1% or 4.2 million below last year's net sales. Despite the sales shortfall, operating income for the first quarter of this year of 17 million was 6.7% ahead of pro forma operating income of 15.9 million in last year's first quarter.

Had Little Remedies been owned by Prestige during the first quarter of fiscal 2005, sales would have been 70.6 million, with operating income of 16.8 million. Fiscal 2006 first quarter sales were 10% below that adjusted sales of 70.6 million, while operating profit of 17 million represents a 1% improvement over that adjusted operating profit of 16.8 million.

The drivers of the profit improvement were improved gross margins and reduced A&P spending, partially driven by the synergies realized beginning in quarter two of fiscal year 2005. As Peter said before, that resulted from the combination of Medpeg (ph), Spic and Span and the Bonita Bay companies.

Before the quarter, net income was 4 million, it was 8 cents for basic and diluted shares, and that's using our weighted average shares outstanding of just short of 50 million shares. Net income of 4 million is an improvement of 9.1 million over prior year first quarter reported net loss of 5.1 million. If last year's quarter results were adjusted to remove the one-time expenses I spoke about before, this fiscal year's net income of 4 million would be 28% greater than those results of $3.1 million.

For the first quarter of fiscal 2006, our effective income tax rate rose to 53%. And as Peter alluded before, this rate is the result of a combination of our normal blended federal and state provision of 39%, plus a one-time additional charge of approximately $1.2 million. At June 30th, 2005, the company adjusted a portion of its deferred tax liabilities to reflect the expectation that its future taxable income will be subject to the maximum federal tax rate of 35%.

This resulted in a noncash deferred tax charge of $1.2 million. Simply put, the deferred tax liabilities for the Spic and Span, Denorex and Cutex companies had been bought using their then-existing federal income tax rates of 34%. Projections for this fiscal year show that the combined company will have a taxable net income which will result in an increase in the federal tax rate to 35%.

So, the $1.2 million charge results from increasing the rate 1% for the deferred tax liability related to those companies. Now, let's take a closer look at our results by segment, and again, as I mentioned before, for this discussion, I'm going to exclude the $5.2 million of inventory step-up expense from last year's first quarter results, so we can look at an apples to apples basis.

But for the OTC segment, net sales of 32.9 million were down by 1.7 million, or 4.9% from last year's first quarter sales of 34.6 million. If we included Little Remedies in last year's first quarter results, that shortfall is 10%. As Peter mentioned earlier, the volume was a result of year on year declines for Compound W and New Skin, partially offset by gains on Chloraseptic.

Little Remedies, compared to the pro forma, offers you a nice year on year increase over last year's June results. Gross margin for the segment of 21.7 million declined by 800,000, or 3.4%, primarily due to the sales decline.

As a percent of sales, gross margin improved from 65% last year to 66% this year, and that improvement was due to a combination of sales mix, reduced warehousing expenses due to the synergies, partially offset by increased freight expenses due to fuel surcharges resulting from the increase in oil prices this year.

Total advertising and promotion expenses of 7.4 million for the quarter were $600,000 below last year's A&P expense of $8 million. The decline in spending was due to the synergies mentioned earlier, plus a change in timing for Chloraseptic advertising. For quarter of 2005, Chloraseptic had a large media test aimed at the allergy season. This test was deemed to be not effective and was not repeated in the fiscal 2006 quarter.

The declines in advertising for Chloraseptic, and as a result of the synergies, were partially offset by increased spending behind Compound W and Clear Eyes. For the sales decrease combined with improvements in gross profit margin percent and the decrease in advertising and promotions resulted in a slight decline in segment contribution margins from 14.5 million to 14.3 million.

Net sales for the household cleaning segment of 23.2 million were 1.4 million, or 6%, below last year's net sales of 24.6 million. As Peter mentioned earlier, the driver of the sales decline resulted form sales from the discontinued Comet Clean and Flush and toilet bowl pad products in the fiscal year 2005 first quarter, which were not repeated in the fiscal 2006 first quarter. Gross margin of 9.9 million for the quarter was 300,000, or 2.9% below last year's first quarter gross margin.

Gross margin as a percent of sales for the household cleaning segment improved from 41% last year to 43% in the current quarter. Drivers of the improvement, again, were a favorable sales mix, as we were not selling the discontinued Comet Clean and Flush product, and warehouse synergies, again, of course we offset by the increased rate cost.

Advertising and promotion expenses of 2.2 million were 900,000 lower than last year. This decline was driven by the elimination of the advertising and promotion spend behind the discontinued Comet Clean and Flush product line in the first quarter of last year. Contribution margin of 7.7 million for the quarter ended June 30th, 2005, was 700,000, or 10% greater than last year's contribution margin of 7 million.

Finally, sales of 7.5 million for the personal care category were $900,000 below last year's sales of $8.4 million. This sales decline was driven by declines on the Denorex Dandruff Shampoo.

Gross margin of 3.6 million declined by 600,000 from last year's first quarter, primarily due to the sales shortfall. Advertising and promotion expenses declined from 2.6 million in fiscal 2005 to 1.1 million in fiscal 2006. The main reasons for the decrease are a shift in Cutex media support. Last year, we had a large flight of television advertising in the first quarter. This year, we've changed the media to magazine advertising, which has a continuous flight of advertising, spanning the first, second and third fiscal quarters.

In addition, there was a reduction in A&P spending behind Prell Shampoo compared to last year's first quarter. Contribution margin for the personal care category of 2.5 million was 900,000, or 56% greater than last year's quarter. Before I turn the discussion back to Peter, I'd like to take a moment to focus on the company's continuing strong free cash flow, and we define free cash flow as EBITDA minus capital expenditures, cash interest and cash taxes.

As we told many of you on the IPO road show in February, one of the strengths of Prestige is our ability to generate cash. We showed you at the time that our free cash flow as a percent of net sales for the trailing 12 months ended December 31st, 2004, was 21%. For the trailing 12-month period ended June 30th, 2005, free cash flow was $67 million and improved to 22% of net sales. For the quarter just ended, free cash flow was 10.9 million, and that represents a 45% increase over the free cash flow in the previous year's fiscal first quarter.

So the strong free cash flow resulted in an $8.6 million increase in cash on the balance sheet at June 30th to 13.9 million from the 5.3 million we had on hand at March 31st. As we've gone through the month of July, our cash on hand balance has continued to grow nicely, and as a result of our continuing strong cash flow, we anticipate being able to fund the entire Chore Boy acquisition in October from cash on the balance sheet.

And, with that, I'd like to hand the discussion back to Peter.

Okay. Good, Pete, thanks. So that's the story on the June quarter. Some profit growth, but certainly far from what we had planned or hoped for in terms of revenues. So you're undoubtedly all asking so what does that mean for the future, both for the balance of this year, and even more importantly than that, beyond?

As we do every quarter, we have reviewed and reforecasted every brand and every SKU within the portfolio, and the fundamental output from that extensive review is that we see no reason to change our long-term model in terms of both revenue and earnings growth. We continue to believe that while individual quarters will be strong, like the March quarter, or soft, like this quarter, the long-term prognosis for the company is just the same.

What we mean when we say long term, we define that as over the next three to four years, and during that period, revenues averagely for our established brands will grow organically. Earnings per share growth will exceed that revenue growth, and acquisitions will be additive to that growth outlet. And the reason we continue to believe that that is the right way to look at this company is that the fundamental strength of our business model hasn't changed at all.

That business model starts with strong brands, and as you've seen, as we've talked about each of the individual brands that we've gone through, most of our brands gain share during this period, and that is the strength of strong brands. Revenue growth coming from three main areas - those share gains, in our categories, line and category expansions. We continue to regularly launch new items, as evidenced by right now we're launching three new Chloraseptic and one new Little Remedies SKU, and that pattern of launching new items is going to continue out into the future.

And then, finally, geographic expansion. While our international business is still very much in the incubator stage, we have a stable of international trademarks which correspond to some of our strongest U.S. businesses, and in the second half of this year, you'll begin to see contributions to both sales and earnings as we capitalize on those assets using a variety of strategies and technique. In addition to the process which I've told many of you about, of registering our OTC items for sale through our existing distribution network, we are also actively exploring the licensing of some items in certain geographies where our distribution capabilities are not yet established, and some of those geographies would be Asia, South Africa, South America, Balkans and so on are among our target area.

Next, margin improvement. You can see some of that in this quarter's results, and while margin improvement does not play a major role in our long-term profit growth strategy, it is very much a contributor and it is certainly contributing right now. And, finally, deleveraging.

As Pete's just taken you through, the cash earnings of the company continue to be significantly better than the GAAP reported earnings, and our cap ex continues to be almost nonexistent. And the resulting funds will either be used for debt reduction or, as Pete just said, to pay entirely for an acquisition. So the long-term view really hasn't changed by these disappointing results in this quarter. But what about - I'm sure you're asking what about the very specific year that ends in the next nine months.

While we have previously announced that we really don't intend to give short-term, specific guidance, we do recognize that a new public company like Prestige has an obligation and a responsibility to keep shareholders, current and future, informed if anything has meaningfully changed in the company's future outlook. So now as we look at the balance of this year, or the whole year, here's what we see.

The revenue losses that we had in the June quarter are not likely to be made up over the balance of the year, and at least some of the issues that caused the June quarter revenue declines, things like the softness in the wart remover category, softness in the liquid bandage category and some of the inventory overhang that we're experiencing on Freeze Off will continue into the September quarter. And, during that quarter, Freeze Off will still be measuring against a year ago when competition was relatively light and that is going to result in share losses now in a softer category.

Sales of the Comet business, also in the upcoming quarter, are still going to be measuring against a year-ago period when the Clean and Flush subbrand had meaningful revenue, and that's going to make the year on year comparisons for Comet in the September quarter difficult. On the positive side, there are many programs that are underway which will definitely be positive in the December and March quarters, and I'm going to want to give you a couple of examples of those. Freeze Off is going to be launched into Canada at the very end of the September quarter.

New Skin Scar Therapy will be launched into Canada at exactly the same time. Shipments for the new Chloraseptic items, which is our salt water gargle, our citrus spray and citrus lozenges, will begin in August and retail acceptance of these new items for the upcoming cough/cold season has been excellent. Shipments of the Little Remedies Baby on the Go kit will also begin in August.

We are going to have in place for the cough/cold season sharply expanded distribution for the Little Colds portion of the Little Remedies line. And I want to digress for a second and talk about our overall cough/cold business, both Little Remedies and Chloraseptic. As many of you know, the cough/cold category is undergoing a significant change right as we speak.

Many retailers, in response to both legislation and consumer advocacy groups, have either discontinued or moved behind the counter all items containing the ingredient pseudoephedrine, and this has affected literally hundreds of high-volume SKUs. Happily, none of our Chloraseptic and none of our Little Remedies items contain this ingredient, and as a result, we are experiencing really markedly improved distribution and shelf placement behind both lines.

In addition, on Little Remedies, the effort to elicit pediatrician support has begun and should generate, we think, a meaningful level of endorsement and recommendation from this important class of physician, which heretofore has not been part of the Little Remedies promotional support.

This upcoming winter months will be the first full season for the new look, new size, new value Denorex line. Our plans have significantly increased levels of radio advertising and that radio advertising in modest amounts worked well for us last year. And we have a number of new items in the OTC area, scheduled for introduction in the second half of the fiscal year.

Obviously, for competitive reasons, we don't announce the specifics of those new items until they're presented to customers. Nevertheless, all of these follow our well-established pattern of broadening our existing brand franchises into both existing and new categories. And the pattern is very much the same in household products. In the next month, we will begin shipping to retailers a major restage, improved formula of our Spic and Span dilutable business with its new, improved cleaning properties.

We have a significant program to expand the Comet distribution and footprint in wholesale clubs. While we are not able to share customer specifics right now, we believe that this initiative is going to yield in the relatively short term very significant results, and we're highly excited about it. Comet Cream, our new item, is steadily gaining momentum, particularly right now with a number of recent new distributions. We have new placement of Comet Cream with two large-dollar customers, with more to come, and finally we are now selectively introducing a new Lavender Fresca flavor of Comet Powder to food retailers around the country.

Actually, their reaction to this new item has been almost surprisingly good, as these customers appreciate the fact that lavender fragrance, combined with the cleaning effectiveness of chlorine, is a highly appealing combination for these selective markets. So, with all of that, the good and the bad, where does it leave us for the balance of this year.

First, due to the actual result of the June quarter and the probability that some of these factors will continue into the second quarter, we believe that revenues for the full year will be flat or maybe even down slightly, and any revenue growth will occur in the final two quarters. However, including the Chore Boy transaction, which we are announcing today, will be incremental to that outlook.

Earnings per share are basically expected to be in line with revenues, even or down slightly, versus the reported pro forma results of last year. Again, that is also before the earnings impact of any acquisitions, including Chore Boy. And I now want to turn to that final piece, the news that we've signed a formal asset and purchase and sale agreement with Reckitt Benckiser. Under that agreement, Prestige will acquire most of the assets of their market-leading Chore Boy line of metal and soap-filled scrubbing items and it will be marketed as a part of our household segment.

First, to give you some basic facts about the business. Total net revenues for the Chore Boy line are approximately $14 million, with brand contribution well in excess of $4 million. Sales of Chore Boy are almost entirely concentrated in North America in the United States and Canada. The brand is already growing in the mid single digits, both on a factory basis and as measured by IRI. Chore Boy is the market leader in the soapless metal wire scrubbing category. It's a market share of 27% and is far and away the leading brand and has the number one and the number four selling SKUs.

The brand also has just recently introduced several quite innovative SKUs into the larger soap-filled scrubber category. These are very high quality, distinctive items with significant growth potential. We are paying Reckitt Benckiser a price of slightly in excess of $22 million, which we believe represents a fair value for them and is still nicely within the acquisition and financial metrics that we've laid out for you consistently over time. In line with our ongoing business model, we are buying essentially no hard physical assets. No factories, no production lines, no warehouses. Reckitt Benckiser has, as an integral part of the deal, agreed to provide transitional manufacturing service for a period of up to nine months after closing, and during that nine moths transitional period, the price for the goods that they will charge Prestige will represent a lower cost of goods than the historic rate.

We expect this transaction to close in about 60 days, once our customers have made the necessary paperwork changes in order for them to consolidate their ordering of Chore Boy with their ordering of Comet and Spic and Span. So, in net, we see the Chore Boy acquisition as buying a strong, category-leading brand with high levels of consumer awareness, broad retail distribution, good existing growth and significant opportunity to increase that growth trend via category and brand extensions.

It really is a perfect fit into our basic acquisition model, and as we look ahead, we see a number of both close in and then longer-term opportunities for the Chore Boy business. We will own this business for about six months of the fiscal year, the final two quarters, and we expect the Chore Boy business to be modestly accretive to our earnings per share during that period, and then of course beyond. And while Chore Boy has been an important brand for Reckitt Benckiser, but given its relative size to their overall company, we believe that the management, sales marketing focus and resources that Prestige will bring to bear on the business should help to ensure that all of the growth opportunities, be they distribution, product development, international expansion, will be maximized.

We are well along now in the early stages of moving the manufacturing ultimately out of the Reckitt Benckiser facility in Mississippi to other third-party manufacturers, and we believe that this process ultimately will yield, as it has almost always, in our other acquisition programs, meaningful long-term cost of goods savings. And, lastly, and as you think about it, Chore Boy we think provides some wonderful cross-promotion opportunities for us to promote Chore Boy with our existing household product lines, Comet and Spic and Span, and we intend to do that in the very near term.

So we are very pleased to have signed this agreement and already begun the integration process. But Chore Boy is only one of what continues to be a very exciting and robust number of acquisition prospects. Today, we're engaged in a number of other discussions, some similarly sized to Chore Boy and others meaningfully larger. And I and the company have every hope that one or more of these discussions will ultimately yield an announcement of exactly the same type we've just made for Chore Boy .

And so our goal of closing at least one and more than one good strategic transactions every year continues to appear highly achievable, both in fiscal 2006 and beyond. Okay, that's the end of our now fairly lengthy remarks. We'd be happy to take your questions.

[Operator Instructions].

Our first question comes from Bill Chappell with SunTrust Robinson Humphrey.

Good morning, Pete and Peter. I guess we're kind of confused as when you kind of saw that things were turning south. You've been on the road a fair amount over the last quarter, and in particular it seems like trying to understand what the controls of the business, even going back to last quarter, you had said in early May that the quarter was off to a strong support. So help us understand what controls you have and kind of what gives you confidence going forward in your new guidance.

Bill, to sort of retrace the steps of the quarter, our April sales were somewhat below our internal budget, and we attributed that to a very strong month of March. And then when the month of May came in precisely on our internal budget, we believed that we were tracking well towards our internal budget. The month of June turned out to be a soft month and was driven by all the factors that we just talked about, and it was ultimately the month of June, more than any other single thing, that contributed to the revenue weakness during the quarter.

But going back to your commentary on Compound W, did you not have a sense from your large customer that the sell through didn't go well and that there would be excess inventory in the channel?

We knew going into April that there was going to be inventory overhang from that customer, and that inventory overhang was factored into our projections. Our internal budgets for Compound W during the quarter was to be down.

But, I guess, going back to my second question, what gives you, when you see what happened this past three months, what gives you confidence going into the next three to nine months that you can predict on a quarterly basis or even an annual basis what the revenues will come in.

Well, as I've said, we've reforecasted every item, every SKU. We have adjusted the category growth assumptions, particularly for wart removers and liquid bandages to show declining categories as opposed to growing categories. We have factored in the most recent share trends in those categories, and those are all baked into our estimates. It is our best forecasting of what we're going to do.

But just shifting gears on the acquisition, Chore Boy sounds like it's a good fit and nice fit on the household products, but I was under the impression that you had a lot of opportunities in the higher margin OTC category. Why use your capital for something in household products when you have so many other things out there.

Because the Chore Boy transaction was the first that came to fruition. As I think I've said fairly consistently, our focus is OTCs, but we are not walking away from household deals, and this happened to be the first one that our discussion led ultimately to an agreement. It was not suggested we are going to be focused at all on household. Quite the opposite. OTCs are our priority.

Okay.

Amy Chasen, Goldman Sachs, you may ask your question.

I'm just wondering, in listening to a lot of your commentary, I guess what is so surprising to me is how broad based the weakness was, and I'm just wondering whether you guys got a little bit aggressive in terms of selling into the trade in the earlier part of this year, and maybe even as far back as last year, and now we're just seeing that adjustment. Can you comment on that?

I think there is a little bit of that, not that it was a deliberate phenomenon, Amy, but that the March quarter was a very strong quarter for us, and our factory volumes slightly outpaced our consumer revenues during that quarter, and now in this quarter, as I think I went through brand through brand, our factory revenues were somewhat softer than our consumer consumption trend.

It sounds like they were significantly softer and that there's still a fair amount of inventory that has to be de-stocked at the trade level. Is that a fair comment?

Only in the case of Freeze Off.

I think, Amy, one of the things that in hindsight now we saw with Comet, for instance, we deliberately kept the pricing freeze on Comet Powder for March 15th with the expectation that any loading that there would be would work its way through the end of the quarter. And I think we saw in the month of April that indeed some retailers look like they definitely bought in a little bit more going in, but I think that that is definitely behind us, because retailers don't keep that much.

Okay, it just seems like in other categories that you mentioned, there was a similar issue. Anyway, just two last questions, number one, the pricing environment, can you give us an update on is the price increase for Comet sticking and you had talked about on the last call other categories where you could take pricing. Presumably, given this quarter, I would think you'd want to be really careful about taking price increases.

Let me answer the last part first - absolutely. Then, the Comet price increase is definitely sticking. As we track Comet sales, we're particularly able to do that through some of our large customer point of sale information, we see that the units in those customers are really unaffected by the price increase, and so the dollar revenue is now, as the retail prices have come up, the dollar revenue both for the customers and for our factory is up also.

And so just about how you see the pricing environment and whether you're looking to take any more pricing?

We have no close-in plans to take pricing. We are constantly looking at this opportunity. We do see, for a couple of our brands, where they are the market leaders, there is an opportunity to take pricing. We're going to be cautious about it for exactly the reason you just said. We don't want to do anything to affect unnaturally the upcoming quarters.

Okay, last but not least, you talked about your long-term financial targets. You said you're not changing them, and yet I can't help but struggle with this 5 to 7% long-term sales growth number, given what has just happened. I know that you had some strong results prior to the IPO, but it just looks like you borrowed from the future. So I'm really having trouble getting comfortable with a 5 to 7% sales growth number.

Amy, first I'd like to correct something you said that the strong sales of the March quarter were all post IPO. But our earlier statements of 5 to 7% were just as we remember them, and we continue to believe that our brands will continue to grow organically out into the future, augmented by acquisition, over that three to four year period.

That number excludes acquisitions.

Exactly right. Exactly right.

So you believe your brands can grow organically at 5 to 7%.

We believe our brands will grow over time. We're not promising in any specific period, but over the long term, yes.

Okay, last question, I'm sorry. Did you reevaluate that and rethink whether that's the right number in light of this quarter?

Yes.

Okay, thank you.

Mark Miller with William Blair, you may ask your question.

Hi, good morning, Peter. You talked about a lot of external factors, market conditions, timing, to what extent and where do you think you had execution missteps?

I think that the one execution misstep that we had, which was something that we tried to correct - the retailer that bought so much Freeze Off, we tried to talk them into buying less in order to be cautious about that to avoid the inventory overhang, and they didn't want to do that. I don't know that we could have been any more forceful in our resistance to that, but as I look back on it, I wish we had tried even harder than we did.

That's really the only area, though, where you see internal changes versus kind of what you should have done internally?

Yes, really. As I look back, I don't see that we screwed up anywhere, that we did something that was unwise, that the things that have affected the quarter, with the exception of that Freeze Off inventory issue, were not stuff that we did badly, it was stuff that was external to us.

Can you talk about advertising spend? In the quarter, you were way down period to period, and I think that last quarter on the conference call, you had talked about the seasonal advertising spend should be similar to prior years, but it looks like a significant change. So can you talk about the factors behind that?

Mark, I'm just going to give you kind of the headlines. But we talked a lot about synergies, because last year when we acquired Bonita Bay, it took three months before we were able to get out of a lot of the contracts that we had, so it was the agency fees, media buying fees and broker commissions, this quarter to last quarter, as a result of that was about $700,000 less.

Last year, there was $600,000 of spending behind the Comet Clean and Flush line, which obviously wasn't repeated. Now, just so everybody realizes that we did not say, okay, we're not going to support Comet at all, the Comet spending this year behind the rest of the business was up slightly from last year. Last year, there was about $350,000 of spending behind a Prell spa treatment line. That line has been discontinued and therefore we didn't repeat the spending, and I mentioned in my remarks that last year Chloraseptic had a pretty significant media test behind it for the allergy season. That was about 950,000.

And then the shift in Cutex media, again, because we went from TV last year, and last year the whole program was concentrated in the first quarter. This year, we're using less expensive media, which is magazines, but it's spread over three quarters. So the quarter decrease for Cutex was about $800,000.

Peter, as you explained those factors, it sounded like those things were largely things you should have been, I guess, aware of, coming into the period, but I thought you had said last quarter that the heaviest advertising spend would be in this quarter, and historically you've seen a significant bump up from the March quarter to the June quarter.

So, again, did something change during this quarter?

No, in fact, for all the other brands, including Compound W and Clear Eyes, which going into the season we do increase spending, we indeed did increase spending.

But still below last year's level.

When you take the factors that I just spoke about out, absolutely, but for the brands going into the season, Compound W, Clear Eyes, Little Remedies, those spendings are all up year on year.

Okay, final question, can you give us the inventory receivables payables.

Yes, it comes to a balance at the end of June of 33.5 million, inventory 27.9 million. Payables, 18.6 million and accrued liabilities about 10.7 million.

So net-net working capital actually went down from the March quarter.

Thank you.

Eric Larson with Piper Jaffray, you may ask your question.

Yes, good morning, everyone. I just wanted to kind of revisit the revenue question again, and I certainly understand that the shortfall in revenues this quarter, let's say you don't make any of that up, it's lost sales, is still for the balance of the year, though, it only implies maybe $1 million of incremental revenue for quarter if you're going to have a flat year. Now, this is before the Chore Boy acquisition, so this would be from your core businesses.

It seems that if some of these inventory issues, maybe the mass merchandiser, heavy buy in, December/March quarters, some of those things, we should see better growth sometime in the year. Is it possible that your first half is going to be a tougher revenue number, and then maybe your second half starts showing a little bit better revenue growth? I'm having a hard time kind of seeing the flattish-ness of the sales for the remainder of the year.

I think that's exactly right, Eric, is that obviously, as you look at our business, Compound W or Freeze Off in particular is such a big piece of the business that as the category continues to decline, our expectation is that this quarter that we're in right now is going to continue to be certainly soft in that category, and because, again, that's such a big piece of the total, yes, we just are not looking at the chance for huge amounts of growth in this current quarter. And then we believe that that will start to turn around in the second half of the year.

Okay, and that actually makes some sense. Then just a final observation on just sort of the overall categories, it seems to be more of a general weakness in the categories than before, or is that maybe just because the June quarter is seasonally not your stronger quarter, generally. Do you think it's more of a seasonality issue, or talk about the categories in general for a minute.

Let me give you some numbers for the wart remover category, because I think it's interesting. I'm going to give you the growth rates by month last year for the wart remover category, beginning in March. So this is '04 over '03. In March, it was 49%, in April, it was 33%, in May, it was 58%, in June, it was 81%, in July, 80%, in August, 84%, in September, 60% and so on. So it was almost a bit of a category bubble that occurred, and we're now measuring against that bubble.

Obviously, we didn't expect the growth to continue at that pace, but what we didn't expect was that the category would start to decline. The most recent data we have, which is the period ending June, the category was down 13% versus that high a year ago. So it's still up sharply over two years ago, and the business is much bigger than two years ago, but it's almost like a correction effect.

Okay, and then just a final question. Can you talk about the strength of demand in the cold and flu season last year. Will you be comparing against a difficult season, a more normal season? I mean, what should we look for now this fall for cold and flu.

The cold and flu season last year in total, being the December and March quarters, in total was slightly less robust than average, but that was made up of a December quarter last year that was considerably less strong than average, and a March quarter that was stronger than average. So what you can look at for this year is if the season is normal, then the December quarter for all manufacturers and us should be stronger than the December quarter last year, and the reverse may be true in the March quarter.

On top of that, the phenomena that I referred to, with the pseudoephedrine phenomenon, is going to cause the category dynamics to be quite different this year, as a number of big manufacturers are still scrambling to get pseudoephedrine-replacement items into the marketplace. We don't have to do that, because our formulas do not contain pseudoephedrine. All of that is very difficult to predict. We think it could work greatly in our favor.

As I said, we're seeing meaningfully expanded distribution of our two cough/cold lines, Little Remedies on the pediatric part and Chloraseptic in the adult part. If you walk into a number of major retailers, you see right now today a lot more facings and a lot more distribution on those items than we had a year ago. So we're optimistic about that, but, as I said, it was ultimately unpredictable.

Okay, is that something that you can put in your advertising campaigns, that your products don't have pseudoephedrine.

Well, we definitely could put it in, it's true. I don't know whether we want to do that. I think we want to sell - because very soon, be it three months from now or six months from now or a year from now, all manufacturers are going to have no pseudoephedrine, and I don't think we want to take away from the basic message of Chloraseptic is the best sore throat treatment you can buy, and Little Colds is the best way to treat your infant's colds.

Okay, and then just question and I'll turn it over, are there any other categories that you have coming that you'll be facing in the final nine months of this year that have the types of category bubbles that you saw in Compound W?

Compound W and on a much smaller basis, liquid bandagers. We didn't talk as much about liquid bandages, but last year, the liquid bandage category had a number of new entries. There was a significant amount of competitive advertising, and as a result the liquid bandage category last year, I don't have those numbers in front of me, but was growing at very high rates, not unanalagous to the wart remover category. Those competitors have pulled back on their advertising. It appears that a number of consumers tried the product and have reverted back to traditional bandages, and it appears that the category is going to sort out at a higher level than it was at historically with New Skin continuing to occupy the dominant market share.

In fact, New Skin is really the only ever brand that's advertising right now.

Okay, thank you, everyone.

Pierre Stiennon with J.P. Morgan, you may ask your question.

Your line is open.

Pierre Stiennon, please check your mute button.

Alexis Gold with CIBC World Markets, you may ask your question.

Hi, this is actually David Fleischman (ph) for Alexis Gold. We have a question, you had mentioned dollar stores several times. Are you seeing shifts in the distribution, maybe more discount stores in the distribution, and talk a little about the margin impact longer term?

Dollar stores today are primarily customers for our household product lines, Comet and Spic and Span. We have been very successful in getting new distributions of new SKUs into dollar stores, and while the gross margins that we generate on our dollar store business in household products are slightly less good for dollar stores, the brand contribution margins are actually slightly better, because there is less promotional expense, or actually very little promotional expense involved in the dollar store business.

Dollar stores are also becoming an increasing piece of our OTC and personal care business. For example, Prell does a very significant business at both Dollar General and Family Dollar. We are about to launch some Clear Eyes items into the dollar stores, and we have great hopes that they will become an increasingly large element of our OTC business, despite the fact that OTCs, because they are high price points, don't normally fit into the dollar store way of doing business.

Great, and one housekeeping question. What were your debt levels?

The total debt, about 494 million - 494.

Great. And I know you just spoke about liquid bandage category declines of 40%, but can you really give us some more color on what really drove the category down, and are there any new products in - any new competing products that are being brought up?

No, in fact, it's sort of the reverse. The new products were launched last year and a little bit the year before that. There were new products from Johnson and Johnson, there were new products from 3M, and those products spent a lot of money and created, again, sort of a bubble in the category, where a lot of people were induced to try liquid bandages. Some of them liked the category. Many, ultimately, for whatever reason, consumers didn't, and so they haven't come back and rebought this year, and those brands are fading away. Their declines are very sharp, and there are no new brands that I'm aware of that are being introduced now.

Olivia Tong with Merrill Lynch, you may ask your question.

Hi, good morning. Just want to circle back a little bit about (technical difficulty).

I'm sorry, can you speak up? We're having a hard time hearing.

Sure, no problem. I just wanted circle back on A&P. You guys had set a target of (technical difficulty) in sales particularly your (technical difficulty) last quarter, and I just wanted to know if you were still sticking with that target, and if not, is it more because of more synergies on the A&P line or is it lower spending or shipping, or (technical difficulty)?

No, at this point in time, our plan is to stick with the advertising that we had planned. That one piece of that is obviously influenced by sales, and that's broker-commissions, because obviously you don't pay the commissions unless you have the sales, but in general, the plans that we put in place are the plans that we intend to go against. As with everything, we certainly react to the business plans, so if there was a huge erosion in sales, then clearly we're not going to be wedded (ph) to spend dollar-to-dollar. But at this point in time, given the first quarter and the trends we've seen, our intent is to continue to execute the advertising plans that we have in place.

Okay, thanks. And then, also, a second question. Are you seeing - as far as the deal environment, do you think it's tougher than you thought it would be, and if so, are there fewer deals out there, are the purchase prices too high, or is there anything else associated with that?

No. The deal environment continues to be very active, and we are seeing a number of opportunities - as I said, we're in discussion on a number of opportunities, and the prices of those transactions appears - continues to be within the framework that we've laid out for you, just like the Chore Boy transaction was within that framework and we're reasonably confident that more transactions will come our way and we're very hopeful that one or more of those will be realized in the upcoming months.

Great. And then just one last calculations (ph) question. When you say (inaudible) is down year-over-year on EPS, you're using 72 cents as a comp, right?

No. We're 82 cents. Our pro forma reported earnings per share last year was 82 cents.

Okay, so 82 is comp. Thanks very much.

Thank you.

David George with Deutsche Bank. You may ask your question.

Just wondering how you're looking at the 13% you had for June decline from the 81% growth in the year before. Do you look at that in your current guidance as kind of an anomaly? Or are you, as you go into July, August, September, and those high 80 numbers - are you expecting a continuation of kind of what we've seen most recently? Oh - Compound W, sorry.

Yes. We believe that the September quarter for Compound W will be another taxing quarter as measured against a year ago, because the category in the September quarter a year ago, that was the time when it was growing - if you remember the numbers I just read off - was growing in the 70, 80% range, and we believe that the numbers this year are going to be below that, and in addition, it is now two-grand marketplace as opposed to, ultimately, last year, essentially a one-grand marketplace. And there is still a bit of the inventory overhang at that major customer. So for Compound W, the September quarter is going to continue to be a difficult quarter.

But if that continued at the rate that we thought in June, and you're saying it's still going to be difficult on the consumer take-away basis, would you expect that that inventory would run through in the September quarter or do we potentially still have that in another quarter?

The inventory overhang in that one kind of customer should run through in this quarter, and the effect on sales for Compound W, and the inventory overhang element alone should be less than it was in the June quarter, but the market dynamics will still continue to effect the business negatively.

Okay. Could you just talk about Denorex? You went through the relaunching and rebranding and it doesn't seem like it really took a lot of dividends, at least, right now. Is there anything you're thinking of tweaking, or what do you see in terms of the results there and what you might need?

Yes. The Denorex situation is that we relaunched Denorex last season. As you know, the dandruff shampoo and particularly the therapeutic dandruff shampoo category is quite seasonal to the winter months. We relaunched Denorex in last season. It took quite a while, ultimately, for retailers to move through the inventory so that most of what's on their shelves is the new item. In fact, if you look at, for Denorex, the percent of sales that occurred last season in the peak of season, which was the new item, it was only 40, 50, 60% of sales. Now we're starting to get - we're starting to be at a point where virtually all of the retail inventories are the new item. Unfortunately, we're out of the season, and we're not - we don't advertise and promote Denorex in the spring and summer months. Nevertheless, having said that, we saw definitely improvement during the March quarter in Denorex IRI trends and in major customer point-of-sale trends. Those major customer point-of-sale trends continue. We're showing small, positive trend there, and we're hopeful. I don't want to say we're supremely confident, but we're hopeful that when we get into the fall and winter now, when the Denorex inventories are 100% the new item, we have planned increased levels of radio advertising for Denorex. We're hopeful that those positive trends that we're seeing at the major customer are going to be translated into IRI positive trends and therefore, into factory volume positive trends.

All right. Thank you.

George Chalhoub from Deutsche Bank, you may ask your question.

The margin of improvement that you saw in the quarter - how much of it was Little Remedies inclusion and how much of it was the synergies that you achieved?

The synergies from warehousing were about $600,000 year-on-year. Little Remedies, because it's in the OTC, has got good margins, but year-to-year, the Little Remedies growth margin was virtually flat with the pro forma for the prior year, so at the end of the day, the improvement of margins came from, clearly, the synergies, but the synergies were probably almost offset by increased fuel costs, because, as you know, the price of oil, year-on-year, has gone up substantially, and we, like everybody else in the world, is paying fuel surcharges. A big factor was, certainly, clearing out some of the old product that we had last year that we were selling, essentially, at low margins, so that we could liquidate the inventory, but, on average, the - and somebody just pointed out to me that the other factor that certainly helps is that Freeze-Off, because it was the lower percent of the total sales this year, and that has got a lower gross margin, as we pointed out, over the past year, certainly helped that net, as well.

Okay. So it's really a mix of synergies more so than Little Remedies.

Oh, absolutely yes.

Okay. And looking at the remaining part of the year - are there any brands or any products (ph) that have the potential of suddenly falling off, either due to unexpected, maybe, trends, or could there be a situation where there is a competitive entry that's current to come in over the course of the next quarter or two or three and suddenly you may see something that could force you to revise your guidance even beyond what you're expecting right now. Something that could be surprising, or you don't see something like this on the other screen (ph) right now, especially from the competitive standpoint?

I think the answer to that is that we don't see anything today that we haven't factored into our revised estimates. We don't see any significant category change and we know of no new major competitors. All these new competitive items being launched in that part is business as usual in these categories, and we know of nothing that is either happening now or that we know of that is going to happen that would be a significant disruption, just like you referred to, but that's an unpredictable thing, ultimately. But again, we know of nothing today that would be significant like that.

Okay. And my last question is, the free cash flow generation, I mean, the company has the business model to generate a lot of free cash flow. I'm trying to understand, how do you balance the use of that free cash flow, because, clearly, you've been making acquisitions and there's been increases. But in terms of potential deleveraging, the multiple that you're paying seem to be kind of in the one and a half times revenues, as least it seems to me, for the fourth quarter. So how do you balance your view on growing the company via acquisitions, and some organic growth, but mainly using the cash for acquisitions, and using the cash flow to deleverage?

Well, Chore Boy is a great example. I mean, in the short term, yes, we're going to take cash from the balance sheet, we're going to use that to pay for Chore Boy, but the model that we're using for Chore Boy is the exact same model that the rest of the company runs on. So this, again, is a business that is going to be cash-generating from day one, because, again, we don't have any plans, we don't have any hard assets that we have to buy, so the model says that the cash that is generated from Chore Boy, from the day that we start to collect the first receivables on it, is then going to be further cash that, absent another acquisition, will be used to pay down that.

Mark, I think - George, rather - the way to think of that is that we're going to pay for Chore Boy with cash off the balance sheet, and so, at the end of that, the Chore Boy EBITDA will be totally additive to the company EBITDA, and our total debt to EBITDA ratio will go down as result of the Chore Boy acquisition which is a form of deleveraging.

Okay. So we should look at the average ratio on a gross basis, not on a net debt basis, because it seems to me - your stated goal is to continue to make the types of acquisitions you've made with Little Remedies and Chore Boy.

That is correct.

All right, thank you.

If there are no more questions, we thank you very much for your attention this morning and your continued confidence in our company, and we look forward to speaking with you all next quarter.