PRESTIGE CONSUMER HEALTHCARE INC. The following discussion of our financial condition and results of operations should be read together with the Condensed Consolidated Financial Statements and the related notes included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2019 . This discussion and analysis may contain forward-looking statements that involve certain risks, assumptions and uncertainties. Future results could differ materially from the discussion that follows for many reasons, including the factors described in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2019 and in future reports filed with theU.S. Securities and Exchange Commission ("SEC"). See also "Cautionary Statement Regarding Forward-Looking Statements" on page 35 of this Quarterly Report on Form 10-Q. Unless otherwise indicated by the context, all references in this Quarterly Report on Form 10-Q to "we," "us," "our," the "Company" or "Prestige" refer toPrestige Consumer Healthcare Inc. and our subsidiaries. Similarly, reference to a year (e.g., 2020) refers to our fiscal year endedMarch 31 of that year.
General
We are engaged in the development, manufacturing, marketing, sales and
distribution of well-recognized, brand name over-the-counter ("OTC") healthcare
and household cleaning products (prior to the sale of our Household Cleaning
segment on July 2, 2018 ) to mass merchandisers and drug, food, dollar,
convenience, and club stores and e-commerce channels in North America (the
United States and Canada ) and in Australia and certain other international
markets. We use the strength of our brands, our established retail distribution
network, a low-cost operating model and our experienced management team to our
competitive advantage.
We have grown our brand portfolio both organically and through acquisitions. We
develop our existing brands by investing in new product lines, brand extensions
and strong advertising support. Acquisitions of OTC brands have also been an
important part of our growth strategy. We have acquired strong and
well-recognized brands from consumer products and pharmaceutical companies, as
well as private equity firms. While many of these brands have long histories of
brand development and investment, we believe that, at the time we acquired them,
most were considered "non-core" by their previous owners. As a result, these
acquired brands did not benefit from adequate management focus and marketing
support during the period prior to their acquisition, which created
opportunities for us to reinvigorate these brands and improve their performance
post-acquisition. After adding a core brand to our portfolio, we seek to
increase its sales, market share and distribution in both existing and new
channels through our established retail distribution network. We pursue this
growth through increased spending on advertising and promotional support, new
sales and marketing strategies, improved packaging and formulations, and
innovative development of brand extensions.
Divestiture
OnJuly 2, 2018 , we entered into an Asset Purchase Agreement withKIK International LLC , pursuant to which we sold certain assets, including certain intellectual property rights, that represented our Household Cleaning segment. We received proceeds from the sale of$65.9 million and recorded a pre-tax gain on sale of$1.3 million . The net proceeds were used to repay long-term debt inJuly 2018 . -24-
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Results of Operations
Three Months Ended
Total Segment Revenues
The following table represents total revenue by segment, including product
groups, for the three months ended
Three Months Ended
Increase (Decrease)
(In thousands) 2019 % 2018 % Amount %
North American OTC Healthcare
Analgesics $ 28,330 11.7 $ 29,325 12.1 $ (995) (3.4)
Cough & Cold 25,221 10.4 27,137 11.2 (1,916) (7.1)
Women's Health 58,576 24.3 60,946 25.2 (2,370) (3.9)
Gastrointestinal 32,645 13.5 30,737 12.7 1,908 6.2
Eye & Ear Care 24,095 10.0 23,352 9.7 743 3.2
Dermatologicals 23,286 9.6 21,508 8.9 1,778 8.3
Oral Care 21,451 8.9 22,177 9.2 (726) (3.3)
Other OTC 1,288 0.5 1,594 0.7 (306) (19.2)
Total North American OTC Healthcare 214,892 88.9 216,776 89.8 (1,884) (0.9)
International OTC Healthcare
Analgesics 175 0.1 136 0.1 39 28.7
Cough & Cold 4,742 2.0 4,584 1.9 158 3.4
Women's Health 3,543 1.5 3,306 1.4 237 7.2
Gastrointestinal 12,097 5.0 10,321 4.3 1,776 17.2
Eye & Ear Care 3,159 1.3 3,164 1.3 (5) (0.2)
Dermatologicals 598 0.2 470 0.2 128 27.2
Oral Care 2,344 1.0 2,656 1.1 (312) (11.7)
Other OTC 2 - 1 - 1 100.0
Total International OTC Healthcare 26,660 11.1 24,638 10.2 2,022 8.2
Total Consolidated $ 241,552 100.0 $ 241,414 100.0 $ 138 0.1
Total segment revenues for the three months ended December 31, 2019 were $241.6
million , an increase of $0.1 million , or 0.1%, versus the three months ended
December 31, 2018 . The $0.1 million increase was primarily attributable to
increased consumption and geographic expansion, partly offset by the effects of
foreign currency exchange rates and inventory reductions at certain retailers.
North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment decreased $1.9 million ,
or 0.9%, during the three months ended December 31, 2019 versus the three months
ended December 31, 2018 . The decrease was primarily attributable to inventory
reductions at certain key retailers, partly offset by increased consumption.
International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment increased $2.0 million , or
8.2%, during the three months ended December 31, 2019 versus the three months
ended December 31, 2018 . The $2.0 million increase was primarily attributable to
increased consumption and geographic expansion, partially offset by the impact
of unfavorable foreign currency exchange rates.
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Gross Profit
The following table presents our gross profit and gross profit as a percentage
of total segment revenues, by segment for each of the periods presented.
Three Months Ended December 31,
(In thousands) Increase (Decrease)
Gross Profit 2019 % 2018 % Amount %
North American OTC Healthcare $ 120,955 56.3 $ 125,182 57.7 $ (4,227) (3.4)
International OTC Healthcare 16,540 62.0 14,053 57.0 2,487 17.7
$ 137,495 56.9 $ 139,235 57.7 $ (1,740) (1.2)
Gross profit for the three months ended December 31, 2019 decreased $1.7
million , or 1.2%, when compared with the three months ended December 31,
2018 . As a percentage of total revenues, gross profit decreased to 56.9% during
the three months ended December 31, 2019 , compared to 57.7% during the three
months ended December 31, 2018 . The decrease in gross profit as a percentage of
revenues was primarily a result of certain costs associated with a change in
warehouse locations.
North American OTC Healthcare Segment
Gross profit for the North American OTC Healthcare segment decreased $4.2
million , or 3.4%, during the three months ended December 31, 2019 versus the
three months ended December 31, 2018 . As a percentage of North American OTC
Healthcare revenues, gross profit decreased to 56.3% during the three months
ended December 31, 2019 from 57.7% during the three months ended December 31,
2018 , primarily due to certain costs associated with a change in warehouse
locations.
International OTC Healthcare Segment
Gross profit for the International OTC Healthcare segment increased $2.5
million , or 17.7%, during the three months ended December 31, 2019 versus the
three months ended December 31, 2018 . As a percentage of International OTC
Healthcare revenues, gross profit increased to 62.0% during the three months
ended December 31, 2019 from 57.0% during the three months ended December 31,
2018 , primarily due to product mix.
Contribution Margin
Contribution margin is our segment measure of profitability. It is defined as
gross profit less advertising and promotional expenses.
The following table presents our contribution margin and contribution margin as a percentage of total segment revenues, by segment for each of the periods presented.
Three Months Ended December 31,
(In thousands) Increase (Decrease)
Contribution Margin 2019 % 2018 % Amount %
North American OTC Healthcare $ 91,930 42.8 $ 94,866 43.8 $ (2,936) (3.1)
International OTC Healthcare 12,006 45.0 9,865 40.0 2,141 21.7
$ 103,936 43.0 $ 104,731 43.4 $ (795) (0.8)
North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment decreased $2.9
million , or 3.1%, during the three months ended December 31, 2019 versus the
three months ended December 31, 2018 . As a percentage of North American OTC
Healthcare revenues, contribution margin decreased to 42.8% during the three
months ended December 31, 2019 from 43.8% during the three months ended December
31, 2018 . The contribution margin decrease as a percentage of revenues was
primarily due to the gross profit decrease as a percentage of revenues in the
North American OTC Healthcare segment discussed above.
International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment increased $2.1
million , or 21.7%, during the three months ended December 31, 2019 versus the
three months ended December 31, 2018 . As a percentage of International OTC
Healthcare revenues, contribution margin increased to 45.0% during the three
months ended December 31, 2019 from 40.0% during the three months ended December
31, 2018 . The contribution margin increase as a percentage of revenues was
primarily due to the gross profit increase as a percentage of revenues in the
International OTC Healthcare segment discussed above.
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General and Administrative
General and administrative expenses were $21.3 million for the three months
ended December 31, 2019 versus $20.5 million for the three months ended December
31, 2018 . The increase in general and administrative expenses was primarily due
to increased professional fees.
Depreciation and Amortization
Depreciation and amortization expenses were $6.2 million for the three months
ended December 31, 2019 and $6.7 million for the three months ended December 31,
2018 . The decrease in depreciation and amortization expenses was primarily due
to lower amortization expense resulting from prior year intangible asset
impairments, which were recorded in the fourth quarter of fiscal 2019.
Interest Expense
Interest expense was $24.5 million during the three months ended December 31,
2019 , versus $26.4 million during the three months ended December 31, 2018 . The
average indebtedness decreased to $1.8 billion during the three months ended
December 31, 2019 from $1.9 billion during the three months ended December 31,
2018 . The average cost of borrowing decreased to 5.4% for the three months ended
December 31, 2019 compared to 5.6% for the three months ended December 31, 2018 .
Loss on Extinguishment of Debt
During the three months ended December 31, 2019 , we recorded a loss on
extinguishment of debt of $2.2 million to write off the debt costs related to
our 5.375% 2013 Senior Notes, which we redeemed during the quarter.
Income Taxes
The provision for income taxes during the three months ended December 31, 2019
was $12.5 million versus $12.8 million during the three months ended December
31, 2018 . The effective tax rate during the three months ended December 31, 2019
was 24.7% versus 25.2% during the three months ended December 31, 2018 . The
decrease in the effective tax rate for the three months ended December 31, 2019
was primarily due to shifts in the mix of taxable income in our various tax
jurisdictions, partly offset by the impact of discrete items.
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--------------------------------------------------------------------------------Results of Operations
Nine Months Ended
Total Segment Revenues
The following table represents total revenue by segment, including product
groups, for the nine months ended
Nine Months Ended
Increase (Decrease)
(In thousands) 2019 % 2018 % Amount %
North American OTC Healthcare
Analgesics $ 85,696 12.0 $ 86,221 11.7 $ (525) (0.6)
Cough & Cold 63,067 8.9 63,843 8.7 (776) (1.2)
Women's Health 177,832 25.2 186,037 25.3 (8,205) (4.4)
Gastrointestinal 96,431 13.5 94,065 12.8 2,366 2.5
Eye & Ear Care 73,134 10.3 73,669 10.0 (535) (0.7)
Dermatologicals 77,063 10.8 71,968 9.8 5,095 7.1
Oral Care 62,493 8.8 67,516 9.2 (5,023) (7.4)
Other OTC 3,838 0.5 4,182 0.6 (344) (8.2)
Total North American OTC Healthcare 639,554 90.0 647,501 88.1 (7,947) (1.2)
International OTC Healthcare
Analgesics 648 0.1 418 0.1 230 55.0
Cough & Cold 15,938 2.2 15,489 2.1 449 2.9
Women's Health 8,867 1.2 8,833 1.2 34 0.4
Gastrointestinal 28,110 3.9 24,261 3.3 3,849 15.9
Eye & Ear Care 9,355 1.3 8,778 1.2 577 6.6
Dermatologicals 1,864 0.3 1,607 0.2 257 16.0
Oral Care 7,435 1.0 8,050 1.1 (615) (7.6)
Other OTC 4 - 3 - 1 33.3
Total International OTC Healthcare 72,221 10.0 67,439 9.2 4,782 7.1
Total OTC Healthcare 711,775 100.0 714,940 97.3 (3,165) (0.4)
Household Cleaning - - 19,811 2.7 (19,811) (100.0)
Total Consolidated $ 711,775 100.0 $ 734,751 100.0 $ (22,976) (3.1)
Total segment revenues for the nine months ended December 31, 2019 were $711.8
million , a decrease of $23.0 million , or 3.1%, versus the nine months ended
December 31, 2018 . The $23.0 million decrease was primarily related to the sale
of our Household Cleaning segment on July 2, 2018 .
North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment decreased $7.9 million ,
or 1.2%, during the nine months ended December 31, 2019 versus the nine months
ended December 31, 2018 . The decrease was primarily attributable to inventory
reductions at certain key retailers, partly offset by increased consumption.
International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment increased $4.8 million , or
7.1%, during the nine months ended December 31, 2019 versus the nine months
ended December 31, 2018 . The $4.8 million increase was primarily attributable to
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--------------------------------------------------------------------------------increased consumption and geographic expansion, partially offset by the impact of unfavorable foreign currency exchange rates.
Household Cleaning Segment Due to the sale of our Household Cleaning segment onJuly 2, 2018 , there were no related revenues in the nine months endedDecember 31, 2019 . Gross Profit The following table presents our gross profit and gross profit as a percentage of total segment revenues, by segment for each of the periods presented. Nine Months Ended December 31, (In thousands) Increase (Decrease) Gross Profit 2019 % 2018 % Amount % North American OTC Healthcare$ 363,875 56.9$ 374,747 57.9$ (10,872) (2.9) International OTC Healthcare 44,438 61.5 39,360 58.4 5,078 12.9 Household Cleaning - - 3,223 16.3 (3,223) (100.0)$ 408,313 57.4$ 417,330 56.8$ (9,017) (2.2) Gross profit for the nine months endedDecember 31, 2019 decreased$9.0 million , or 2.2%, when compared with the nine months endedDecember 31, 2018 . The decrease in gross profit was primarily due to decreases in gross profit within theNorth American OTC Healthcare segment and the sale of our Household Cleaning segment. As a percentage of total revenues, gross profit increased to 57.4% during the nine months endedDecember 31, 2019 , from 56.8% during the nine months endedDecember 31, 2018 . The increase in gross profit as a percentage of revenues was primarily a result of the divestiture of our Household Cleaning segment, which had lower gross margins, partially offset by certain costs associated with a change in warehouse locations. North American OTC Healthcare Segment Gross profit for theNorth American OTC Healthcare segment decreased$10.9 million , or 2.9%, during the nine months endedDecember 31, 2019 versus the nine months endedDecember 31, 2018 . As a percentage ofNorth American OTC Healthcare revenues, gross profit decreased to 56.9% during the nine months endedDecember 31, 2019 from 57.9% during the nine months endedDecember 31, 2018 , primarily due to certain costs associated with a change in warehouse locations. International OTC Healthcare Segment Gross profit for theInternational OTC Healthcare segment increased$5.1 million , or 12.9%, during the nine months endedDecember 31, 2019 versus the nine months endedDecember 31, 2018 . As a percentage ofInternational OTC Healthcare revenues, gross profit increased to 61.5% during the nine months endedDecember 31, 2019 from 58.4% during the nine months endedDecember 31, 2018 , primarily due to product mix. Household Cleaning Segment Due to the sale of our Household Cleaning segment onJuly 2, 2018 , there was no related gross profit in the nine months endedDecember 31, 2019 . Contribution Margin Contribution margin is our segment measure of profitability. It is defined as gross profit less advertising and promotional expenses.
The following table presents our contribution margin and contribution margin as a percentage of total segment revenues, by segment for each of the periods presented.
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Nine Months Ended December 31,
(In thousands) Increase (Decrease)
Contribution Margin 2019 % 2018 % Amount %
North American OTC Healthcare $ 269,241 42.1 $ 277,848 42.9 $ (8,607) (3.1)
International OTC Healthcare 32,045 44.4 28,032 41.6 4,013 14.3
Household Cleaning - - 2,793 14.1 (2,793) (100.0)
$ 301,286 42.3 $ 308,673 42.0 $ (7,387) (2.4)
North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment decreased $8.6
million , or 3.1%, during the nine months ended December 31, 2019 versus the nine
months ended December 31, 2018 . As a percentage of North American OTC Healthcare
revenues, contribution margin decreased to 42.1% during the nine months ended
December 31, 2019 from 42.9% during the nine months ended December 31, 2018 . The
contribution margin decrease as a percentage of revenues was primarily due to
the decrease in the North American OTC Healthcare segment in gross profit noted
above.
International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment increased $4.0
million , or 14.3%, during the nine months ended December 31, 2019 versus the
nine months ended December 31, 2018 . As a percentage of International OTC
Healthcare revenues, contribution margin increased to 44.4% during the nine
months ended December 31, 2019 from 41.6% during the nine months ended December
31, 2018 . The contribution margin increase as a percentage of revenues was
primarily due to the gross profit increase as a percentage of revenues in the
International OTC Healthcare segment discussed above.
Household Cleaning Segment
Due to the sale of our Household Cleaning segment on July 2, 2018 , there was no
related contribution margin in the nine months ended December 31, 2019 .
General and Administrative
General and administrative expenses were $65.5 million for the nine months ended
December 31, 2019 versus $68.5 million for the nine months ended December 31,
2018 . The decrease in general and administrative expenses was primarily due to
divestiture costs in the prior period associated with the sale of the Household
Cleaning segment, partly offset by higher professional fees in the current
period.
Depreciation and Amortization
Depreciation and amortization expenses were $18.5 million for the nine months
ended December 31, 2019 and $20.5 million for the nine months ended December 31,
2018 . The decrease in depreciation and amortization expenses was primarily due
to the sale of our Household Cleaning segment on July 2, 2018 , as well as lower
amortization expense resulting from prior year intangible asset impairments,
which were recorded in the fourth quarter of fiscal 2019.
Interest Expense
Interest expense was $74.1 million during the nine months ended December 31,
2019 , versus $79.5 million during the nine months ended December 31, 2018 . The
average indebtedness decreased to $1.8 billion during the nine months ended
December 31, 2019 from $2.0 billion during the nine months ended December 31,
2018 . The average cost of borrowing remained constant at 5.4% for the nine
months ended December 31, 2019 and 2018.
Loss on Extinguishment of Debt
During the nine months ended December 31, 2019 , we recorded a loss on
extinguishment of debt of $2.2 million to write off the debt costs related to
our 5.375% 2013 Senior Notes, which we redeemed in December 2019 .
Income Taxes
The provision for income taxes during the nine months ended December 31, 2019
was $35.4 million versus $37.5 million during the nine months ended December 31,
2018 . The effective tax rate during the nine months ended December 31, 2019 was
25.2% versus 26.6% during the nine months ended December 31, 2018 . The decrease
in the effective tax rate for the nine months ended December 31, 2019 was
primarily due to a discrete item arising from the sale of our Household Cleaning
segment in July 2018 .
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--------------------------------------------------------------------------------Liquidity and Capital Resources
Liquidity
Our primary source of cash comes from our cash flow from operations. In the past, we have supplemented this source of cash with various debt facilities, primarily in connection with acquisitions. We have financed our operations, and expect to continue to finance our operations over the next twelve months, with a combination of funds generated from operations and borrowings. Our principal uses of cash are for operating expenses, debt service, share repurchases and acquisitions. Based on our current levels of operations and anticipated growth, excluding acquisitions, we believe that our cash generated from operations and our existing credit facilities will be adequate to finance our working capital and capital expenditures through the next twelve months. As ofDecember 31, 2019 , we had cash and cash equivalents of$28.6 million , an increase of$1.1 million fromMarch 31, 2019 . The following table summarizes the change: Nine Months Ended December 31, (In thousands) 2019 2018 $ Change Cash provided by (used in): Operating Activities$ 160,998 $ 138,437 $ 22,561 Investing Activities (8,305) 58,773 (67,078) Financing Activities (151,988) (204,328) 52,340 Effects of exchange rate changes on cash and cash equivalents 356 (758) 1,114 Net change in cash and cash equivalents$ 1,061 $ (7,876) $ 8,937 Operating Activities Net cash provided by operating activities was$161.0 million for the nine months endedDecember 31, 2019 , compared to$138.4 million for the nine months endedDecember 31, 2018 . The$22.6 million increase was due to an increase in net income after non-cash items and decreased working capital. Investing Activities Net cash used in investing activities was$8.3 million for the nine months endedDecember 31, 2019 , compared to net cash provided by investing activities of$58.8 million for the nine months endedDecember 31, 2018 . The change was primarily due to proceeds of$65.9 million from the divestiture of our Household Cleaning segment in the prior period. Financing Activities Net cash used in financing activities was$152.0 million for the nine months endedDecember 31, 2019 , compared to$204.3 million for the nine months endedDecember 31, 2018 . The decrease was primarily due to decreased repayments of debt of$59.0 million in 2020 compared to 2019. We paid down more debt in 2019 due to the proceeds received from the divestiture of our Household Cleaning segment. This decrease was partly offset by the payment of debt costs of$5.8 million in the current period.
Capital Resources
New Debt Issuance and Redemption: OnDecember 2, 2019 , we issued$400.0 million aggregate principal amount of 5.125% senior notes ("2019 Senior Notes") pursuant to an indenture datedDecember 2, 2019 , amongPrestige Brands, Inc. , the guarantors party thereto (including the Company) and theU.S. Bank National Association , as a trustee. The notes mature onJanuary 15, 2028 . We used the net proceeds from these notes, together with cash on hand, to redeem all$400.0 million of our outstanding 5.375% 2013 Senior Notes, which were due in 2021, and to pay related fees and expenses. In conjunction with the redemption of our 5.375% 2013 Senior Notes, we wrote off related debt costs of$2.2 million . 2012 ABL Revolver: OnDecember 11, 2019 , the Company andPrestige Brands, Inc. entered into Amendment No. 7 ("ABL Amendment No. 7") to our asset-based revolving credit facility (the "2012 ABL Revolver"). ABL Amendment No. 7 provides for (i) an extension of the maturity date of the revolving credit facility to five years from the effective date of amendment, (ii) increased flexibility under the credit agreement, including additional investment, restricted payment, and debt incurrence flexibility, (iii) an initial applicable margin for borrowings under the revolving credit facility that is 1.00% with respect to LIBOR borrowings and 0.00% -31- -------------------------------------------------------------------------------- with respect to base-rate borrowings (which may be increased to 1.25% or 1.50% for LIBOR borrowings and 0.25% or 0.50% for base-rate borrowings, depending on average excess availability under the facility during the prior fiscal quarter) and (iv) a commitment fee to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder of 0.25% per annum.
As of
•$400.0 million of 5.125% 2019 Senior Notes, which mature onJanuary 15, 2028 ; •$600.0 million of 6.375% 2016 Senior Notes, which mature onMarch 1, 2024 ; and •$717.0 million of borrowings under the 2012 Term B-5 Loans dueJanuary 26, 2024 .
As of
During the years endedMarch 31, 2019 and 2018, we made voluntary principal payments against outstanding indebtedness of$200.0 million and$444.0 million , respectively, under the 2012 Term Loan. During the nine months endedDecember 31, 2019 , we made voluntary principal payments against outstanding indebtedness of$21.0 million under the 2012 Term Loan. Under the Term Loan Amendment No. 5, we are required to make quarterly payments each equal to 0.25% of the aggregate principal amount, which, as ofDecember 31, 2019 , was$717.0 million . Since we have made optional payments in prior years that exceed a significant portion of our required quarterly payments, we will not be required to make another payment on the 2012 Term Loan until the fiscal year endingMarch 31, 2024 .
Maturities:
(In thousands) Year EndingMarch 31 ,
Amount
2020 (remaining three months ending March 31, 2020) $ -
2021 -
2022 -
2023 -
2024 1,317,000
Thereafter 400,000
$ 1,717,000
Covenants:
Our debt facilities contain various financial covenants, including provisions
that require us to maintain certain leverage, interest coverage and fixed charge
ratios. The credit agreement governing the 2012 Term Loan and the 2012 ABL
Revolver and the indentures governing the 2016 Senior Notes and 2019 Senior
Notes contain provisions that accelerate our indebtedness on certain changes in
control and restrict us from undertaking specified corporate actions, including
asset dispositions, acquisitions, payments of dividends and other specified
payments, repurchasing our equity securities in the public markets, incurrence
of indebtedness, creation of liens, making loans and investments and
transactions with affiliates. Specifically, we must:
•Have a leverage ratio of less than 6.50 to 1.0 for the quarter ended
•Have an interest coverage ratio of greater than 2.25 to 1.0 for the quarter endedDecember 31, 2019 and thereafter (defined as, with certain adjustments, the ratio of our consolidated EBITDA to our trailing twelve month consolidated cash interest expense); and •Have a fixed charge ratio of greater than 1.0 to 1.0 for the quarter endedDecember 31, 2019 (defined as, with certain adjustments, the ratio of our consolidated EBITDA minus capital expenditures to our trailing twelve month consolidated interest paid, taxes paid and other specified payments). Our fixed charge requirement remains level throughout the term of the debt facilities. AtDecember 31, 2019 , we were in compliance with the applicable financial and restrictive covenants under the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2016 Senior Notes and the 2019 Senior Notes. -32- -------------------------------------------------------------------------------- Additionally, management anticipates that in the normal course of operations, we will be in compliance with the financial and restrictive covenants during the remainder of 2020. As we deem appropriate, we may from time to time utilize derivative financial instruments to mitigate the impact of changing interest rates associated with our long-term debt obligations or other derivative financial instruments. While we have utilized derivative financial instruments in the past, we did not have any significant derivative financial instruments outstanding at eitherDecember 31, 2019 orMarch 31, 2019 or during any of the periods presented. We have not entered into derivative financial instruments for trading purposes; all of our derivatives have been over-the-counter instruments with liquid markets. InJanuary 2020 , we entered into two interest rate swaps to hedge a total of$400.0 million of our variable interest debt.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or financing activities with special-purpose entities.
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--------------------------------------------------------------------------------Critical Accounting Policies and 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 from those estimates. A summary of our critical accounting policies is presented in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2019 . There were no material changes to our critical accounting policies during the nine months endedDecember 31, 2019 , except as described in Note 6 of this Quarterly Report on Form 10-Q. Recent Accounting Pronouncements A description of recently issued and recently adopted accounting pronouncements is included in the notes to the unaudited Condensed Consolidated Financial Statements in Part I, Item I, Note 1 of this Quarterly Report on Form 10-Q. -34- --------------------------------------------------------------------------------
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), including, without limitation, information within Management's Discussion and Analysis of Financial Condition and Results of Operations. The following cautionary statements are being made pursuant to the provisions of the PSLRA and with the intention of obtaining the benefits of the "safe harbor" provisions of the PSLRA. Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required under federal securities laws and the rules and regulations of theSEC , we do not intend to update any forward-looking statements to reflect events or circumstances arising after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements included in this Quarterly Report on Form 10-Q or that may be made elsewhere from time to time by, or on behalf of, us. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. These forward-looking statements generally can be identified by the use of words or phrases such as "believe," "anticipate," "expect," "estimate," "project," "intend," "strategy," "goal," "future," "seek," "may," "should," "would," "will," or other similar words and phrases. Forward-looking statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including, without limitation: •The high level of competition in our industry and markets; •Our inability to increase organic growth via new product introductions, line extensions, increased spending on advertising and promotional support, and other new sales and marketing strategies; •Our dependence on a limited number of customers for a large portion of our sales; •Our inability to successfully identify, negotiate, complete and integrate suitable acquisition candidates and to obtain necessary financing; •Our inability to invest successfully in research and development to develop new products; •Changes in inventory management practices by retailers; •Our inability to grow our international sales; •General economic conditions and incidence levels affecting sales of our products and their respective markets; •Economic factors, such as increases in interest rates and currency exchange rate fluctuations; •Business, regulatory and other conditions affecting retailers; •Changing consumer trends, additional store brand or branded competition or other pricing pressures which may cause us to lower our prices; •Our dependence on third party manufacturers to produce many of the products we sell; •Our dependence on third party logistics providers to distribute our products to customers; •Price increases for raw materials, labor, energy and transportation costs, and for other input costs; •Disruptions in our distribution center or manufacturing facility; •Acquisitions, dispositions or other strategic transactions diverting managerial resources, the incurrence of additional liabilities, or problems associated with integration of those businesses and facilities; •Actions of government agencies in connection with our products, advertising or regulatory matters governing our industry; •Product liability claims, product recalls and related negative publicity; •Our inability to protect our intellectual property rights; •Our dependence on third parties for intellectual property relating to some of the products we sell; •Our inability to protect our internal information technology systems; •Our dependence on third party information technology service providers and their ability to protect against security threats and disruptions; •Our assets being comprised virtually entirely of goodwill and intangibles and possible changes in their value based on adverse operating results and/or changes in the discount rate used to value our brands; •Our dependence on key personnel; •Shortages of supply of sourced goods or interruptions in the distribution or manufacturing of our products; •The costs associated with any claims in litigation or arbitration and any adverse judgments rendered in such litigation or arbitration; •Our level of indebtedness and possible inability to service our debt; •Our inability to obtain additional financing; •The restrictions imposed by our financing agreements on our operations; and •Changes in federal and state tax laws. -35- --------------------------------------------------------------------------------
For more information, see Part I, Item 1A., "Risk Factors" in our Annual Report
on Form 10-K for the fiscal year ended
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