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The following discussion of our financial condition and results of operations should be read together with the Condensed Consolidated Financial Statements and the related notes included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2022 . This discussion and analysis may contain forward-looking statements that involve certain risks, assumptions and uncertainties. Future results could differ materially from the discussion that follows for many reasons, including the factors described in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2022 and in future reports filed with theU.S. Securities and Exchange Commission ("SEC").
See also “Cautionary Statement Regarding Forward-Looking Statements” on page 33 of this Quarterly Report on Form 10-Q.
Unless otherwise indicated by the context, all references in this Quarterly Report on Form 10-Q to "we," "us," "our," the "Company" or "Prestige" refer toPrestige Consumer Healthcare Inc. and our subsidiaries. Similarly, reference to a year (e.g., 2023) refers to our fiscal year endedMarch 31 of that year.
General
We are engaged in the development, manufacturing, marketing, sales and
distribution of well-recognized, brand name, over-the-counter ("OTC") healthcare
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 well-recognized brands
from consumer products and pharmaceutical companies and 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.
Acquisition
Acquisition of Akorn OnJuly 1, 2021 , we completed the acquisition of the consumer health business assets fromAkorn Operating Company LLC ("Akorn") pursuant to an Asset Purchase Agreement, datedMay 27, 2021 (the "Purchase Agreement"), for a purchase price of$228.9 million in cash, subject to certain closing adjustments specified in the Purchase Agreement. As a result of the purchase, we acquired TheraTears and certain other over-the-counter consumer brands. The financial results from this acquisition are included in ourNorth American and International OTC Healthcare segments. The purchase price was funded by a combination of available cash on hand, additional borrowings under our asset-based revolving credit facility entered intoJanuary 31, 2012 , as amended (the "2012 ABL Revolver") and the net proceeds from the refinancing of our term loan entered into onJanuary 31, 2012 (the "2012 Term Loan"). The acquisition was accounted for as a business combination. In connection with the acquisition, we also entered into a supply arrangement with Akorn for a term of three years with optional renewals at prevailing market rates.
We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the
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(In thousands)
July 1, 2021
Inventories $ 6,455
Goodwill 1,098
Intangible assets 225,410
Total assets acquired 232,963
Accounts payable 428
Reserves for sales allowances and cash discounts 497
Other accrued liabilities 3,124
Total liabilities assumed 4,049
Total purchase price $ 228,914
Based on this analysis, we allocated $195.9 million to non-amortizable
intangible assets and $29.5 million to amortizable intangible assets. The
non-amortizable intangible assets are classified as trademarks and, of the
amortizable intangible assets, $20.4 million are classified as customer
relationships and $9.1 million are classified as trademarks. We are amortizing
the purchased amortizable intangible assets on a straight-line basis over an
estimated weighted average useful life of 12.5 years.
We recorded goodwill of
Economic Environment There has been economic uncertainty inthe United States and globally due to several factors including global supply chain constraints, rising interest rates, a high inflationary environment, geopolitical events and the effects from the COVID-19 pandemic. We expect economic conditions will continue to be highly volatile and uncertain, put pressure on prices and supply and could affect demand for our products. In fiscal 2022, we experienced solid consumer consumption and share gains across most of our brand portfolio, however, that may not be sustained at the same levels in the uncertain economic environment. We have continued to see changes in the purchasing patterns of our consumers, including a reduction in the frequency of visits to retailers and a shift in many markets to purchasing our products online. The volatile environment has impacted the supply of labor and raw materials and exacerbated rising input costs. Although we have not experienced a material disruption to our overall supply chain to date, we have and may continue to experience shortages, delays and backorders for certain ingredients and products, difficulty scheduling shipping for our products, as well as price increases from many of our suppliers for both shipping and product costs. In addition, labor shortages have impacted our manufacturing operations and may impact our ability to supply certain products to our customers. To date, the pandemic and other global conditions have not had a material negative impact on our operations, supply chain, overall costs or 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, however, in this dynamic, unprecedented environment. If conditions cause further disruption in the global supply chain, the availability of labor and materials or otherwise increase costs, 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. The extent to which these conditions impact 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 and duration of any further COVID-19 outbreaks, global supply chain constraints, the high inflationary environment and further global instability. These effects could have a material adverse impact on our business, liquidity, capital resources, and results of operations and those of the third parties on which we rely. -24- --------------------------------------------------------------------------------
Results of Operations
Three Months Ended
Total Segment Revenues
The following table represents total revenue by segment, including product groups, for the three months ended
Three Months Ended
Increase (Decrease)
(In thousands) 2022 % 2021 % Amount %
North American OTC Healthcare
Analgesics $ 32,750 11.3 $ 29,943 10.8 $ 2,807 9.4
Cough & Cold 24,058 8.3 23,022 8.3 1,036 4.5
Women's Health 59,379 20.5 65,020 23.6 (5,641) (8.7)
Gastrointestinal 41,272 14.3 37,964 13.7 3,308 8.7
Eye & Ear Care 37,961 13.1 37,818 13.7 143 0.4
Dermatologicals 32,872 11.4 32,365 11.7 507 1.6
Oral Care 21,251 7.3 22,893 8.3 (1,642) (7.2)
Other OTC 2,511 0.9 2,703 1.0 (192) (7.1)
Total North American OTC
Healthcare 252,054 87.1 251,728 91.1 326 0.1
International OTC Healthcare
Analgesics $ 541 0.2 396 0.1 145 36.6
Cough & Cold 7,168 2.5 5,006 1.9 2,162 43.2
Women's Health 4,745 1.6 3,345 1.2 1,400 41.9
Gastrointestinal 16,037 5.5 8,641 3.1 7,396 85.6
Eye & Ear Care 4,734 1.7 2,988 1.1 1,746 58.4
Dermatologicals 902 0.3 839 0.3 63 7.5
Oral Care 3,080 1.1 3,278 1.2 (198) (6.0)
Other OTC 12 - 4 - 8 200.0
Total International OTC
Healthcare 37,219 12.9 24,497 8.9 12,722 51.9
Total Consolidated $ 289,273 100.0 $ 276,225 100.0 $ 13,048 4.7
Total revenues for the three months ended
North American OTC Healthcare Segment Revenues for theNorth American OTC Healthcare segment increased$0.3 million , or 0.1%, during the three months endedSeptember 30, 2022 versus the three months endedSeptember 30, 2021 . Revenues in the three months endedSeptember 30, 2022 were driven by continued strong performance across many of our key brands, particularly in the Gastrointestinal and Analgesics categories, partially offset by a decline in sales in theWomen's Health category, compared to the three months endedSeptember 30, 2021 . International OTC Healthcare Segment Revenues for theInternational OTC Healthcare segment increased$12.7 million , or 51.9%, during the three months endedSeptember 30, 2022 versus the three months endedSeptember 30, 2021 . The$12.7 million increase was mainly attributable to increased sales by our Australian subsidiary, primarily related to an increase in sales of Hydralyte (included in the Gastrointestinal category) as a result of easing COVID-19 restrictions, as well as an increase in consumer illnesses. -25- -------------------------------------------------------------------------------- Gross Profit The following table presents our gross profit and gross profit as a percentage of total segment revenues, by segment for each of the periods presented. Three Months Ended September 30, (In thousands) Increase (Decrease) Gross Profit 2022 % 2021 % Amount % North American OTC Healthcare 138,521 55.0$ 143,105 56.8$ (4,584) (3.2) International OTC Healthcare 22,488 60.4 14,607 59.6 7,881 54.0$ 161,009 55.7$ 157,712 57.1$ 3,297 2.1 Gross profit for the three months endedSeptember 30, 2022 increased$3.3 million , or 2.1%, when compared with the three months endedSeptember 30, 2021 . As a percentage of total revenues, gross profit decreased to 55.7% during the three months endedSeptember 30, 2022 , from 57.1% during the three months endedSeptember 30, 2021 . The decrease in gross profit as a percentage of revenues was primarily a result of increased supply chain costs and product mix. North American OTC Healthcare Segment Gross profit for theNorth American OTC Healthcare segment decreased$4.6 million , or 3.2%, during the three months endedSeptember 30, 2022 versus the three months endedSeptember 30, 2021 . As a percentage ofNorth American OTC Healthcare revenues, gross profit decreased to 55.0% during the three months endedSeptember 30, 2022 from 56.8% during the three months endedSeptember 30, 2021 , primarily due to increased supply chain costs and product mix, partly offset by pricing actions. International OTC Healthcare Segment Gross profit for theInternational OTC Healthcare segment increased$7.9 million , or 54.0%, during the three months endedSeptember 30, 2022 versus the three months endedSeptember 30, 2021 . As a percentage ofInternational OTC Healthcare revenues, gross profit increased to 60.4% during the three months endedSeptember 30, 2022 from 59.6% during the three months endedSeptember 30, 2021 , primarily due to product mix, partially offset by increased supply chain costs. 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 Margin 2022 % 2021 % Amount %
North American OTC Healthcare $ 99,205 39.4 $ 106,612 42.4 $ (7,407)
(6.9)
International OTC Healthcare 17,985 48.3 10,370 42.3 7,615 73.4
$ 117,190 40.5 $ 116,982 42.4 $ 208 0.2
North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment decreased $7.4
million , or 6.9%, during the three months ended September 30, 2022 versus the
three months ended September 30, 2021 . As a percentage of North American OTC
Healthcare revenues, contribution margin decreased to 39.4% during the three
months ended September 30, 2022 from 42.4% during the three months ended
September 30, 2021 . The contribution margin decrease as a percentage of revenues
was primarily due to the decrease in gross profit noted above, as well as an
increase in advertising and marketing spend in the three months ended September
30, 2022 .
International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment increased $7.6
million , or 73.4%, during the three months ended September 30, 2022 versus the
three months ended September 30, 2021 . As a percentage of International OTC
Healthcare revenues, contribution margin increased to 48.3% during the three
months ended September 30, 2022 from 42.3%
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during the three months ended September 30, 2021 . The contribution margin
increase as a percentage of revenues was primarily due to the increase in gross
profit noted above.
General and Administrative
General and administrative expenses were $26.4 million for the three months
ended September 30, 2022 and $32.3 million for the three months ended September
30, 2021 . The decrease in general and administrative expenses was primarily due
to acquisition costs in the prior period associated with the Akorn acquisition.
Depreciation and Amortization
Depreciation and amortization expenses were $6.4 million for the three months
ended September 30, 2022 and $6.2 million for the three months ended September
30, 2021 .
Interest Expense, Net
Interest expense, net was $17.0 million during the three months ended September
30, 2022 versus $16.3 million during the three months ended September 30, 2021 .
The average indebtedness decreased to $1.5 billion during the three months ended
September 30, 2022 from $1.6 billion during the three months ended September 30,
2021 . The average cost of borrowing increased to 4.6% for the three months ended
September 30, 2022 from 3.9% for the three months ended September 30, 2021 .
Loss on Extinguishment of Debt
During the three months ended September 30, 2021 , we recorded a loss on
extinguishment of debt of $2.1 million related to the amendment of our 2012 Term
Loan on July 1, 2021 .
Income Taxes
The provision for income taxes during the three months ended September 30, 2022
was $15.6 million versus $14.3 million during the three months ended September
30, 2021 . The effective tax rate during the three months ended September 30,
2022 was 23.4% versus 24.0% during the three months ended September 30, 2021 .
The decrease in the effective tax rate in the three months ended September 30,
2022 was due to the impact of discrete items primarily pertaining to state tax
rate legislative changes and share-based compensation.
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Results of Operations
Six Months Ended
Total Segment Revenues
The following table represents total revenue by segment, including product groups, for the six months ended
Six Months Ended
Increase (Decrease)
(In thousands) 2022 % 2021 % Amount %
North American OTC Healthcare
Analgesics $ 60,547 10.7 $ 62,764 11.5 $ (2,217) (3.5)
Cough & Cold 45,650 8.1 37,067 6.8 8,583 23.2
Women's Health 120,563 21.3 128,268 23.6 (7,705) (6.0)
Gastrointestinal 81,339 14.4 80,330 14.7 1,009 1.3
Eye & Ear Care 76,572 13.4 73,805 13.5 2,767 3.7
Dermatologicals 62,327 11.0 63,515 11.7 (1,188) (1.9)
Oral Care 42,226 7.5 43,860 8.0 (1,634) (3.7)
Other OTC 5,348 0.9 4,512 0.8 836 18.5
Total North American OTC
Healthcare 494,572 87.3 494,121 90.6 451 0.1
International OTC Healthcare
Analgesics 994 0.2 802 0.1 192 23.9
Cough & Cold 13,439 2.3 9,853 1.8 3,586 36.4
Women's Health 9,612 1.8 7,289 1.4 2,323 31.9
Gastrointestinal 30,064 5.3 18,845 3.5 11,219 59.5
Eye & Ear Care 9,470 1.7 6,446 1.2 3,024 46.9
Dermatologicals 1,908 0.3 1,778 0.3 130 7.3
Oral Care 6,250 1.1 6,267 1.1 (17) (0.3)
Other OTC 23 - 5 - 18 360.0
Total International OTC
Healthcare 71,760 12.7 51,285 9.4 20,475 39.9
Total Consolidated $ 566,332 100.0 $ 545,406 100.0 $ 20,926 3.8
Total revenues for the six months ended September 30, 2022 were $566.3 million ,
an increase of $20.9 million , or 3.8%, versus the six months ended September 30,
2021 .
North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment increased $0.5 million ,
or 0.1%, during the six months ended September 30, 2022 versus the six months
ended September 30, 2021 . The increase in revenue in the six months ended
September 30, 2022 was driven by increased demand for certain brands, categories
and channels that had previously been impacted by the COVID-19 virus,
particularly the Cough & Cold and Eye & Ear Care categories, partially offset by
a decline in revenue in the Women's Health category. The six months ended
September 30, 2022 also benefited from the newly acquired brands as part of the
Akorn acquisition.
International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment increased $20.5 million ,
or 39.9%, during the six months ended September 30, 2022 versus the six months
ended September 30, 2021 . The $20.5 million increase was mainly attributable to
increased sales in our Australian subsidiary, primarily related to an increase
in sales of Hydralyte (included in the Gastrointestinal category) as a result of
easing COVID-19 restrictions, as well as an increase in consumer illnesses.
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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 2022 % 2021 % Amount %
North American OTC Healthcare $ 278,118 56.2 $ 286,094 57.9 $ (7,976)
(2.8)
International OTC Healthcare 43,010 59.9 30,630 59.7 12,380 40.4
$ 321,128 56.7 $ 316,724 58.1 $ 4,404 1.4
Gross profit for the six months ended September 30, 2022 increased $4.4 million ,
or 1.4%, when compared with the six months ended September 30, 2021 . As a
percentage of total revenues, gross profit decreased to 56.7% during the six
months ended September 30, 2022 , from 58.1% during the six months ended
September 30, 2021 , primarily due to increased supply chain costs and product
mix.
North American OTC Healthcare Segment
Gross profit for the North American OTC Healthcare segment decreased $8.0
million , or 2.8%, during the six months ended September 30, 2022 versus the six
months ended September 30, 2021 . As a percentage of North American OTC
Healthcare revenues, gross profit decreased to 56.2% during the six months ended
September 30, 2022 from 57.9% during the six months ended September 30, 2021 ,
primarily due to increased supply chain costs and product mix, partly offset by
pricing actions.
International OTC Healthcare Segment
Gross profit for the International OTC Healthcare segment increased $12.4
million , or 40.4%, during the six months ended September 30, 2022 versus the six
months ended September 30, 2021 . As a percentage of International OTC Healthcare
revenues, gross profit increased to 59.9% during the six months ended September
30, 2022 from 59.7% during the six months ended September 30, 2021 , primarily
due to product mix, partially offset by increased supply chain costs.
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 Margin 2022 % 2021 % Amount %
North American OTC Healthcare $ 203,390 41.1 $ 214,371 43.4 $ (10,981) (5.1)
International OTC Healthcare 33,968 47.3 22,184 43.3 11,784 53.1
$ 237,358 41.9 $ 236,555 43.4 $ 803 0.3
North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment decreased
$11.0 million , or 5.1%, during the six months ended September 30, 2022 versus
the six months ended September 30, 2021 . As a percentage of North American OTC
Healthcare revenues, contribution margin decreased to 41.1% during the six
months ended September 30, 2022 from 43.4% during the six months ended September
30, 2021 . The contribution margin decrease as a percentage of revenues was
primarily due to the decrease in gross profit margin noted above, as well as an
increase in advertising and marketing spend in the six months ended September
30, 2022 .
International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment increased $11.8
million , or 53.1%, during the six months ended September 30, 2022 versus the six
months ended September 30, 2021 . As a percentage of International OTC Healthcare
revenues, contribution margin increased to 47.3% during the six months ended
September 30, 2022 from 43.3% during the six months ended September 30, 2021 .
The contribution margin increase as a percentage of revenues was primarily due
to the increase in gross profit margin noted above.
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General and Administrative
General and administrative expenses were $53.2 million for the six months ended
September 30, 2022 and $54.7 million for the six months ended September 30,
2021 . The decrease in general and administrative expenses was primarily due to
acquisition costs in the prior period associated with the Akorn acquisition,
partially offset by increases in professional fees and compensation costs in the
six months ended September 30, 2022 .
Depreciation and Amortization
Depreciation and amortization expenses were $12.8 million for the six months
ended September 30, 2022 and $11.9 million for the six months ended September
30, 2021 . The increase in depreciation and amortization expenses was
attributable to an increase in amortization expense due to the addition of
certain brands purchased in conjunction with the Akorn and Zaditen acquisitions.
Interest Expense, Net
Interest expense, net was $32.3 million during the six months ended September
30, 2022 versus $31.4 million during the six months ended September 30, 2021 .
The average indebtedness decreased to $1.5 billion during the six months ended
September 30, 2022 from $1.6 billion during the six months ended September 30,
2021 . The average cost of borrowing increased to 4.3% for the six months ended
September 30, 2022 compared to 4.0% for the six months ended September 30, 2021 .
Loss on Extinguishment of Debt
During the six months ended September 30, 2021 , we recorded a loss on
extinguishment of debt of $2.1 million related to the amendment of our 2012 Term
Loan on July 1, 2021 .
Income Taxes
The provision for income taxes during the six months ended September 30, 2022
was $31.2 million versus $32.9 million during the six months ended September 30,
2021 . The effective tax rate during the six months ended September 30, 2022 was
22.7% versus 24.2% during the six months ended September 30, 2021 . The decrease
in the effective tax rate for the six months ended September 30, 2022 compared
to the six months ended September 30, 2021 was due to the impact of discrete
items primarily pertaining to state tax rate legislative changes and share-based
compensation.
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 for the next twelve months and the foreseeable future, 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 "Economic Environment" above. As ofSeptember 30, 2022 , we had cash and cash equivalents of$42.4 million , an increase of$15.3 million fromMarch 31, 2022 . The following table summarizes the change: Six Months Ended September 30, (In thousands) 2022 2021 $ Change Cash provided by (used in): Operating Activities$ 115,787 $ 130,499 $ (14,712) Investing Activities (3,423) (232,989) 229,566 Financing Activities (95,330) 114,184 (209,514) Effects of exchange rate changes on cash and cash equivalents (1,777) (1,178) (599) Net change in cash and cash equivalents$ 15,257 $ 10,516 $ 4,741 Operating Activities Net cash provided by operating activities was$115.8 million for the six months endedSeptember 30, 2022 , compared to$130.5 million for the six months endedSeptember 30, 2021 . The$14.7 million decrease was due to increased working capital, partly offset by an increase in net income before non-cash items.
Investing Activities
-30- -------------------------------------------------------------------------------- Net cash used in investing activities was$3.4 million for the six months endedSeptember 30, 2022 , compared to$233.0 million for the six months endedSeptember 30, 2021 . The decrease in net cash used in investing activities was due to the purchase of Akorn assets in the six months endedSeptember 30, 2021 . Financing Activities Net cash used in financing activities was$95.3 million for the six months endedSeptember 30, 2022 , compared to net cash provided by financing activities of$114.2 million for the six months endedSeptember 30, 2021 . This change was primarily due to lower net borrowings of$162.0 million , and the repurchase of shares of our common stock in conjunction with our share repurchase program of$50.0 million in the six months endedSeptember 30, 2022 .
Capital Resources
As of
•$400.0 million of 5.125% 2019 Senior Notes, which mature onJanuary 15, 2028 ; •$600.0 million of 3.750% 2021 Senior Notes, which mature onApril 1, 2031 ; and •$455.0 million of borrowings under the 2012 Term B-5 Loans dueJuly 1, 2028 .
As of
During the year endedMarch 31, 2022 , we made required repayments of$1.5 million as well as voluntary principal payments of$103.5 million against the outstanding balance under our 2012 Term Loan. During the six months endedSeptember 30, 2022 , we made a voluntary principal repayment of$40.0 million against the outstanding balance under our 2012 Term Loan. Since we have made optional payments that exceed all of our required quarterly payments, we will not be required to make another payment on the 2012 Term Loan until maturity. Maturities: (In thousands) Year Ending March 31, Amount 2023 (remaining six months ending March 31, 2023) $ - 2024 - 2025 - 2026 - 2027 - Thereafter 1,455,000$ 1,455,000 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 2021 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 endedSeptember 30, 2022 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 endedSeptember 30, 2022 and thereafter (defined as, with certain adjustments, the ratio of our consolidated EBITDA to our trailing twelve month consolidated cash interest expense); and -31- -------------------------------------------------------------------------------- •Have a fixed charge ratio of greater than 1.0 to 1.0 for the quarter endedSeptember 30, 2022 (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. AtSeptember 30, 2022 , 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 2021 Senior Notes and the 2019 Senior Notes. 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.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on our knowledge of current events and actions that we may undertake in the future, actual results could differ from those estimates. A summary of our critical accounting policies is presented in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2022 . There were no material changes to our critical accounting policies during the six months endedSeptember 30, 2022 . 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. -32- --------------------------------------------------------------------------------
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), including, without limitation, information within Management's Discussion and Analysis of Financial Condition and Results of Operations. The following cautionary statements are being made pursuant to the provisions of the PSLRA and with the intention of obtaining the benefits of the "safe harbor" provisions of the PSLRA. Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required under federal securities laws and the rules and regulations of theSEC , we do not intend to update any forward-looking statements to reflect events or circumstances arising after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements included in this Quarterly Report on Form 10-Q or that may be made elsewhere from time to time by, or on behalf of, us. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. These forward-looking statements generally can be identified by the use of words or phrases such as "believe," "anticipate," "expect," "estimate," "plan," "project," "intend," "strategy," "goal," "objective," "future," "seek," "may," "might," "should," "would," "will," "will be," 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: •Price increases for raw materials, labor, energy and transportation costs, and for other input costs; •Disruptions of supply of sourced goods or components; •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; •The success of 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; •Changes by retailers in inventory management practices, delivery requirements, and demands for marketing and promotional spending in order to retain or increase shelf space or online share; •Our inability to grow our international sales; •General economic conditions and incidence levels affecting sales of our products and their respective markets; •Volatility in or worsening conditions from geopolitical conflicts, public health issues, and other factors beyond our control; •Financial factors, such as increases in interest rates and currency exchange rate fluctuations; •Changing consumer trends, additional store brand or branded competition, accelerating shifts to online shopping or pricing pressures; •Our dependence on third-party manufacturers to produce many of the products we sell and our ability to transfer production to our own facilities or other third-party suppliers; •Our dependence on third-party logistics providers to distribute our products to customers; •Disruptions in our distribution center or manufacturing facility; •Potential changes in export/import and trade laws, regulations and policies including any increased trade restrictions or tariffs; •Acquisitions, dispositions or other strategic transactions diverting managerial resources, and creating additional liabilities; •Actions of government agencies in connection with our manufacturing plant, 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 information technology systems from threats or disruptions; •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; -33- -------------------------------------------------------------------------------- •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 or to obtain additional financing; •The restrictions imposed by our financing agreements on our operations; and •Changes in federal, state and other geographic tax laws.
For more information, see Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
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