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UNITED STATES SECURITIES AND EXCHANGE COMMISSION     
Washington, D.C. 20549

FORM 10-Q
(Mark One)                                     
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR

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

For the transition period from ____ to _____

Commission File Number: 001-32433
pbh-20200930_g1.jpg

PRESTIGE CONSUMER HEALTHCARE INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 20-1297589
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer Identification No.)
660 White Plains Road
Tarrytown, New York 10591
(Address of Principal Executive Offices) (Zip Code)
(914) 524-6800
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per sharePBHNew York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes       No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  
Large Accelerated Filer Accelerated Filer
Non-Accelerated Filer Smaller Reporting Company
Emerging Growth Company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No
As of October 30, 2020, there were 50,103,802 shares of common stock outstanding.



Prestige Consumer Healthcare Inc.
Form 10-Q
Index

PART I.FINANCIAL INFORMATION 
   
Item 1.Financial Statements
 Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended September 30, 2020 and 2019 (unaudited)
 Condensed Consolidated Balance Sheets as of September 30, 2020 and March 31, 2020 (unaudited)
Condensed Consolidated Statements of Changes in Stockholders' Equity for the three and six months ended September 30, 2020 and 2019 (unaudited)
 Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2020 and 2019 (unaudited)
 Notes to Condensed Consolidated Financial Statements (unaudited)
  
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
  
Item 3.Quantitative and Qualitative Disclosures About Market Risk
  
Item 4.Controls and Procedures
  
PART II.OTHER INFORMATION
  
Item 1A.Risk Factors
Item 2.Issuer Purchases of Equity Securities
Item 6.Exhibits
  
 Signatures
  

Trademarks and Trade Names
Trademarks and trade names used in this Quarterly Report on Form 10-Q are the property of Prestige Consumer Healthcare Inc. or its subsidiaries, as the case may be.  We have italicized our trademarks or trade names when they appear in this Quarterly Report on Form 10-Q.
-1-


PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

Prestige Consumer Healthcare Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
 Three Months Ended September 30, Six Months Ended September 30,
(In thousands, except per share data)2020 20192020 2019
Revenues 
Net sales$237,409  $238,051 $466,793  $470,184 
Other revenues13  18 23  39 
Total revenues237,422  238,069 466,816  470,223 
Cost of Sales      
Cost of sales excluding depreciation98,239  100,318 192,363  197,418 
Cost of sales depreciation1,522 1,000 2,924 1,987 
Cost of sales99,761 101,318 195,287 199,405 
Gross profit137,661 136,751 271,529 270,818 
Operating Expenses    
Advertising and marketing38,341  38,667 66,091  73,468 
General and administrative20,388  22,514 40,322  44,220 
Depreciation and amortization6,029  6,222 12,094  12,296 
Total operating expenses64,758  67,403 118,507  129,984 
Operating income72,903  69,348 153,022  140,834 
Other (income) expense   
Interest expense, net21,266 24,477 43,207 49,497 
Other (income) expense, net(259)859 (249)1,275 
Total other expense21,007  25,336 42,958  50,772 
Income before income taxes51,896 44,012 110,064 90,062 
Provision for income taxes7,307  10,760 21,769  22,885 
Net income $44,589 $33,252 $88,295 $67,177 
Earnings per share:   
Basic$0.89  $0.66 $1.76  $1.32 
Diluted$0.88  $0.65 $1.74  $1.31 
Weighted average shares outstanding:   
Basic50,330  50,455 50,297  51,073 
Diluted50,661  50,811 50,672  51,426 
Comprehensive income, net of tax:
Currency translation adjustments3,665 (3,584)14,255 (3,808)
Unrealized gain on interest rate swaps985  1,294  
Total other comprehensive income (loss)4,650 (3,584)15,549 (3,808)
Comprehensive income $49,239 $29,668 $103,844 $63,369 
See accompanying notes.
-2-



Prestige Consumer Healthcare Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

(In thousands)September 30, 2020March 31, 2020
Assets
Current assets
Cash and cash equivalents$26,603 $94,760 
Accounts receivable, net of allowance of $18,450 and $20,194, respectively
122,207 150,517 
Inventories114,026 116,026 
Prepaid expenses and other current assets7,017 4,351 
Total current assets269,853 365,654 
Property, plant and equipment, net65,161 55,988 
Operating lease right-of-use assets26,211 28,888 
Finance lease right-of-use assets, net10,897 5,842 
Goodwill577,919 575,179 
Intangible assets, net2,481,236 2,479,391 
Other long-term assets3,029 2,963 
Total Assets$3,434,306 $3,513,905 
Liabilities and Stockholders' Equity  
Current liabilities  
Accounts payable$55,423 $62,375 
Accrued interest payable7,515 9,911 
Operating lease liabilities, current portion5,411 5,612 
Finance lease liabilities, current portion2,648 1,220 
Other accrued liabilities65,123 70,763 
Total current liabilities136,120 149,881 
Long-term debt, net1,548,100 1,730,300 
Deferred income tax liabilities416,383 407,812 
Long-term operating lease liabilities, net of current portion22,450 24,877 
Long-term finance lease liabilities, net of current portion8,428 4,626 
Other long-term liabilities24,608 25,438 
Total Liabilities2,156,089 2,342,934 
Commitments and Contingencies — Note 16
Stockholders' Equity  
Preferred stock - $0.01 par value
  
Authorized - 5,000 shares
  
Issued and outstanding - None
  
Common stock - $0.01 par value
  
Authorized - 250,000 shares
  
Issued - 53,941 shares at September 30, 2020 and 53,805 shares at March 31, 2020
539 538 
Additional paid-in capital493,756 488,116 
Treasury stock, at cost - 3,779 shares at September 30, 2020 and 3,719 shares at March 31, 2020
(119,862)(117,623)
Accumulated other comprehensive loss, net of tax(28,612)(44,161)
Retained earnings932,396 844,101 
Total Stockholders' Equity1,278,217 1,170,971 
Total Liabilities and Stockholders' Equity$3,434,306 $3,513,905 
 See accompanying notes.
-3-


Prestige Consumer Healthcare Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Three Months Ended September 30, 2020
Common StockAdditional Paid-in CapitalTreasury StockAccumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Totals
(In thousands)SharesPar
Value
SharesAmount
Balances at June 30, 202053,939 $539 $490,795 3,750 $(118,865)$(33,262)$887,807 $1,227,014 
Stock-based compensation— — 2,892 — — — — 2,892 
Exercise of stock options2 — 69 — — — — 69 
Treasury share repurchases— — — 29 (997)— — (997)
Net income— — — — — — 44,589 44,589 
Comprehensive income— — — — — 4,650 — 4,650 
Balances at September 30, 202053,941 $539 $493,756 3,779 $(119,862)$(28,612)$932,396 $1,278,217 

Three Months Ended September 30, 2019
Common StockAdditional Paid-in CapitalTreasury StockAccumulated
Other
Comprehensive
Loss
Retained
Earnings
Totals
(In thousands)SharesPar
Value
SharesAmount
Balances at June 30, 201953,741 $537 $480,805 2,848 $(89,493)$(25,971)$735,745 $1,101,623 
Stock-based compensation— — 2,521 — — — — 2,521 
Exercise of stock options9 — 269 — — — — 269 
Issuance of shares related to restricted stock5 — — — — — —  
Treasury share repurchases— — — 675 (21,291)— — (21,291)
Net income— — — — — — 33,252 33,252 
Comprehensive loss— — — — — (3,584)— (3,584)
Balances at September 30, 201953,755 $537 $483,595 3,523 $(110,784)$(29,555)$768,997 $1,112,790 

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Six Months Ended September 30, 2020
Common StockAdditional Paid-in CapitalTreasury StockAccumulated
Other
Comprehensive Income (Loss)
Retained
Earnings
Totals
(In thousands)SharesPar
Value
SharesAmount
Balances at March 31, 202053,805 $538 $488,116 3,719 $(117,623)$(44,161)$844,101 $1,170,971 
Stock-based compensation— — 4,356 — — — — 4,356 
Exercise of stock options62 — 1,285 — — — — 1,285 
Issuance of shares related to restricted stock74 1 (1)— — — —  
Treasury share repurchases— — — 60 (2,239)— — (2,239)
Net income— — — — — — 88,295 88,295 
Comprehensive income— — — — — 15,549 — 15,549 
Balances at September 30, 202053,941 $539 $493,756 3,779 $(119,862)$(28,612)$932,396 $1,278,217 


Six Months Ended September 30, 2019
Common StockAdditional Paid-in CapitalTreasury StockAccumulated
Other
Comprehensive
Loss
Retained
Earnings
Totals
(In thousands)SharesPar
Value
SharesAmount
Balances at March 31, 201953,670 $536 $479,150 1,871 $(59,928)$(25,747)$701,820 $1,095,831 
Stock-based compensation— — 3,902 — — — — 3,902 
Exercise of stock options18 — 544 — — — — 544 
Issuance of shares related to restricted stock67 1 (1)— — — —  
Treasury share repurchases— — — 1,652 (50,856)— — (50,856)
Net income— — — — — — 67,177 67,177 
Comprehensive loss— — — — — (3,808)— (3,808)
Balances at September 30, 201953,755 $537 $483,595 3,523 $(110,784)$(29,555)$768,997 $1,112,790 
See accompanying notes.

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Prestige Consumer Healthcare Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Six Months Ended September 30,
(In thousands)2020 2019
Operating Activities 
Net income $88,295  $67,177 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization15,018  14,283 
Loss on disposal of property and equipment131 19 
Deferred income taxes3,656  5,827 
Amortization of debt origination costs2,918  1,711 
Stock-based compensation costs4,356  3,902 
Non-cash operating lease cost3,587 3,154 
Interest expense relating to finance lease liability109  
Changes in operating assets and liabilities:  
Accounts receivable29,358  5,982 
Inventories3,213  (6,400)
Prepaid expenses and other current assets(2,476) (3,128)
Accounts payable(9,183) 8,465 
Accrued liabilities(8,125) 6,616 
Operating lease liabilities(3,446)(3,398)
Other(118)(1,210)
Net cash provided by operating activities127,293  103,000 
Investing Activities   
Purchases of property, plant and equipment(11,619) (5,822)
Net cash used in investing activities(11,619) (5,822)
Financing Activities   
Term loan repayments(130,000) 
Borrowings under revolving credit agreement 30,000 
Repayments under revolving credit agreement(55,000)(76,000)
Payments of finance leases(712) 
Proceeds from exercise of stock options1,285 544 
Fair value of shares surrendered as payment of tax withholding(1,242)(880)
Repurchase of common stock(997)(49,976)
Net cash used in financing activities(186,666) (96,312)
Effects of exchange rate changes on cash and cash equivalents2,835 (491)
(Decrease) increase in cash and cash equivalents(68,157) 375 
Cash and cash equivalents - beginning of period94,760  27,530 
Cash and cash equivalents - end of period$26,603  $27,905 
Interest paid$42,423  $48,033 
Income taxes paid$18,818  $14,655 
See accompanying notes.
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Prestige Consumer Healthcare Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

1.    Business and Basis of Presentation

Nature of Business
Prestige Consumer Healthcare Inc. (referred to herein as the “Company” or “we,” which reference shall, unless the context requires otherwise, be deemed to refer to Prestige Consumer Healthcare Inc. and all of its direct and indirect 100% owned subsidiaries on a consolidated basis) is engaged in the development, manufacturing, marketing, sales and distribution of over-the-counter (“OTC”) healthcare products to mass merchandisers, 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.  Prestige Consumer Healthcare Inc. is a holding company with no operations and is also the parent guarantor of the senior credit facility and the senior notes described in Note 7 to these Condensed Consolidated Financial Statements.

Coronavirus Outbreak
In January 2020, the World Health Organization ("WHO") announced a global health crisis due to a new strain of coronavirus ("COVID-19"). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic. This pandemic is affecting the United States and global economies, including causing significant volatility in the global economy and resulting in materially reduced economic activity. The COVID-19 pandemic and the corresponding government responses have led to increased unemployment and economic uncertainty, which could lead to a further reduction in consumer spending. Economic conditions are, and we expect that they will continue to be, highly volatile and uncertain. Recessionary conditions could reduce demand for our products and put downward pressure on prices. If the outbreak continues to spread or if we continue to experience a period of recession or enter a depression, it may materially affect our operations and those of third parties on which we rely, including causing disruptions in the supply and distribution of our products. We may need to limit operations and may experience material limitations in employee resources. We did see an increase in sales at the end of March 2020 related to shelter-at-home restrictions as we believe consumers stocked up as a result of COVID-19, followed by a temporary but significant decline in consumption in the first quarter and have since seen more stable consumer consumption and customer orders in recent weeks. Sales varied throughout the year with some categories positively impacted (for instance, Women’s Health, Oral Care and Dermatological) and some categories negatively impacted (for instance, Cough & Cold, and Gastrointestinal). The positively impacted categories benefited from the consumer shift to over-the-counter healthcare products as they looked to avoid doctor visits and increased focus on hygiene and self-care at home related to COVID-19. The declining categories were impacted by reduced incidence levels and usage rates due to shelter-at-home restrictions and limited travel related to COVID-19. Early in our first quarter of fiscal 2021, it had been reported to us that there had been an increase in absenteeism at our distribution center and with some of our suppliers; however, we have not experienced a material disruption to our overall supply chain to date. We also continue to see changes in the purchasing patterns of our consumers, including the frequency of visits by consumers to retailers and a shift in many markets to purchasing our products online. To date the pandemic has not had a material negative impact on our operations, overall demand for most of our products or resulting aggregate sales and earnings, and, as such, it has also not negatively impacted our liquidity position. We continue to generate operating cash flows to meet our short-term liquidity needs. These circumstances could change in this dynamic, unprecedented environment. The extent to which COVID-19 impacts our results and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19, and the actions to contain COVID-19 or treat its impact, among others. We do not yet know the full extent of its impacts on our business or the global economy. However, these effects could have a material, adverse impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely.

Basis of Presentation
The unaudited Condensed Consolidated Financial Statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  All significant intercompany transactions and balances have been eliminated in consolidation.  In the opinion of management, these Condensed Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, that are considered necessary for a fair statement of our consolidated financial position, results of operations and cash flows for the interim periods presented.  Our fiscal year ends on March 31st of each year. References in these Condensed Consolidated Financial Statements or related notes to a year (e.g., 2021) mean our fiscal year ending or ended on March 31st of that year. Operating results for the six months ended September 30, 2020 are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2021.  These unaudited Condensed Consolidated Financial Statements and related notes should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020.

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

Recently Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements in Topic 820, with a particular focus on Level 3 investments, by eliminating certain required disclosures and incorporating others. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We adopted this standard effective April 1, 2020, and the adoption did not have a material impact on our Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments (with subsequent targeted amendments). The amendments in this update provide financial statement users with more useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The guidance requires entities to utilize an expected credit loss model for certain financial instruments, including most trade receivables, which replaces the incurred credit loss model previously used. Under this new model, we are required to recognize estimated credit losses expected to occur over time using a broad range of information including historical information, current conditions and reasonable and supportable forecasts. The amendments in these updates were effective for us in the first quarter of our fiscal year 2021. We adopted this standard effective April 1, 2020, and the adoption did not have a material impact on our Consolidated Financial Statements.

Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by eliminating certain required disclosures and incorporating others. The amendments are effective for public companies for fiscal years ending after December 15, 2020. We do not expect the adoption of this standard to have a material impact on our Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update eliminate the need for an organization to analyze whether certain exceptions apply for tax purposes. It also simplifies GAAP for certain taxes. The amendments in these updates are effective for us for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We do not expect the adoption of this standard to have a material impact on our Consolidated Financial Statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendments in this update provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. An entity may elect to apply the amendments prospectively through December 31, 2022. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements.

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2.     Inventories

Inventories consist of the following:
(In thousands)September 30, 2020March 31, 2020
Components of Inventories
Packaging and raw materials$9,107 $9,803 
Work in process297 355 
Finished goods104,622 105,868 
Inventories$114,026 $116,026 

Inventories are carried and depicted above at the lower of cost or net realizable value, which includes a reduction in inventory values of $5.5 million and $6.5 million at September 30, 2020 and March 31, 2020, respectively, related to obsolete and slow-moving inventory.

3.    Goodwill

A reconciliation of the activity affecting goodwill by operating segment is as follows:
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Balance - March 31, 2020
Goodwill$710,354 $28,536 $738,890 
Accumulated impairment loss(163,711) (163,711)
Balance - March 31, 2020546,643 28,536 575,179 
Effects of foreign currency exchange rates 2,740 2,740 
Balance - September 30, 2020
Goodwill710,354 31,276 741,630 
Accumulated impairment loss(163,711) (163,711)
Balance - September 30, 2020$546,643 $31,276 $577,919 

On an annual basis during the fourth quarter of each fiscal year, or more frequently if conditions indicate that the carrying value of the asset may not be recoverable, management performs a review of the values assigned to goodwill and tests for impairment. On February 29, 2020, the date of our annual impairment review, there were no indicators of impairment as a result of the analysis and, accordingly, no impairment charge was taken on our March 31, 2020 financial statements. We utilize the discounted cash flow method to estimate the fair value of our reporting units as part of the goodwill impairment test. We also considered our market capitalization at February 29, 2020 as compared to the aggregate fair values of our reporting units, to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology. The estimates and assumptions made in assessing the fair value of our reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. Consequently, changing rates of interest and inflation, declining sales or margins, increasing competition, changing consumer preferences, technical advances, or reductions in advertising and marketing may require an impairment charge to be recorded in the future. We continuously monitor events which could trigger an interim impairment analysis, which included the impact of COVID-19 for the period ended September 30, 2020. As of September 30, 2020, we determined no events have occurred that would indicate potential impairment of goodwill. However, the continued duration and severity of COVID-19 may result in future impairment charges as the prolonged pandemic could have an impact on our results due to changes in consumer habits. This could result in changes to the assumptions utilized in the annual impairment analysis to determine the estimated fair value of our goodwill, including long-term growth rates and discount rates.
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4.    Intangible Assets, net

A reconciliation of the activity affecting intangible assets, net is as follows:
(In thousands)Indefinite-
Lived
Trademarks
Finite-Lived
Trademarks and Customer Relationships
Totals
Gross Carrying Amounts
Balance — March 31, 2020$2,265,331 $389,801 $2,655,132 
Effects of foreign currency exchange rates11,352 489 11,841 
Balance — September 30, 20202,276,683 390,290 2,666,973 
    
Accumulated Amortization   
Balance — March 31, 2020— 175,741 175,741 
Additions— 9,817 9,817 
Effects of foreign currency exchange rates— 179 179 
Balance — September 30, 2020— 185,737 185,737 
Intangible assets, net - September 30, 2020$2,276,683 $204,553 $2,481,236 

Amortization expense was $4.9 million and $9.8 million for the three and six months ended September 30, 2020, respectively, and $4.9 million and $9.8 million for the three and six months ended September 30, 2019, respectively.  

Finite-lived intangible assets are expected to be amortized over their estimated useful life, which ranges from a period of 10 to 30 years, and the estimated amortization expense for each of the five succeeding years and the periods thereafter is as follows (in thousands):

(In thousands)
Year Ending March 31,Amount
2021 (remaining six months ended March 31, 2021)9,823 
202219,645 
202319,645 
202419,615 
202517,570 
Thereafter118,255 
$204,553 

Under accounting guidelines, indefinite-lived assets are not amortized, but must be tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below the carrying amount. On February 29, 2020, the date of our annual impairment review, there were no indicators of impairment as a result of the analysis and, accordingly, no impairment charge was taken on our March 31, 2020 financial statements. Additionally, at each reporting period, an evaluation must be made to determine whether events and circumstances continue to support an indefinite useful life.  Intangible assets with finite lives are amortized over their respective estimated useful lives and are also tested for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable and exceeds its fair value.

We utilize the excess earnings method to estimate the fair value of our individual indefinite-lived intangible assets. The discount rate utilized in the analyses, as well as future cash flows, may be influenced by such factors as changes in interest rates and rates of inflation.  Additionally, should the related fair values of intangible assets be adversely affected as a result of declining sales or margins caused by competition, changing consumer preferences, technological advances or reductions in advertising and marketing expenses, we may be required to record impairment charges in the future.

We continuously monitor events which could trigger an interim impairment analysis, which included the impact of COVID-19 for the period ended September 30, 2020. As of September 30, 2020, we determined no events have occurred that would
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indicate potential impairment of intangible assets. However, the continued duration and severity of COVID-19 may result in future impairment charges as the prolonged pandemic could have an impact on our results due to changes in consumer habits. This could result in changes to the assumptions utilized in the annual impairment analysis to determine the estimated fair value of our intangible assets, including long-term growth rates and discount rates.

5.    Leases

We lease real estate and equipment for use in our operations.

The components of lease expense for the three and six months ended September 30, 2020 and 2019 were as follows:
Three Months Ended September 30, Six Months Ended September 30,
(In thousands)2020201920202019
Finance lease cost:
     Amortization of right-of-use assets$443  $768 $ 
     Interest on lease liabilities59  109  
Operating lease cost1,692 2,242 3,389 3,458 
Short term lease cost22 27 45 50 
Variable lease cost12,303 15,696 24,010 32,295 
Sublease income(55)(860)(109)(1,774)
Total net lease cost$14,464 17,105 $28,212 $34,029 

As of September 30, 2020, the maturities of lease liabilities were as follows:

(In thousands)
Year Ending March 31,Operating LeasesFinance
Lease
Total
2021 (Remaining six months ending March 31, 2021)$3,613 $1,466 $5,079 
20226,521 2,932 9,453 
20236,291 2,932 9,223 
20246,303 2,932 9,235 
20254,132 1,467 5,599 
Thereafter4,974  4,974 
Total undiscounted lease payments31,834 11,729 43,563 
Less amount of lease payments representing interest(3,973)(653)(4,626)
Total present value of lease payments$27,861 $11,076 $38,937 

The weighted average remaining lease term and weighted average discount rate were as follows:
September 30, 2020
Weighted average remaining lease term (years)
Operating leases5.08
Finance leases4.00
Weighted average discount rate
Operating leases5.28 %
Finance leases2.96 %

Under our Master Services Agreement with GEODIS Logistics LLC ("GEODIS"), GEODIS purchased certain assets for our use that went into service during the three months ended September 30, 2020. The right-of-use ("ROU") asset and lease liability at the commencement of this finance lease was $5.8 million.

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6.    Other Accrued Liabilities

Other accrued liabilities consist of the following:

(In thousands)September 30, 2020March 31, 2020
Accrued marketing costs$37,420 $34,450 
Accrued compensation costs8,025 13,393 
Accrued broker commissions986 1,491 
Income taxes payable2,902 3,210 
Accrued professional fees3,700 4,183 
Accrued production costs3,187 5,628 
Accrued sales tax930 1,917 
Other accrued liabilities7,973 6,491 
$65,123 $70,763 

7.    Long-Term Debt

Long-term debt consists of the following, as of the dates indicated:
(In thousands, except percentages)September 30, 2020March 31, 2020
2016 Senior Notes bearing interest at 6.375%, with interest payable on March 1 and September 1 of each year. The 2016 Senior Notes mature on March 1, 2024.
$600,000 $600,000 
2019 Senior Notes bearing interest at 5.125%, with interest payable on January 15 and July 15 of each year. The 2019 Senior Notes mature on January 15, 2028.
400,000 400,000 
2012 Term B-5 Loans bearing interest at the Borrower's option at either LIBOR plus a margin of 2.00%, with a LIBOR floor of 0.00%, or an alternate base rate plus a margin of 1.00%, with a base rate floor of 1.00%, due on January 26, 2024.
560,000 690,000 
2012 ABL Revolver bearing interest at the Borrower's option at either a base rate plus applicable margin or LIBOR plus applicable margin. Any unpaid balance is due on December 11, 2024. 55,000 
Long-term debt1,560,000 1,745,000 
Less: unamortized debt costs(11,900)(14,700)
Long-term debt, net$1,548,100 $1,730,300 

At September 30, 2020, we had no balance outstanding on the asset-based revolving credit facility entered into January 31, 2012, as amended (the "2012 ABL Revolver") and a borrowing capacity of $132.7 million.

Interest Rate Swaps:
We currently have two interest rate swaps to hedge a total of $400.0 million of our variable interest debt (see Note 9 for further details).

As of September 30, 2020, aggregate future principal payments required in accordance with the terms of the 2012 Term B-5 Loans, 2012 ABL Revolver and the indentures governing the senior unsecured notes due 2024 (the "2016 Senior Notes") and the senior unsecured notes due 2028 (the "2019 Senior Notes") are as follows:
(In thousands)
Year Ending March 31,Amount
2021 (remaining six months ending March 31, 2021)$ 
2022 
2023 
20241,160,000 
2025 
Thereafter400,000 
$1,560,000 
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8.    Fair Value Measurements
For certain of our financial instruments, including cash, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their respective fair values due to the relatively short maturity of these amounts.

FASB Accounting Standards Codification ("ASC") 820, Fair Value Measurements, requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market assuming an orderly transaction between market participants. ASC 820 established market (observable inputs) as the preferred source of fair value, to be followed by our assumptions of fair value based on hypothetical transactions (unobservable inputs) in the absence of observable market inputs. Based upon the above, the following fair value hierarchy was created:

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

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

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

The market values have been determined based on market values for similar instruments adjusted for certain factors. As such, the 2016 Senior Notes, the 2019 Senior Notes, the 2012 Term B-5 Loans, and the 2012 ABL Revolver and our interest rate swaps are measured in Level 2 of the above hierarchy. See summary below detailing the carrying amounts and estimated fair values of these instruments at September 30, 2020 and March 31, 2020.
September 30, 2020March 31, 2020
(In thousands)Carrying ValueFair ValueCarrying ValueFair Value
2016 Senior Notes$600,000 $616,500 $600,000 $603,000 
2019 Senior Notes400,000 413,000 400,000 386,000 
2012 Term B-5 Loans560,000 555,100 690,000 638,250 
2012 ABL Revolver  55,000 55,000 
Interest rate swaps4,637 4,637 6,317 6,317 

At September 30, 2020 and March 31, 2020, we did not have any assets or liabilities measured in Level 1 or 3.

9.    Derivative Instruments

Changes in interest rates expose us to risks. To help us manage these risks, in January 2020 we entered into two interest rate swaps to hedge a total of $400.0 million of our variable interest debt. The fair value of these interest rate swaps is reflected in the Consolidated Balance Sheets in other accrued liabilities and other long-term liabilities. We do not use derivatives for trading purposes.

The following tables summarize the fair values of our derivative instruments as of the end of the periods shown:

September 30, 2020
(In thousands)Hedge TypeFinal Settlement DateNotional AmountOther Accrued LiabilitiesOther Long-Term Liabilities
Interest rate swapCash flow1/31/2021$200,000 $(926)$— 
Interest rate swapCash flow1/31/2022$200,000 — (3,711)
Total fair value$(926)$(3,711)


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March 31, 2020
(In thousands)Hedge TypeFinal Settlement DateNotional AmountOther Accrued LiabilitiesOther Long-Term Liabilities
Interest rate swapCash flow1/31/2021$200,000 $(1,905)$— 
Interest rate swapCash flow1/31/2022$200,000 — (4,412)
Total fair value$(1,905)$(4,412)
The following table summarizes our interest rate swaps, net of tax, for the periods shown:

Three Months Ended September 30,Six Months Ended September 30,
(In thousands)Location2020201920202019
Gain Recognized in Other Comprehensive Loss (effective portion)Other comprehensive income (loss)985  $1,294 $ 
Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into IncomeInterest expense    
Loss Recognized as ExpenseInterest expense(1,396) (2,422) 

We expect pre-tax losses of $3.7 million associated with interest rate swaps, currently reported in accumulated other comprehensive loss, to be reclassified into income over the next twelve months. The amount ultimately realized, however, will differ as interest rates change and the underlying contracts settle.

Counterparty Credit Risk:
Interest rate swaps expose us to counterparty credit risk for non-performance. We manage our exposure to counterparty credit risk by only dealing with counterparties who are substantial international financial institutions with significant experience using such derivative instruments.

10.    Stockholders' Equity

We are authorized to issue 250.0 million shares of common stock, $0.01 par value per share, and 5.0 million shares of preferred stock, $0.01 par value per share.  The Board of Directors may direct the issuance of the undesignated preferred stock in one or more series and determine preferences, privileges and restrictions thereof.

Each share of common stock has the right to one vote on all matters submitted to a vote of stockholders.  The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to prior rights of holders of all classes of outstanding stock having priority rights as to dividends.  No dividends have been declared or paid on our common stock through September 30, 2020.

During the three and six months ended September 30, 2020 and 2019, we repurchased shares of our common stock and recorded them as treasury stock. Our share repurchases consisted of the following:

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Three Months Ended September 30, Six Months Ended September 30,
2020201920202019
Shares repurchased pursuant to the provisions of the various employee restricted stock awards:
Number of shares 2,273 31,117 28,537 
Average price per share $35.32$39.91$30.83
Total amount repurchased$ $0.1 million$1.2 million$0.9 million
Shares repurchased in conjunction with our share repurchase program:
Number of shares28,865 672,719 28,865 1,622,544 
Average price per share$34.55$31.53$34.55$30.80
Total amount repurchased$1.0 million$21.2 million$1.0 million$50.0 million

11.    Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consisted of the following at September 30, 2020 and March 31, 2020:
(In thousands)September 30, 2020March 31, 2020
Components of Accumulated Other Comprehensive Loss 
Cumulative translation adjustment$(24,986) $(39,241)
Unrealized loss on interest rate swaps, net of tax of $1,067 and $1,453, respectively
(3,570)(4,864)
Unrecognized net loss on pension plans, net of tax of $17 and $17, respectively
(56)(56)
Accumulated other comprehensive loss, net of tax$(28,612) $(44,161)

As of September 30, 2020 and March 31, 2020, no amounts were reclassified from accumulated other comprehensive loss into earnings.

12.    Earnings Per Share

Basic earnings per share is computed based on income available to common stockholders and the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on income available to common stockholders and the weighted average number of shares of common stock outstanding plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method, which includes stock options and restricted stock units ("RSUs"). Potential common shares, composed of the incremental common shares issuable upon the exercise of outstanding stock options and unvested RSUs, are included in the diluted earnings per share calculation to the extent that they are dilutive. In loss periods, the assumed exercise of in-the-money stock options and RSUs has an anti-dilutive effect, and therefore these instruments are excluded from the computation of diluted earnings per share.
The following table sets forth the computation of basic and diluted earnings per share:
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 Three Months Ended September 30, Six Months Ended September 30,
(In thousands, except per share data) 2020201920202019
Numerator
Net income $44,589 $33,252 $88,295 $67,177 
    
Denominator   
Denominator for basic earnings per share — weighted average shares outstanding 50,330 50,455 50,297 51,073 
Dilutive effect of unvested restricted stock units and options issued to employees and directors 331 356 375 353 
Denominator for diluted earnings per share 50,661 50,811 50,672 51,426 
    
Earnings per Common Share:   
Basic earnings per share $0.89 $0.66 $1.76 $1.32 
    
Diluted earnings per share $0.88 $0.65 $1.74 $1.31 

For the three months ended September 30, 2020 and 2019, there were 0.6 million and 0.7 million shares, respectively, attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the six months ended September 30, 2020 and 2019, there were 0.6 million and 0.9 million shares, respectively, attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
13.    Share-Based Compensation

In connection with our initial public offering, the Board of Directors adopted the 2005 Long-Term Equity Incentive Plan (the “2005 Plan”), which provided for grants of up to a maximum of 5.0 million shares of restricted stock, stock options, RSUs and other equity-based awards. In June 2014, the Board of Directors approved, and in July 2014, our stockholders ratified, an increase of an additional 1.8 million shares of our common stock for issuance under the 2005 Plan, an increase of the maximum number of shares subject to stock options that could be awarded to any one participant under the 2005 Plan during any fiscal 12-month period from 1.0 million to 2.5 million shares, and an extension of the term of the 2005 Plan by ten years, to February 2025.  Directors, officers and other employees of the Company and its subsidiaries, as well as others performing services for the Company, were eligible for grants under the 2005 Plan.

On June 23, 2020, the Board of Directors adopted the Prestige Consumer Healthcare Inc. 2020 Long-Term Incentive Plan (the “2020 Plan”). The 2020 Plan became effective on August 4, 2020, upon the approval of the 2020 Plan by our stockholders. A total of 2,827,210 shares are available for issuance under the 2020 Plan (comprised of 2,000,000 new shares plus 827,210 shares that were unissued under the 2005 Plan). All future equity awards will be made from the 2020 Plan, and the Company will not grant any additional awards under the 2005 Plan.

The following table provides information regarding our stock-based compensation:
Three Months Ended September 30, Six Months Ended September 30,
(In thousands)2020201920202019
Pre-tax share-based compensation costs charged against income$2,892 $2,521 $4,356 $3,902 
Income tax benefit recognized on compensation costs$451 $401 $563 $611 
Total fair value of options and RSUs vested during the period$1,015 $1,266 $6,796 $7,365 
Cash received from the exercise of stock options$69 $269 $1,285 $544 
Tax benefits realized from tax deductions resulting from RSU issuances and stock option exercises$4 $48 $948 $482 
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At September 30, 2020, there were $9.8 million of unrecognized compensation costs related to unvested share-based compensation arrangements under the 2005 Plan, based on management's estimate of the shares that will ultimately vest.  We expect to recognize such costs over a weighted average period of 1 year. At September 30, 2020, there were 2.8 million shares available for issuance under the 2020 Plan.

On May 4, 2020, the Compensation and Talent Management Committee (the "Committee") of our Board of Directors granted 79,070 performance stock units, 73,636 RSUs and stock options to acquire 249,875 shares of our common stock under the 2005 Plan to certain executive officers and employees. Performance units are earned based on achievement of the performance objectives set by the Committee and, if earned, vest in their entirety on the three-year anniversary of the date of grant. In light of the uncertain economic environment, the Committee elected to set the performance objectives applicable to these awards at a later date. The stock options were granted at an exercise price of $39.98 per share, which was equal to the closing price for our common stock on the date of the grant.
A newly appointed independent member of the Board of Directors received a grant under the 2005 Plan of 907 RSUs on May 4, 2020.
On August 4, 2020, each of the independent members of the Board of Directors received a grant of 3,732 RSUs under the 2020 Plan. The RSUs are fully vested upon receipt of the award and will be settled by delivery to each director of one share of our common stock for each vested RSU promptly following the earliest of (i) such director's death, (ii) such director's separation from service or (iii) a change in control of the Company.
Restricted Stock Units

The fair value of the RSUs is determined using the closing price of our common stock on the date of the grant.

A summary of the RSUs granted under the 2005 Plan and the 2020 Plan is presented below:
 
 
 
RSUs
 
Shares
(in thousands)
Weighted
Average
Grant-Date
Fair Value
Six Months Ended September 30, 2019
Vested and unvested at March 31, 2019413.0 $36.58 
Granted220.3 31.02 
Vested and issued(66.8)47.99 
Forfeited(27.8)36.71 
Vested and unvested at September 30, 2019538.7 32.88 
Vested at September 30, 2019138.3 31.71 
   
Six Months Ended September 30, 2020
Vested and unvested at March 31, 2020512.1 $32.49 
Granted179.7 39.82 
Vested and issued(74.0)44.38 
Forfeited(4.7)56.11 
Vested and unvested at September 30, 2020613.1 33.02 
Vested at September 30, 2020150.4 31.98 

Options

The fair value of each award is estimated on the date of grant using the Black-Scholes Option Pricing Model that uses the assumptions presented below:

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 Six Months Ended September 30,
 2020 2019
Expected volatility
32.1% - 32.2%
 
30.9% - 31.3%
Expected dividends$  $ 
Expected term in years
6.0 to 7.0
 
6.0 to 7.0
Risk-free rate0.5 % 
2.3% to 2.4%
Weighted average grant date fair value of options granted12.91 10.83 


A summary of option activity under the 2005 Plan and the 2020 Plan is as follows:
 
 
 
 
Options
 
 
Shares
(in thousands)
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
(in thousands)
Six Months Ended September 30, 2019
Outstanding at March 31, 2019944.6 $38.45 
Granted302.7 30.53 
Exercised(18.4)29.57 
Forfeited or expired(124.7)43.08 
Outstanding at September 30, 20191,104.2 35.90 7.2$3,959 
Vested at September 30, 2019610.2 38.56 5.7$2,772 
Six Months Ended September 30, 2020    
Outstanding at March 31, 20201,020.2 $35.90 
Granted249.9 39.98 
Exercised(62.8)20.46 
Forfeited or expired  
Outstanding at September 30, 20201,207.3 37.55 7.0$5,032 
Vested at September 30, 2020699.1 39.39 5.6$3,430 

The aggregate intrinsic value of options exercised during the six months ended September 30, 2020 was $1.3 million.

14.    Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Tax Cuts and Jobs Act, among other things, reduced the U.S. federal corporate tax rate from 35% to 21% and imposed a new minimum tax on Global Intangible Low-Taxed Income ("GILTI") earned by foreign subsidiaries. In July 2020, final regulations were issued for GILTI, which include a high-tax exception for certain income earned by foreign subsidiaries if the foreign tax rate is in excess of 90% of the U.S. corporate tax rate of 21%. We calculated the potential impact of these final regulations and accounted for those impacts in the quarterly provision for the period ended September 30, 2020.

Income taxes are recorded in our quarterly financial statements based on our estimated annual effective income tax rate, subject to adjustments for discrete events, should they occur. The effective tax rates used in the calculation of income taxes were 14.1% and 24.5% for the three months ended September 30, 2020 and 2019, respectively. The effective tax rates used in the calculation of income taxes were 19.8% and 25.4% for the six months ended September 30, 2020 and 2019, respectively. The decrease in the effective tax rate for the six months ended September 30, 2020 versus the prior year period was primarily due to the final GILTI regulations issued in July 2020, which resulted in the release of the valuation allowance on foreign tax credit carryforwards of $5.1 million.

15.     Employee Retirement Plans

The primary components of Net Periodic Benefits consist of the following:
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Three Months Ended September 30, Six Months Ended September 30,
 (In thousands)2020201920202019
Interest cost$525 $577 $1,050 $1,154 
Expected return on assets(647)(721)(1,294)(1,442)
Net periodic benefit income$(122)$(144)$(244)$(288)

During the six months ended September 30, 2020, we contributed $0.2 million to our non-qualified defined benefit plan and made no contributions to the qualified defined benefit plan. During the remainder of fiscal 2021, we expect to contribute an additional $0.2 million to our non-qualified plan and make a $1.0 million contribution to the qualified plan.

16.    Commitments and Contingencies

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

17.    Concentrations of Risk

Our revenues are concentrated in the area of OTC Healthcare. We sell our products to mass merchandisers, drug, food, dollar, convenience and club stores and e-commerce channels. During the three and six months ended September 30, 2020, approximately 45.8% and 46.2%, respectively, of our gross revenues were derived from our five top selling brands. During the three and six months ended September 30, 2019, approximately 42.6% and 43.3%, respectively of our gross revenues were derived from our five top selling brands. One customer, Walmart, accounted for more than 10% of our gross revenues for the three and six months ended September 30, 2020. Walmart accounted for approximately 22.5% and 22.3%, respectively, of our gross revenues for the three and six months ended September 30, 2020. Walmart accounted for approximately 22.9% and 23.5%, respectively, of our gross revenues for the three and six months ended September 30, 2019.

Our product distribution in the United States is managed by a third party through one primary distribution center in Clayton, Indiana. In addition, we operate one manufacturing facility for certain of our products located in Lynchburg, Virginia. A natural disaster, such as tornado, earthquake, flood, or fire, could damage our inventory and/or materially impair our ability to distribute our products to customers in a timely manner or at a reasonable cost. In addition, a serious disruption caused by performance or contractual issues with our third party distribution manager or COVID-19 or other public health emergencies could also materially impact our product distribution. Any disruption as a result of third party performance at our distribution center could result in increased costs, expense and/or shipping times, and could cause us to incur customer fees and penalties. In addition, any serious disruption to our Lynchburg manufacturing facility could materially impair our ability to manufacture many of the products associated with our acquisition of C.B. Fleet Company, Inc. ("Fleet"), which would also limit our ability to provide those products to customers in a timely manner or at a reasonable cost.  We could also incur significantly higher costs and experience longer lead times if we need to replace our distribution center, the third party distribution manager or the manufacturing facility.  As a result, any serious disruption could have a material adverse effect on our business, financial condition and results of operations.

At September 30, 2020, we had relationships with 113 third party manufacturers.  Of those, we had long-term contracts with 19 manufacturers that produced items that accounted for approximately 65.4% of gross sales for the six months ended September 30, 2020. At September 30, 2019, we had relationships with 113 third party manufacturers.  Of those, we had long-term contracts with 30 manufacturers that produced items that accounted for approximately 66.4% of gross sales for the six months ended September 30, 2019. The fact that we do not have long-term contracts with certain manufacturers means that they could cease manufacturing our products at any time and for any reason or initiate arbitrary and costly price increases, which could have a material adverse effect on our business and results of operations. Although we are continually in the process of negotiating long-term contracts with certain key manufacturers, we may not be able to reach a timely agreement, which could have a material adverse effect on our business and results of operations.
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18.    Business Segments

Segment information has been prepared in accordance with the Segment Reporting topic of the FASB ASC 280. Our current reportable segments consist of (i) North American OTC Healthcare and (ii) International OTC Healthcare. We evaluate the performance of our operating segments and allocate resources to these segments based primarily on contribution margin, which we define as gross profit less advertising and marketing expenses.

The tables below summarize information about our reportable segments.
 Three Months Ended September 30, 2020
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Total segment revenues*$216,575 $20,847 $237,422 
Cost of sales91,069 8,692 99,761 
Gross profit125,506 12,155 137,661 
Advertising and marketing34,014 4,327 38,341 
Contribution margin$91,492 $7,828 99,320 
Other operating expenses 26,417 
Operating income $72,903 
* Intersegment revenues of $0.6 million were eliminated from the North American OTC Healthcare segment.

 Six Months Ended September 30, 2020
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Total segment revenues*$427,233 $39,583 $466,816 
Cost of sales178,896 16,391 195,287 
Gross profit248,337 23,192 271,529 
Advertising and marketing58,694 7,397 66,091 
Contribution margin$189,643 $15,795 205,438 
Other operating expenses 52,416 
Operating income $153,022 
* Intersegment revenues of $1.6 million were eliminated from the North American OTC Healthcare segment.


 Three Months Ended September 30, 2019
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Total segment revenues*$213,878 $24,191 $238,069 
Cost of sales92,931 8,387 101,318 
Gross profit 120,947 15,804 136,751 
Advertising and marketing34,595 4,072 38,667 
Contribution margin$86,352 $11,732 98,084 
Other operating expenses 28,736 
Operating income $69,348 
* Intersegment revenues of $0.8 million were eliminated from the North American OTC Healthcare segment.

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 Six Months Ended September 30, 2019
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Total segment revenues*$424,662 $45,561 $470,223 
Cost of sales181,742 17,663 199,405 
Gross profit 242,920 27,898 270,818 
Advertising and marketing65,609 7,859 73,468 
Contribution margin$177,311 $20,039 197,350 
Other operating expenses 56,516 
Operating income $140,834 
* Intersegment revenues of $1.6 million were eliminated from the North American OTC Healthcare segment.

The tables below summarize information about our segment revenues from similar product groups.
Three Months Ended September 30, 2020
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Analgesics$30,623 $267 $30,890 
Cough & Cold14,796 3,086 17,882 
Women's Health61,492 4,106 65,598 
Gastrointestinal31,718 6,379 38,097 
Eye & Ear Care26,767 3,037 29,804 
Dermatologicals27,875 836 28,711 
Oral Care21,944 3,134 25,078 
Other OTC1,360 2 1,362 
Total segment revenues$216,575 $20,847 $237,422 

Six Months Ended September 30, 2020
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Analgesics$58,490 $541 $59,031 
Cough & Cold28,234 6,988 35,222 
Women's Health126,902 6,537 133,439 
Gastrointestinal61,768 12,084 73,852 
Eye & Ear Care49,619 5,582 55,201 
Dermatologicals55,495 1,535 57,030 
Oral Care44,110 6,313 50,423 
Other OTC2,615 3 2,618 
Total segment revenues$427,233 $39,583 $466,816 

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Three Months Ended September 30, 2019
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Analgesics$28,831 $243 $29,074 
Cough & Cold20,506 5,814 26,320 
Women's Health59,678 2,905 62,583 
Gastrointestinal32,214 9,028 41,242 
Eye & Ear Care22,286 3,185 25,471 
Dermatologicals28,039 576 28,615 
Oral Care21,063 2,439 23,502 
Other OTC1,261 1 1,262 
Total segment revenues$213,878 $24,191 $238,069 

Six Months Ended September 30, 2019
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Analgesics$57,366 $473 $57,839 
Cough & Cold37,846 11,196 49,042 
Women's Health119,256 5,324 124,580 
Gastrointestinal63,786 16,013 79,799 
Eye & Ear Care49,039 6,196 55,235 
Dermatologicals53,777 1,266 55,043 
Oral Care41,042 5,091 46,133 
Other OTC2,550 2 2,552 
Total segment revenues$424,662 $45,561 $470,223 

Our total segment revenues by geographic area are as follows:
Three Months Ended September 30, Six Months Ended September 30,
2020201920202019
United States$203,289 199,714$402,635 $400,343 
Rest of world34,133 38,355 64,181 69,880 
Total$237,422 $238,069 $466,816 $470,223 

Our consolidated goodwill and intangible assets have been allocated to the reportable segments as follows:
September 30, 2020North American OTC
Healthcare
International OTC
Healthcare
Consolidated
(In thousands)
Goodwill$546,643 $31,276 $577,919 
Intangible assets 
Indefinite-lived2,195,617 81,066 2,276,683 
Finite-lived, net200,033 4,520 204,553 
Intangible assets, net2,395,650 85,586 2,481,236 
Total$2,942,293 $116,862 $3,059,155 
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March 31, 2020North American OTC
Healthcare
International OTC
Healthcare
Consolidated
(In thousands)
Goodwill$546,643 $28,536 $575,179 
Intangible assets 
Indefinite-lived2,195,617 69,714 2,265,331 
Finite-lived, net209,604 4,456 214,060 
Intangible assets, net2,405,221 74,170 2,479,391 
Total$2,951,864 $102,706 $3,054,570 


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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 ended March 31, 2020.  This discussion and analysis may contain forward-looking statements that involve certain risks, assumptions and uncertainties.  Future results could differ materially from the discussion that follows for many reasons, including the factors described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020 and in future reports filed with the U.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 to Prestige Consumer Healthcare Inc. and our subsidiaries. Similarly, reference to a year (e.g., 2021) refers to our fiscal year ended March 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 products to mass merchandisers, 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 marketing support, new sales and marketing strategies, improved packaging and formulations, and innovative development of brand extensions.

Coronavirus Outbreak
In January 2020, the World Health Organization ("WHO") announced a global health crisis due to a new strain of coronavirus ("COVID-19"). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic. This pandemic is affecting the United States and global economies, including causing significant volatility in the global economy and resulting in materially reduced economic activity. The COVID-19 pandemic and the corresponding government responses have led to increased unemployment and economic uncertainty, which could lead to a further reduction in consumer spending. Economic conditions are, and we expect that they will continue to be, highly volatile and uncertain. Recessionary conditions could reduce demand for our products and put downward pressure on prices. If the outbreak continues to spread or if we continue to experience a period of recession or enter a depression, it may materially affect our operations and those of third parties on which we rely, including causing disruptions in the supply and distribution of our products. We may need to limit operations and may experience material limitations in employee resources. We did see an increase in sales at the end of March 2020 related to shelter-at-home restrictions as we believe consumers stocked up as a result of COVID-19, followed by a temporary but significant decline in consumption in the first quarter and have since seen more stable consumer consumption and customer orders in recent weeks. Sales varied throughout the year with some categories positively impacted (for instance, Women’s Health, Oral Care and Dermatological) and some categories negatively impacted (for instance, Cough & Cold, and Gastrointestinal). The positively impacted categories benefited from the consumer shift to over-the-counter healthcare products as they looked to avoid doctor visits and increased focus on hygiene and self-care at home related to COVID-19. The declining categories were impacted by reduced incidence levels and usage rates due to shelter-at-home restrictions and limited travel related to COVID-19. Early in our first quarter of fiscal 2021, it had been reported to us that there had been an increase in absenteeism at our distribution center and with some of our suppliers; however, we have not experienced a material disruption to our overall supply chain to date. We also continue to see changes in the purchasing patterns of our consumers, including the frequency of visits by consumers to retailers and a shift in many markets to purchasing our products online. To date the pandemic has not had a material negative impact on our operations, overall demand for most of our products or resulting aggregate sales and earnings, and, as such, it has also not negatively impacted our liquidity position. We continue to generate
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operating cash flows to meet our short-term liquidity needs. These circumstances could change in this dynamic, unprecedented environment. The extent to which COVID-19 impacts our results and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19, and the actions to contain COVID-19 or treat its impact, among others. We do not yet know the full extent of its impacts on our business or the global economy. However, these effects could have a material, adverse impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely.

Tax Regulations
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Tax Cuts and Jobs Act, among other things, reduced the U.S. federal corporate tax rate from 35% to 21% and imposed a new minimum tax on Global Intangible Low-Taxed Income ("GILTI") earned by foreign subsidiaries. On July 20, 2020, final regulations were issued for GILTI which include a high-tax exception for income earned by foreign subsidiaries if the foreign tax rate is in excess of 90% of the U.S. tax rate of 21%. We calculated the potential impact of these final regulations and accounted for those impacts in the quarterly provision for the period ended September 30, 2020.
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Results of Operations

Three Months Ended September 30, 2020 compared to the Three Months Ended September 30, 2019

Total Segment Revenues

The following table represents total revenue by segment, including product groups, for the three months ended September 30, 2020 and 2019.
Three Months Ended September 30,
Increase (Decrease)
(In thousands)2020%2019%Amount%
North American OTC Healthcare
Analgesics$30,623 12.9 $28,831 12.1 $1,792 6.2 
Cough & Cold14,796 6.2 20,506 8.6 (5,710)(27.8)
Women's Health61,492 25.9 59,678 25.3 1,814 3.0 
Gastrointestinal31,718 13.4 32,214 13.5 (496)(1.5)
Eye & Ear Care26,767 11.3 22,286 9.4 4,481 20.1 
Dermatologicals27,875 11.7 28,039 11.8 (164)(0.6)
Oral Care21,944 9.2 21,063 8.8 881 4.2 
Other OTC1,360 0.6 1,261 0.5 99 7.9 
Total North American OTC Healthcare216,575 91.2 213,878 90.0 2,697 1.3 
International OTC Healthcare
Analgesics267 0.1 243 0.1 24 9.9 
Cough & Cold3,086 1.3 5,814 2.4 (2,728)(46.9)
Women's Health4,106 1.7 2,905 1.2 1,201 41.3 
Gastrointestinal6,379 2.7 9,028 3.8 (2,649)(29.3)
Eye & Ear Care3,037 1.3 3,185 1.3 (148)(4.6)
Dermatologicals836 0.4 576 0.2 260 45.1 
Oral Care3,134 1.3 2,439 1.0 695 28.5 
Other OTC— — 100.0 
Total International OTC Healthcare20,847 8.8 24,191 10.0 (3,344)(13.8)
Total Consolidated$237,422 100.0 $238,069 100.0 $(647)(0.3)

Total segment revenues for the three months ended September 30, 2020 were $237.4 million, a decrease of $0.6 million, or 0.3%, versus the three months ended September 30, 2019. The $0.6 million decrease was related to the decrease in our International OTC Healthcare segment, partly offset by an increase in our North American OTC Healthcare segment.

North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment increased $2.7 million, or 1.3%, during the three months ended September 30, 2020 versus the three months ended September 30, 2019. The three months ended September 30, 2020 were positively impacted by the Eye & Ear Care, Women’s Health, Analgesics, and Oral Care categories, but were partly offset by lower Cough & Cold, Gastrointestinal and Dermatologicals revenues. The positively impacted categories benefited from the consumer shift to over-the-counter healthcare products as they looked to avoid doctor visits and increased focus on hygiene and self-care at home related to COVID-19. The declining categories were impacted by reduced incidence levels and usage rates due to shelter-at-home restrictions and limited travel related to COVID-19.

International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment decreased $3.3 million, or 13.8%, during the three months ended September 30, 2020 versus the three months ended September 30, 2019. The $3.3 million decrease was attributable to decreased sales in our Australian subsidiary primarily related to the reduction in sales of Hydralyte due to both lower general
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consumer illnesses and activities such as athletics resulting from the various social distancing measures brought on by COVID-19.

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 September 30,
(In thousands)Increase (Decrease)
Gross Profit2020%2019%Amount%
North American OTC Healthcare$125,506 58.0 $120,947 56.5 $4,559 3.8 
International OTC Healthcare12,155 58.3 15,804 65.3 (3,649)(23.1)
$137,661 58.0 $136,751 57.4 $910 0.7 

Gross profit for the three months ended September 30, 2020 was relatively flat, increasing $0.9 million, or 0.7%, when compared with the three months ended September 30, 2019.  The increase in gross profit was due to the increase in the North American OTC Healthcare segment. As a percentage of total revenues, gross profit increased to 58.0% during the three months ended September 30, 2020, from 57.4% during the three months ended September 30, 2019. The increase in gross profit as a percentage of revenues was primarily a result of the fourth quarter 2020 completion of transitional costs associated with a new warehouse and distribution center.
North American OTC Healthcare Segment
Gross profit for the North American OTC Healthcare segment increased $4.6 million, or 3.8%, during the three months ended September 30, 2020 versus the three months ended September 30, 2019. As a percentage of North American OTC Healthcare revenues, gross profit increased to 58.0% during the three months ended September 30, 2020 from 56.5% during the three months ended September 30, 2019, primarily due to the fourth quarter 2020 completion of transitional costs associated with a new warehouse and distribution center and improved logistics costs resulting from our warehouse transition.

International OTC Healthcare Segment
Gross profit for the International OTC Healthcare segment decreased $3.6 million, or 23.1%, during the three months ended September 30, 2020 versus the three months ended September 30, 2019. As a percentage of International OTC Healthcare revenues, gross profit decreased to 58.3% during the three months ended September 30, 2020 from 65.3% during the three months ended September 30, 2019, primarily due to product mix.

Contribution Margin
Contribution margin is our segment measure of profitability. It is defined as gross profit less advertising and marketing 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 September 30,
(In thousands)Increase (Decrease)
Contribution Margin2020%2019%Amount%
North American OTC Healthcare$91,492 42.2 $86,352 40.4 $5,140 6.0 
International OTC Healthcare7,828 37.5 11,732 48.5 (3,904)(33.3)
 $99,320 41.8 $98,084 41.2 $1,236 1.3 

North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment increased $5.1 million, or 6.0%, during the three months ended September 30, 2020 versus the three months ended September 30, 2019. As a percentage of North American OTC Healthcare revenues, contribution margin increased to 42.2% during the three months ended September 30, 2020 from 40.4% during the three months ended September 30, 2019. The contribution margin increase as a percentage of revenues was primarily due to the increase in gross profit noted above.

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International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment decreased $3.9 million, or 33.3%, during the three months ended September 30, 2020 versus the three months ended September 30, 2019. As a percentage of International OTC Healthcare revenues, contribution margin decreased to 37.5% during the three months ended September 30, 2020 from 48.5% during the three months ended September 30, 2019. The contribution margin decrease as a percentage of revenues was primarily due to the decrease in gross profit noted above.
General and Administrative
General and administrative expenses were $20.4 million for the three months ended September 30, 2020 versus $22.5 million for the three months ended September 30, 2019. The decrease in general and administrative expenses was primarily due to a decrease in compensation costs resulting from attrition as well as reduced travel costs relating to COVID-19.

Depreciation and Amortization
Depreciation and amortization expenses were $6.0 million for the three months ended September 30, 2020 and $6.2 million for the three months ended September 30, 2019. The decrease in depreciation and amortization was primarily due to certain assets being fully depreciated in the first quarter of fiscal 2021.

Interest Expense
Interest expense was $21.3 million during the three months ended September 30, 2020, versus $24.5 million during the three months ended September 30, 2019. The average indebtedness decreased to $1.6 billion during the three months ended September 30, 2020 from $1.8 billion during the three months ended September 30, 2019. The average cost of borrowing decreased to 5.2% for the three months ended September 30, 2020 from 5.4% for the three months ended September 30, 2019.

Income Taxes
The provision for income taxes during the three months ended September 30, 2020 was $7.3 million versus $10.8 million during the three months ended September 30, 2019.  The effective tax rate during the three months ended September 30, 2020 was 14.1% versus 24.5% during the three months ended September 30, 2019. The decrease in the effective tax rate for the three months ended September 30, 2020 was primarily due to the application of final tax regulations issued for GILTI, and the discrete event pertaining to the release of the valuation allowance on prior year foreign tax credits.


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Results of Operations

Six Months Ended September 30, 2020 compared to the Six Months Ended September 30, 2019
Total Segment Revenues

The following table represents total revenue by segment, including product groups, for the six months ended September 30, 2020 and 2019.
Six Months Ended September 30,
Increase (Decrease)
(In thousands)2020%2019%Amount%
North American OTC Healthcare
Analgesics$58,490 12.5 $57,366 12.2 $1,124 2.0 
Cough & Cold28,234 6.0 37,846 8.0 (9,612)(25.4)
Women's Health126,902 27.3 119,256 25.5 7,646 6.4 
Gastrointestinal61,768 13.2 63,786 13.6 (2,018)(3.2)
Eye & Ear Care49,619 10.6 49,039 10.4 580 1.2 
Dermatologicals55,495 11.9 53,777 11.4 1,718 3.2 
Oral Care44,110 9.4 41,042 8.7 3,068 7.5 
Other OTC2,615 0.6 2,550 0.5 65 2.5 
Total North American OTC Healthcare427,233 91.5 424,662 90.3 2,571 0.6 
International OTC Healthcare
Analgesics541 0.1 473 0.1 68 14.4 
Cough & Cold6,988 1.5 11,196 2.4 (4,208)(37.6)
Women's Health6,537 1.4 5,324 1.1 1,213 22.8 
Gastrointestinal12,084 2.6 16,013 3.4 (3,929)(24.5)
Eye & Ear Care5,582 1.2 6,196 1.3 (614)(9.9)
Dermatologicals1,535 0.3 1,266 0.3 269 21.2 
Oral Care6,313 1.4 5,091 1.1 1,222 24.0 
Other OTC— — 50.0 
Total International OTC Healthcare39,583 8.5 45,561 9.7 (5,978)(13.1)
Total Consolidated$466,816 100.0 $470,223 100.0 $(3,407)(0.7)

Total segment revenues for the six months ended September 30, 2020 were $466.8 million, a decrease of $3.4 million, or 0.7%, versus the six months ended September 30, 2019. The $3.4 million decrease was related to the decrease in our International OTC Healthcare segment.

North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment increased $2.6 million, or 0.6%, during the six months ended September 30, 2020 versus the six months ended September 30, 2019. The six months ended September 30, 2020 were positively impacted by the Women's Health, Oral Care, Dermatologicals, Analgesics, and Eye & Ear Care categories, but were partly offset by lower Cough & Cold and Gastrointestinal revenues. The positively impacted categories benefited from the consumer shift to over-the-counter healthcare products as they looked to avoid doctor visits and increased focus on hygiene and self-care at home related to COVID-19. The categories with revenue decreases faced declines in incidence levels and usage rates due to shelter-at-home restrictions and limited travel related to COVID-19.

International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment decreased $6.0 million, or 13.1%, during the six months ended September 30, 2020 versus the six months ended September 30, 2019. The $6.0 million decrease was primarily attributable to decreased sales in our Australian subsidiary, primarily related to the reduction in sales of Hydralyte due to both lower general consumer illnesses and activities such as athletics resulting from the various social distancing measures brought on by COVID-19.
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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.
Six Months Ended September 30,
(In thousands)Increase (Decrease)
Gross Profit 2020%2019%Amount%
North American OTC Healthcare $248,337 58.1 $242,920 57.2 $5,417 2.2 
International OTC Healthcare 23,192 58.6 27,898 61.2 (4,706)(16.9)
 $271,529 58.2 $270,818 57.7 $711 0.3 

Gross profit for the six months ended September 30, 2020 was relatively flat, increasing $0.7 million, or 0.3%, when compared with the six months ended September 30, 2019.  The increase in gross profit was primarily due to the increase in the North American OTC Healthcare segment. As a percentage of total revenues, gross profit increased to 58.2% during the six months ended September 30, 2020, from 57.7% during the six months ended September 30, 2019. The increase in gross profit as a percentage of revenues was primarily a result of the fourth quarter 2020 completion of transitional costs associated with a new warehouse and distribution center and improved logistics costs resulting from our warehouse transition.
North American OTC Healthcare Segment
Gross profit for the North American OTC Healthcare segment increased $5.4 million, or 2.2%, during the six months ended September 30, 2020 versus the six months ended September 30, 2019. As a percentage of North American OTC Healthcare revenues, gross profit increased to 58.1% during the six months ended September 30, 2020 from 57.2% during the six months ended September 30, 2019, primarily due to the fourth quarter completion of transitional costs associated with a new warehouse and distribution center and improved logistics costs resulting from our warehouse transition.

International OTC Healthcare Segment
Gross profit for the International OTC Healthcare segment decreased $4.7 million, or 16.9%, during the six months ended September 30, 2020 versus the six months ended September 30, 2019. As a percentage of International OTC Healthcare revenues, gross profit decreased to 58.6% during the six months ended September 30, 2020 from 61.2% during the six months ended September 30, 2019, primarily due to product mix.

Contribution Margin
Contribution margin is our segment measure of profitability. It is defined as gross profit less advertising and marketing 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.
Six Months Ended September 30,
(In thousands)Increase (Decrease)
Contribution Margin2020%2019%Amount%
North American OTC Healthcare$189,643 44.4 $177,311 41.8 $12,332 7.0 
International OTC Healthcare15,795 39.9 20,039 44.0 (4,244)(21.2)
 $205,438 44.0 $197,350 42.0 $8,088 4.1 
    
North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment increased $12.3 million, or 7.0%, during the six months ended September 30, 2020 versus the six months ended September 30, 2019. As a percentage of North American OTC Healthcare revenues, contribution margin increased to 44.4% during the six months ended September 30, 2020 from 41.8% during the six months ended September 30, 2019. The contribution margin increase as a percentage of revenues was primarily due to the increase in gross profit noted above as well as a decrease in the first quarter of 2021 in advertising and marketing reflecting spend efficiencies and reductions across brands/categories driven by consumer behavior.

International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment decreased $4.2 million, or 21.2%, during the six months ended September 30, 2020 versus the six months ended September 30, 2019. As a percentage of International OTC Healthcare
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revenues, contribution margin decreased to 39.9% during the six months ended September 30, 2020 from 44.0% during the six months ended September 30, 2019. The contribution margin decrease as a percentage of revenues was primarily due to the decrease in gross profit noted above.
General and Administrative
General and administrative expenses were $40.3 million for the six months ended September 30, 2020 versus $44.2 million for the six months ended September 30, 2019. The decrease in general and administrative expenses was primarily due to a decrease in compensation costs resulting from attrition as well as reduced travel costs relating to COVID-19.

Depreciation and Amortization
Depreciation and amortization expenses were $12.1 million for the six months ended September 30, 2020 and $12.3 for the six months ended September 30, 2019. The decrease in depreciation and amortization expenses was primarily due to certain assets being fully depreciated in the first quarter of fiscal 2021.

Interest Expense
Interest expense was $43.3 million during the six months ended September 30, 2020, versus $49.6 million during the six months ended September 30, 2019. The average indebtedness decreased to $1.7 billion during the six months ended September 30, 2020 from $1.8 billion during the six months ended September 30, 2019. The average cost of borrowing decreased to 5.1% for the six months ended September 30, 2020 from 5.5% for the six months ended September 30, 2019.

Income Taxes
The provision for income taxes during the six months ended September 30, 2020 was $21.8 million versus $22.9 million during the six months ended September 30, 2019.  The effective tax rate during the six months ended September 30, 2020 was 19.8% versus 25.4% during the six months ended September 30, 2019. The decrease in the effective tax rate for the six months ended September 30, 2020 was primarily due to the application of final tax regulations issued for GILTI, and the discrete event pertaining to the release of the valuation allowance on prior year foreign tax credits.

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, capital expenditures, 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. See "Coronavirus Outbreak" above.

As of September 30, 2020, we had cash and cash equivalents of $26.6 million, a decrease of $68.2 million from March 31, 2020. The following table summarizes the change:

 Six Months Ended September 30,
(In thousands)20202019$ Change
Cash provided by (used in): 
Operating Activities$127,293 $103,000 $24,293 
Investing Activities(11,619) (5,822)(5,797)
Financing Activities(186,666) (96,312)(90,354)
Effects of exchange rate changes on cash and cash equivalents2,835 (491)3,326 
Net change in cash and cash equivalents$(68,157)$375 $(68,532)

Operating Activities
Net cash provided by operating activities was $127.3 million for the six months ended September 30, 2020, compared to $103.0 million for the six months ended September 30, 2019. The $24.3 million increase was due to an increase in net income after non-cash items.

Investing Activities
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Net cash used in investing activities was $11.6 million for the six months ended September 30, 2020, compared to $5.8 million for the six months ended September 30, 2019. The increase was due to an increase in capital expenditures in the current period.

Financing Activities
Net cash used in financing activities was $186.7 million for the six months ended September 30, 2020, compared to $96.3 million for the six months ended September 30, 2019.  The increase was primarily due to increased repayments of debt of $109.0 million and decreased borrowings of $30.0 million in the current period, partly offset by a decrease from the repurchase of common stock of $49.0 million compared to the prior period.

Capital Resources

As of September 30, 2020, we had an aggregate of $1.6 billion of outstanding indebtedness, which consisted of the following:

$400.0 million of 5.125% 2019 Senior Notes, which mature on January 15, 2028;
$600.0 million of 6.375% 2016 Senior Notes, which mature on March 1, 2024; and
$560.0 million of borrowings under the 2012 Term B-5 Loans due January 26, 2024.

As of September 30, 2020, we had no balance outstanding on 2012 ABL Revolver and a borrowing capacity of $132.7 million.

During the years ended March 31, 2020 and 2019, under the 2012 Term Loan, we made voluntary principal payments against outstanding indebtedness of $48.0 million and $200.0 million, respectively. During the six months ended September 30, 2020, we made voluntary principal payments against outstanding indebtedness of $130.0 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 of September 30, 2020, was $560.0 million. Since we have made optional payments this year and 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 maturity on January 26, 2024.

Maturities:
(In thousands)
Year Ending March 31,Amount
2021 (remaining six months ending March 31, 2021)$— 
2022— 
2023— 
20241,160,000 
2025— 
Thereafter400,000 
$1,560,000 

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 September 30, 2020 and thereafter (defined as, with certain adjustments, the ratio of our consolidated total net debt as of the last day of the fiscal quarter to our trailing twelve month consolidated net income before interest, taxes, depreciation, amortization, non-cash charges and certain other items (“EBITDA”));

Have an interest coverage ratio of greater than 2.25 to 1.0 for the quarter ended September 30, 2020 and thereafter (defined as, with certain adjustments, the ratio of our consolidated EBITDA to our trailing twelve month consolidated cash interest expense); and

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Have a fixed charge ratio of greater than 1.0 to 1.0 for the quarter ended September 30, 2020 (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.

At September 30, 2020, 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. Additionally, management anticipates that in the normal course of operations, we will be in compliance with the financial and restrictive covenants during the next twelve months.

Interest Rate Swaps:
We currently have two interest rate swaps to hedge a total of $400.0 million of our variable interest debt. Of these, $200.0 million mature on January 31, 2021 and $200.0 million mature on January 31, 2022.

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 ended March 31, 2020.  There were no material changes to our critical accounting policies during the six months ended September 30, 2020.

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.

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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 the SEC, 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 impact of the COVID-19 pandemic or other disease outbreaks on global economic conditions, consumer demand, retailer product availability, and business operations including manufacturing, supply chain and distribution;
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 marketing 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;
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;
Shortages of supply of sourced goods;
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;
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, state and other geographic tax laws.
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For more information, see Part I, Item 1A., "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020.
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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to changes in interest rates because our 2012 Term Loan and 2012 ABL Revolver are variable rate debt. To manage this risk, we use interest rate swaps to hedge a total of $400.0 million of this variable rate debt.  At September 30, 2020, approximately $160.0 million of our debt carries a variable rate of interest.

Holding other variables constant, including levels of indebtedness, a 1.0% increase in interest rates on our variable rate debt would have an adverse impact on pre-tax earnings and cash flows for the three and six months ended September 30, 2020 of approximately $0.5 million and $1.4 million, respectively.

Foreign Currency Exchange Rate Risk

During the three and six months ended September 30, 2020, approximately 11.3% and 10.7%, respectively, of our gross revenues were denominated in currencies other than the U.S. Dollar. During the three and six months ended September 30, 2019, approximately 11.5% and 11.0%, respectively, of our gross revenues were denominated in currencies other than the U.S. Dollar. As such, we are exposed to transactions that are sensitive to foreign currency exchange rates. These transactions are primarily with respect to the Canadian and Australian Dollars.

We performed a sensitivity analysis with respect to exchange rates for the three and six months ended September 30, 2020 and 2019. Holding all other variables constant, and assuming a hypothetical 10.0% adverse change in foreign currency exchange rates, this analysis resulted in a less than 5.0% impact on pre-tax income of approximately $1.0 million for the three months ended September 30, 2020 and approximately $2.0 million for the six months ended September 30, 2020. It represented a less than 5% impact on pre-tax income of approximately $1.6 million for the three months ended September 30, 2019 and approximately $2.5 million for the six months ended September 30, 2019.

ITEM 4.    CONTROLS AND PROCEDURES
              
Disclosure Controls and Procedures

The Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a–15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of September 30, 2020.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2020, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II.    OTHER INFORMATION

ITEM 1A. RISK FACTORS

You should carefully consider the risk factors discussed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended March 31, 2020, which could materially affect our business, financial condition or future results of operations. The risk factors described in our Annual Report on Form 10-K have not materially changed in the period covered by this Quarterly Report on Form 10-Q, but such risks are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations.

Our quarterly operating results and revenues may fluctuate as a result of any of these or other factors. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year, and revenues for any particular future period may decrease.  In the future, operating results may fall below the expectations of securities analysts and investors.  In that event, the market price of our outstanding securities could be adversely impacted.

ITEM 2.    ISSUER PURCHASES OF EQUITY SECURITIES

PeriodTotal Number of Shares Purchased (a)Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
July 1 to July 31, 2020— $— — $— 
August 1 to August 31, 2020— $— — $— 
September 1 to September 30, 202028,865 $34.55 28,865 $17,257,276 
Total28,865 28,865 
(a) These repurchases were made pursuant to our share repurchase program, which was announced on March 2, 2020 and permits the repurchase of up to $25.0 million of our common stock through March 2021.

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ITEM 6.     EXHIBITS

3.1
3.1.1
3.2
31.1
31.2
32.1
32.2
*Incorporated herein by reference.
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 PRESTIGE CONSUMER HEALTHCARE INC. 
    
    
Date:November 5, 2020By:/s/ Christine Sacco 
  Christine Sacco 
  Chief Financial Officer 
  (Principal Financial Officer and Duly Authorized Officer) 
   


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