PRESTIGE CONSUMER HEALTHCARE INC. The following discussion of our financial condition and results of operations should be read together with the Condensed Consolidated Financial Statements and the related notes included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year endedMarch 31, 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 34 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. -25- --------------------------------------------------------------------------------
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 $ 29,396 10.7 $ 30,805 11.2 $ (1,409) (4.6)
Cough & Cold 31,246 11.3 25,861 9.4 5,385 20.8
Women's Health 53,918 19.5 61,826 22.6 (7,908) (12.8)
Gastrointestinal 38,194 13.9 34,830 12.7 3,364 9.7
Eye & Ear Care 32,653 11.9 35,996 13.1 (3,343) (9.3)
Dermatologicals 27,223 9.9 26,589 9.7 634 2.4
Oral Care 21,371 7.8 22,202 8.1 (831) (3.7)
Other OTC 2,883 1.0 2,748 1.0 135 4.9
Total North American OTC
Healthcare 236,884 86.0 240,857 87.8 (3,973) (1.6)
International OTC Healthcare
Analgesics $ 648 0.2 $ 225 0.1 423 188.0
Cough & Cold 6,336 2.3 5,864 2.1 472 8.0
Women's Health 4,138 1.5 3,741 1.4 397 10.6
Gastrointestinal 18,555 6.6 16,423 5.9 2,132 13.0
Eye & Ear Care 5,229 2.0 3,572 1.3 1,657 46.4
Dermatologicals 978 0.4 777 0.3 201 25.9
Oral Care 2,738 1.0 3,007 1.1 (269) (8.9)
Other OTC 18 - 4 - 14 350.0
Total International OTC
Healthcare 38,640 14.0 33,613 12.2 5,027 15.0
Total Consolidated $ 275,524 100.0 $ 274,470 100.0 $ 1,054 0.4
Total revenues for the three months ended December 31, 2022 were $275.5 million ,
an increase of $1.1 million , or 0.4%, versus the three months ended December 31,
2021 .
North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment decreased $4.0 million ,
or 1.6%, during the three months ended December 31, 2022 versus the three months
ended December 31, 2021 . The $4.0 million decrease was primarily attributable to
a decline in sales in the Women's Health and Eye & Ear categories, partially
offset by an increase in sales in the Cough & Cold and Gastrointestinal
categories.
International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment increased $5.0 million , or
15.0%, during the three months ended December 31, 2022 versus the three months
ended December 31, 2021 . The $5.0 million increase was mainly attributable to
increased consumer demand across the segment's key brands, largely 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.
Three Months Ended December 31,
(In thousands) Increase (Decrease)
Gross Profit 2022 % 2021 % Amount %
North American OTC Healthcare $ 126,330 53.3 $ 134,067 55.7 $ (7,737) (5.8)
International OTC Healthcare 24,072 62.3 20,993 62.5 3,079 14.7
$ 150,402 54.6 $ 155,060 56.5 $ (4,658) (3.0)
Gross profit for the three months ended December 31, 2022 decreased $4.7
million , or 3.0%, when compared with the three months ended December 31,
2021 . As a percentage of total revenues, gross profit decreased to 54.6% during
the three months ended December 31, 2022 , from 56.5% during the three months
ended December 31, 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 the North American OTC Healthcare segment decreased $7.7
million , or 5.8%, during the three months ended December 31, 2022 versus the
three months ended December 31, 2021 . As a percentage of North American OTC
Healthcare revenues, gross profit decreased to 53.3% during the three months
ended December 31, 2022 from 55.7% during the three months ended December 31,
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 $3.1
million , or 14.7%, during the three months ended December 31, 2022 versus the
three months ended December 31, 2021 . As a percentage of International OTC
Healthcare revenues, gross profit decreased slightly to 62.3% during the three
months ended December 31, 2022 from 62.5% during the three months ended December
31, 2021 , primarily due to increased supply chain costs, partly offset by
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 December 31,
(In thousands) Increase (Decrease)
Contribution Margin 2022 % 2021 % Amount %
North American OTC Healthcare $ 101,499 42.8 $ 99,160 41.2 $ 2,339 2.4
International OTC Healthcare 18,480 47.8 15,661 46.6 2,819 18.0
$ 119,979 43.5 $ 114,821 41.8 $ 5,158 4.5
North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment increased $2.3
million , or 2.4%, during the three months ended December 31, 2022 versus the
three months ended December 31, 2021 . As a percentage of North American OTC
Healthcare revenues, contribution margin increased to 42.8% during the three
months ended December 31, 2022 from 41.2% during the three months ended December
31, 2021 . The contribution margin increase as a percentage of revenues was
primarily due to lower advertising and marketing spend in the three months ended
December 31, 2022 , partly offset by the decrease in gross profit discussed
above.
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International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment increased $2.8
million , or 18.0%, during the three months ended December 31, 2022 versus the
three months ended December 31, 2021 . As a percentage of International OTC
Healthcare revenues, contribution margin increased to 47.8% during the three
months ended December 31, 2022 from 46.6% during the three months ended December
31, 2021 . The contribution margin increase as a percentage of revenues was
primarily due to lower advertising and marketing spend as a percent of net
sales.
General and Administrative
General and administrative expenses were $26.5 million for the three months
ended December 31, 2022 and $26.0 million for the three months ended December
31, 2021 . The increase in general and administrative expenses was primarily due
to increased compensation costs, partially offset by a decrease in professional
fees and acquisition costs incurred in the prior period associated with the
Akorn acquisition.
Depreciation and Amortization
Depreciation and amortization expenses remained relatively flat at $6.3 million
for the three months ended December 31, 2022 compared to $6.2 million for the
three months ended December 31, 2021 .
Interest Expense, Net
Interest expense, net was $17.9 million during the three months ended December
31, 2022 versus $16.9 million during the three months ended December 31, 2021 .
The average indebtedness decreased to $1.4 billion during the three months ended
December 31, 2022 from $1.6 billion during the three months ended December 31,
2021 . The average cost of borrowing increased to 5.0% for the three months ended
December 31, 2022 from 4.2% for the three months ended December 31, 2021 .
Income Taxes
The provision for income taxes during the three months ended December 31, 2022
was $16.2 million versus $15.3 million during the three months ended December
31, 2021 . The effective tax rate during the three months ended December 31, 2022
was 23.7% versus 23.3% during the three months ended December 31, 2021 . The
increase in the effective tax rate for the three months ended December 31, 2022
was due to the impact of discrete items primarily pertaining to stock-based
compensation.
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Nine Months Ended
Total Segment Revenues
The following table represents total revenue by segment, including product
groups, for the nine months ended
Nine Months Ended
Increase (Decrease)
(In thousands) 2022 % 2021 % Amount %
North American OTC Healthcare
Analgesics $ 89,943 10.7 $ 93,569 11.4 $ (3,626) (3.9)
Cough & Cold 76,896 9.1 62,928 7.7 13,968 22.2
Women's Health 174,481 20.7 190,094 23.1 (15,613) (8.2)
Gastrointestinal 119,533 14.2 115,160 14.0 4,373 3.8
Eye & Ear Care 109,225 13.0 109,801 13.4 (576) (0.5)
Dermatologicals 89,550 10.6 90,104 11.0 (554) (0.6)
Oral Care 63,597 7.6 66,062 8.1 (2,465) (3.7)
Other OTC 8,231 1.0 7,260 0.9 971 13.4
Total North American OTC
Healthcare 731,456 86.9 734,978 89.6 (3,522) (0.5)
International OTC Healthcare
Analgesics 1,642 0.2 1,027 0.1 615 59.9
Cough & Cold 19,775 2.4 15,717 2.0 4,058 25.8
Women's Health 13,750 1.6 11,030 1.3 2,720 24.7
Gastrointestinal 48,619 5.8 35,268 4.4 13,351 37.9
Eye & Ear Care 14,699 1.7 10,018 1.2 4,681 46.7
Dermatologicals 2,886 0.3 2,555 0.3 331 13.0
Oral Care 8,988 1.1 9,274 1.1 (286) (3.1)
Other OTC 41 - 9 - 32 355.6
Total International OTC
Healthcare 110,400 13.1 84,898 10.4 25,502 30.0
Total Consolidated $ 841,856 100.0 $ 819,876 100.0 $ 21,980 2.7
Total revenues for the nine months ended December 31, 2022 were $841.9 million ,
an increase of $22.0 million , or 2.7%, versus the nine months ended December 31,
2021 .
North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment decreased $3.5 million ,
or 0.5%, during the nine months ended December 31, 2022 versus the nine months
ended December 31, 2021 . The $3.5 million decrease was primarily attributable to
a decline in sales in the Women's Health category, partially offset by an
increase in sales in the Cough & Cold category.
International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment increased $25.5 million ,
or 30.0%, during the nine months ended December 31, 2022 versus the nine months
ended December 31, 2021 . The $25.5 million increase was mainly attributable to
increased sales in our Australian business of the Hydralyte brand (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.
Nine Months Ended December 31,
(In thousands) Increase (Decrease)
Gross Profit 2022 % 2021 % Amount %
North American OTC Healthcare $ 404,448 55.3 $ 420,161 57.2 $ (15,713) (3.7)
International OTC Healthcare 67,082 60.8 51,623 60.8 15,459 29.9
$ 471,530 56.0 $ 471,784 57.5 $ (254) (0.1)
Gross profit for the nine months ended December 31, 2022 was relatively flat,
decreasing $0.3 million , or 0.1%, when compared with the nine months ended
December 31, 2021 . As a percentage of total revenues, gross profit decreased to
56.0% during the nine months ended December 31, 2022 , from 57.5% during the nine
months ended December 31, 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 $15.7
million , or 3.7%, during the nine months ended December 31, 2022 versus the nine
months ended December 31, 2021 . As a percentage of North American OTC Healthcare
revenues, gross profit decreased to 55.3% during the nine months ended December
31, 2022 from 57.2% during the nine months ended December 31, 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 $15.5
million , or 29.9%, during the nine months ended December 31, 2022 versus the
nine months ended December 31, 2021 . As a percentage of International OTC
Healthcare revenues, gross profit remained flat at 60.8% during the nine months
ended December 31, 2022 compared to the nine months ended December 31, 2021 .
Increases in supply chain costs were mainly offset by 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.
Nine Months Ended December 31,
(In thousands) Increase (Decrease)
Contribution Margin 2022 % 2021 % Amount %
North American OTC Healthcare $ 304,889 41.7 $ 313,531 42.7 $ (8,642) (2.8)
International OTC Healthcare 52,448 47.5 37,845 44.6 14,603 38.6
$ 357,337 42.4 $ 351,376 42.9 $ 5,961 1.7
North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment decreased $8.6
million , or 2.8%, during the nine months ended December 31, 2022 versus the nine
months ended December 31, 2021 . As a percentage of North American OTC Healthcare
revenues, contribution margin decreased to 41.7% during the nine months ended
December 31, 2022 from 42.7% during the nine months ended December 31, 2021 . The
contribution margin decrease as a percentage of revenues was primarily due to
the decrease in gross profit margin noted above, partly offset by a decrease in
advertising and marketing spend in the nine months ended December 31, 2022 .
International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment increased $14.6
million , or 38.6%, during the nine months ended December 31, 2022 versus the
nine months ended December 31, 2021 . As a percentage of International OTC
Healthcare revenues, contribution margin increased to 47.5% during the nine
months ended December 31, 2022 from 44.6% during the nine months ended December
31, 2021 . The contribution margin increase as a percentage of revenues was
primarily due to lower advertising and marketing spend as a percent of net
sales.
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General and Administrative
General and administrative expenses were $79.7 million for the nine months ended
December 31, 2022 and $80.7 million for the nine months ended December 31, 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 compensation costs in the nine months ended
December 31, 2022 .
Depreciation and Amortization
Depreciation and amortization expenses were $19.1 million for the nine months
ended December 31, 2022 and $18.2 million for the nine months ended December 31,
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 our 2022 acquisitions.
Interest Expense, Net
Interest expense, net was $50.2 million during the nine months ended December
31, 2022 versus $48.3 million during the nine months ended December 31, 2021 .
The average indebtedness decreased to $1.5 billion during the nine months ended
December 31, 2022 from $1.6 billion during the nine months ended December 31,
2021 . The average cost of borrowing increased to 4.5% for the nine months ended
December 31, 2022 compared to 4.1% for the nine months ended December 31, 2021 .
Loss on Extinguishment of Debt
During the nine months ended December 31, 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 nine months ended December 31, 2022
was $47.4 million versus $48.2 million during the nine months ended December 31,
2021 . The effective tax rate during the nine months ended December 31, 2022 was
23.0% versus 23.9% during the nine months ended December 31, 2021 . The decrease
in the effective tax rate for the nine months ended December 31, 2022 compared
to the nine months ended December 31, 2021 was due to the impact of discrete
items primarily pertaining to state tax rate legislative changes and stock-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 ofDecember 31, 2022 , we had cash and cash equivalents of$86.4 million , an increase of$59.2 million fromMarch 31, 2022 . The following table summarizes the change: Nine Months Ended December 31, (In thousands) 2022 2021 $ Change Cash provided by (used in): Operating Activities$ 170,729 $ 196,796 $ (26,067) Investing Activities (5,226) (253,218) 247,992 Financing Activities (105,351) 46,546 (151,897) Effects of exchange rate changes on cash and cash equivalents (979) (1,408) 429 Net change in cash and cash equivalents$ 59,173 $ (11,284) $ 70,457 Operating Activities Net cash provided by operating activities was$170.7 million for the nine months endedDecember 31, 2022 , compared to$196.8 million for the nine months endedDecember 31, 2021 . The$26.1 million decrease was due to increased working capital, partly offset by an increase in net income before non-cash items.
Investing Activities
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Net cash used in investing activities was $5.2 million for the nine months ended
December 31, 2022 , compared to $253.2 million for the nine months ended
December 31, 2021 . The decrease in net cash used in investing activities was
primarily due to the purchase of Akorn assets in the nine months ended
December 31, 2021 .
Financing Activities
Net cash used in financing activities was $105.4 million for the nine months
ended December 31, 2022 , compared to net cash provided by financing activities
of $46.5 million for the nine months ended December 31, 2021 . This change was
primarily due to lower net borrowings of $107.0 million , and the repurchase of
shares of our common stock in conjunction with our share repurchase program of
$50.0 million in the nine months ended December 31, 2022 .
Capital Resources
As of
•$400.0 million of 5.125% 2019 senior unsecured notes, which mature onJanuary 15, 2028 (the "2019 Senior Notes"); •$600.0 million of 3.750% 2021 senior unsecured notes, which mature onApril 1, 2031 (the "2021 Senior Notes"); and •$440.0 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 nine months endedDecember 31, 2022 , we made voluntary principal repayments of$55.0 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 three months ending March 31, 2023) $ - 2024 - 2025 - 2026 - 2027 - Thereafter 1,440,000$ 1,440,000 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 ended
•Have an interest coverage ratio of greater than 2.25 to 1.0 for the quarter endedDecember 31, 2022 and thereafter (defined as, with certain adjustments, the ratio of our consolidated EBITDA to our trailing twelve month consolidated cash interest expense); and -32- -------------------------------------------------------------------------------- •Have a fixed charge ratio of greater than 1.0 to 1.0 for the quarter endedDecember 31, 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. AtDecember 31, 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 nine months endedDecember 31, 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. -33- --------------------------------------------------------------------------------
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; -34- -------------------------------------------------------------------------------- •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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