# BELLRING BRANDS, INC. (BRBR) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BELLRING BRANDS, INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1772016/000177201623000091/brbr-20230930.htm
Accession: 0001772016-23-000091
Filing date: 2023-11-21
Report date: 2023-09-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BRBR/
All MD&A years: /company/BRBR/mda/
Previous year: /company/BRBR/mda/fy2022/ (FY 2022)
Next year: /company/BRBR/mda/fy2024/ (FY 2024)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of BellRing Brands, Inc. (formerly known as BellRing Distribution, LLC) (“BellRing”) and its consolidated subsidiaries. This discussion should be read in conjunction with the financial statements under Item 8 of this report and the “Cautionary Statement on Forward-Looking Statements” on page 1.

The following should be read in conjunction with the discussion and analysis of our fiscal 2022 results compared to our fiscal 2021 results, including any related discussion of fiscal 2021 results and activity, which can be found in Item 7 of Part II under the title “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2022, and such discussion and analysis is incorporated by reference herein.

OVERVIEW

On October 21, 2019, BellRing Intermediate Holdings, Inc. (formerly known as BellRing Brands, Inc.) (“Old BellRing”) closed its initial public offering (the “IPO”) of 39.4 million shares of its Class A common stock, $0.01 par value per share (“Old BellRing Class A Common Stock”) and contributed the net proceeds from the IPO to BellRing Brands, LLC, a Delaware limited liability company and subsidiary of Old BellRing (“BellRing LLC”), in exchange for 39.4 million BellRing LLC non-voting membership units (the “BellRing LLC units”). As a result of the IPO and certain other transactions completed in connection with the IPO (the “formation transactions”), BellRing LLC became the holding company for the active nutrition business of Post Holdings, Inc. (“Post”). Old BellRing, as a holding company, had no material assets other than its ownership of BellRing LLC units and its indirect interests in the subsidiaries of BellRing LLC and had no independent means of generating revenue or cash flow. The members of BellRing LLC were Post and Old BellRing.

During the second quarter of fiscal 2022, Post completed its distribution of 80.1% of its ownership interest in BellRing to Post’s shareholders. On March 9, 2022, pursuant to the Transaction Agreement and Plan of Merger, dated as of October 26, 2021 (as amended by Amendment No. 1 to the Transaction Agreement and Plan of Merger, dated as of February 28, 2022, the “Transaction Agreement”), by and among Post, Old BellRing, BellRing and BellRing Merger Sub Corporation, a wholly-owned subsidiary of BellRing (“BellRing Merger Sub”), Post contributed its share of Old BellRing Class B common stock, $0.01 par value per share (“Old BellRing Class B Common Stock”), all of its BellRing LLC units and $550.4 million of cash to BellRing (collectively, the “Contribution”) in exchange for certain limited liability company interests of BellRing (prior to the conversion of BellRing into a Delaware corporation) and the right to receive $840.0 million in aggregate principal amount of BellRing’s 7.00% senior notes maturing in 2030 (the “7.00% Senior Notes”).

On March 10, 2022, BellRing converted into a Delaware corporation and changed its name to “BellRing Brands, Inc.”, and Post distributed an aggregate of 78.1 million, or 80.1%, of its shares of BellRing common stock, $0.01 par value per share (“BellRing Common Stock”) to Post shareholders in a pro-rata distribution (the “Distribution”).

Upon completion of the Distribution, BellRing Merger Sub merged with and into Old BellRing (the “Merger”), with Old BellRing continuing as the surviving corporation and becoming a wholly-owned subsidiary of BellRing. Pursuant to the Merger, each outstanding share of Old BellRing Class A Common Stock was converted into one share of BellRing Common Stock plus $2.97 in cash, or $115.5 million total consideration paid to Old BellRing Class A common stockholders pursuant to the Merger. As a result of the transactions described above (collectively, the “Spin-off”), BellRing became the new public parent company of, and successor issuer to, Old BellRing, and shares of BellRing Common Stock were deemed to be registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to Rule 12g-3(a) promulgated thereunder.

Immediately prior to the Spin-off, Post held 97.5 million BellRing LLC units, equal to 71.5% of the economic interest in BellRing LLC, and one share of Old BellRing Class B Common Stock, which represented 67% of the combined voting power of the common stock of Old BellRing.

Immediately following the Spin-off, Post owned 19.4 million shares, or 14.2%, of BellRing Common Stock, which did not represent a controlling interest in BellRing. As a result of the Spin-off, the dual class voting structure in the BellRing business was eliminated.

On August 11, 2022, Post transferred 14.8 million shares of its BellRing Common Stock to certain financial institutions in satisfaction of term loan obligations of Post, which reduced Post’s ownership of BellRing Common Stock to 3.4% as of September 30, 2022. In connection with this transaction, BellRing repurchased 0.8 million of the transferred shares from certain of the financial institutions.

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On November 25, 2022, Post transferred its remaining 4.6 million shares of BellRing Common Stock to certain financial institutions in satisfaction of term loan obligations of Post. In connection with this transaction, BellRing repurchased 0.9 million of the transferred shares from certain of the financial institutions. Post had no ownership of BellRing Common Stock as of September 30, 2023.

BellRing incurred separation-related expenses in connection with its separation from Post of $0.7 million and $14.5 million during the years ended September 30, 2023 and 2022, respectively. These expenses generally included third-party costs for advisory services, fees charged by other service providers and government filing fees and were included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.

The terms “BellRing,” “we,” “our,” “us,” “the Company” or “our Company” generally refer to Old BellRing and its consolidated subsidiaries during the periods prior to the Spin-off and to us and our consolidated subsidiaries during the periods subsequent to the Spin-off unless otherwise stated or context otherwise indicates. The term “Common Stock” generally refers to Old BellRing Class A Common Stock and Old BellRing Class B Common Stock during the periods prior to the Spin-off and to BellRing Common Stock during the periods subsequent to the Spin-off. The term “Net earnings available to common stockholders” generally refers to net earnings available to Old BellRing Class A common stockholders during the periods prior to the Spin-off and to net earnings available to BellRing common stockholders during the periods subsequent to the Spin-off.

We are a consumer products holding company operating in the global convenient nutrition category and are a provider of ready-to-drink (“RTD”) protein shakes, other RTD beverages and powders. We have a single operating and reportable segment, with our principal products being protein-based consumer goods. Our primary brands are Premier Protein and Dymatize.

Industry & Company Trends

The success of companies in the convenient nutrition category is driven by how well such companies can grow, develop and differentiate their brands. We expect the convergence of several factors to support the continued growth of the convenient nutrition category, including:

•consumers’ increasingly dedicated pursuit of active lifestyles and growing interest in nutrition and wellness;

•growing awareness of the numerous health benefits of protein, including sustained energy, muscle recovery and satiety; and

•a rise in snacking and the desire for products that can be consumed on-the-go as nutritious snacks or meal replacements.

Nonetheless, the consumer food and beverage industry faces a number of challenges and uncertainties, including:

•the highly competitive nature of the industry, which involves competition from a host of nutritional food and beverage companies, including manufacturers of other branded food and beverage products as well as manufacturers of private label and store brand products;

•changing consumer preferences which require food manufacturers to identify changing preferences and to offer products that appeal to consumers;

•supply chain challenges, including labor shortages and equipment delays, which have delayed capacity expansion across the broader third-party aseptic processing contract manufacturer network and are expected to continue into fiscal 2024; and

•inflationary pressures (see “Market Trends” below for information).

Seasonality

We have experienced in the past, and expect to continue to experience, seasonal fluctuations in our sales and operating profit margins because of customer spending patterns and timing of our key retailers’ promotional activity. Historically, our first fiscal quarter is seasonally low for all brands driven by a slowdown of consumption of our products during the holiday season. Sales are typically higher throughout the remainder of the fiscal year as a result of promotional activity at key retailers as well as organic growth of the business.

Market Trends

During fiscal 2023 and 2022, input cost inflation, including raw material, packaging and manufacturing costs, impacted our supply chain and put downward pressure on profit margins. As a result, we have taken pricing actions on nearly all products. We expect inflationary pressures on protein costs to ease in fiscal 2024, while other costs, such as packaging and manufacturing, to continue to face inflationary pressures in fiscal 2024. Inflation could have a materially adverse impact on our business in the future if inflation rates were to significantly exceed our ability to achieve price increases or cost savings or if such price increases impact demand for our products.

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For additional discussion, refer to “Liquidity and Capital Resources” within this section, as well as “Cautionary Statement on Forward-Looking Statements”on page 1 of this report and “Risk Factors” in Part I of this report.

Items Affecting Comparability

During the years ended September 30, 2023 and 2022, net sales and/or operating profit were impacted by the following items:

•accelerated amortization expense of $7.1 million for the year ended September 30, 2023 related to the discontinuance of the PowerBar business in North America;

•separation-related expenses in connection with our separation from Post of $0.7 million and $14.5 million for the years ended September 30, 2023 and 2022, respectively; and

•$5.0 million and $8.0 million of expense for the years ended September 30, 2023 and 2022, respectively, related to provisions for legal matters. For additional information, refer to Note 14 within “Notes to Consolidated Financial Statements” in Item 8 of this report.

For further discussion, refer to “Results of Operations” within this section.

RESULTS OF OPERATIONS

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Net Sales

Net sales increased $295.3 million, or 22%, during the year ended September 30, 2023 compared to the prior year. Sales of Premier Protein products were up $275.7 million, or 25%, on 11% higher volumes. Average net selling prices increased in the year ended September 30, 2023 due to targeted price increases taken to mitigate inflation. Volumes increased due to higher production, distribution gains and the reintroduction of certain RTD shake flavors. Sales of Dymatize products were up $22.8 million, or 11%, primarily driven by higher average net selling prices. Average net selling prices increased in the year ended September 30, 2023 due to targeted price increases, partially offset by increased promotional spending. In addition, Dymatize volumes increased 4% primarily driven by distribution gains. Sales of all other products were down $3.2 million.

Operating Profit

Operating profit increased $74.9 million, or 35%, during the year ended September 30, 2023 compared to the prior year. This increase was primarily driven by higher net sales, as previously discussed, and $13.8 million of lower costs related to the separation from Post. These positive impacts were partially offset by higher net product costs of $87.3 million primarily driven by unfavorable raw material and manufacturing costs, slightly offset by lower freight costs. In addition, we incurred the following higher expenses; (i) advertising expenses of $18.3 million, (ii) employee-related expenses of $9.2 million, (iii) professional fees of $8.3 million, and (iv) accelerated amortization expense of $7.1 million related to the discontinuance of the PowerBar business in North America.

Interest Expense, Net

Interest expense, net increased $17.7 million during the year ended September 30, 2023 compared to the prior year. This increase was primarily due to higher average outstanding principal amounts of debt, primarily resulting from the Spin-off, and a higher weighted-average interest rate compared to the prior year. The weighted-average interest rate on our total outstanding debt increased to 7.2% for the year ended September 30, 2023 from 6.2% for the year ended September 30, 2022, primarily driven by the issuance of our 7.00% Senior Notes during the second quarter of fiscal 2022. See Note 13 within “Notes to Consolidated Financial Statements” for additional information on our debt.

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Loss on Extinguishment and Refinancing of Debt, Net

During the year ended September 30, 2022, we recognized a $17.6 million loss related to the termination of our Old Credit Agreement (as defined in “Liquidity and Capital Resources”). This loss included (i) a $6.9 million write-off of unamortized discounts and debt extinguishment fees, (ii) a $6.1 million write-off of unamortized net hedging losses recorded within accumulated other comprehensive income or loss related to the Term B Facility (as defined in “Liquidity and Capital Resources”) and (iii) a $4.6 million write-off of debt issuance costs and deferred financing fees. See Note 13 within “Notes to Consolidated Financial Statements” for additional information on our debt.

Income Tax Expense

Our effective income tax rate for fiscal 2023 was 24.9% compared to 20.3% for fiscal 2022. The following table presents the reconciliation of income tax expense with amounts computed at the United States (“U.S.”) federal statutory tax rate.

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The increase in our effective income tax rate for fiscal 2023 compared to the prior year was primarily due to us reporting 100% of the income, gain, loss and deduction of BellRing LLC in the periods subsequent to the Spin-off, partially offset by higher separation-related expenses incurred in connection with the Spin-off in the prior year that were treated as non-deductible.

LIQUIDITY AND CAPITAL RESOURCES

On March 10, 2022, in connection with the Transaction Agreement, we issued the 7.00% Senior Notes to Post as partial non-cash consideration for the Contribution in connection with the Distribution. Post subsequently delivered the 7.00% Senior Notes to certain financial institutions in satisfaction of term loan obligations of Post in an equal principal amount.

On March 10, 2022, in connection with the Transaction Agreement, we entered into a credit agreement (as amended, the “Credit Agreement”), which provides for a revolving credit facility in an aggregate principal amount of $250.0 million (the “Revolving Credit Facility”), with commitments to be made available to us in U.S. Dollars, Euros and United Kingdom Pounds Sterling. The outstanding amounts under the Credit Agreement must be repaid on or before March 10, 2027.

Prior to the Transaction Agreement, BellRing LLC had entered into a credit agreement on October 21, 2019 (as subsequently amended, the “Old Credit Agreement”) which provided for debt facilities consisting of a $700.0 million term B loan facility (the “Term B Facility”) and a $200.0 million revolving credit facility (the “Old Revolving Credit Facility”). On March 10, 2022, with certain of the proceeds from the debt financing transactions described above, BellRing LLC repaid the aggregate outstanding principal balance of $519.8 million on the Term B Facility and terminated all obligations and commitments under the Old Credit Agreement.

During the years ended September 30, 2023 and 2022, we borrowed $115.0 million and $164.0 million, respectively, under the Revolving Credit Facility and repaid $189.0 million and $65.0 million, respectively, under the Revolving Credit Facility. We had $225.0 million and $151.0 million of borrowing capacity as of September 30, 2023 and 2022, respectively. There were no outstanding letters of credit under the Revolving Credit Facility as of September 30, 2023 or 2022. Subsequent to September 30, 2023, we repaid an additional $25.0 million under the Revolving Credit Facility, which reduced the outstanding borrowings under the Revolving Credit Facility to zero.

Letters of credit are available under the Revolving Credit Facility in an aggregate amount of up to $20.0 million. The Credit Agreement provides for potential incremental revolving and term facilities at the Company’s request and at the discretion of the lenders or other persons providing such incremental facilities, in each case on terms to be determined, and also permits the Company to incur other secured or unsecured debt, in all cases subject to conditions and limitations on the amount as specified in the Credit Agreement.

During the year ended September 30, 2023, we repurchased 4.2 million shares of BellRing Common Stock at an average share price of $29.56 per share and at a total cost, including accrued excise tax and broker’s commissions, of $126.3 million.

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During the year ended September 30, 2022, prior to the Spin-Off, we repurchased 0.8 million shares of Old BellRing Class A Common Stock at an average share price of $23.34 per share and at a total cost, including broker’s commissions, of $18.1 million. In connection with the Spin-off, 0.8 million shares of Old BellRing Class A Common Stock held in treasury stock immediately prior to the Merger effective time were cancelled pursuant to the Transaction Agreement. During the year ended September 30, 2022, subsequent to the Spin-off, we repurchased 1.1 million shares of BellRing Common Stock at an average share price of $23.17 per share and at a total cost, including broker’s commissions, of $24.7 million.

For additional information on the Spin-off, Credit Agreement and share repurchases, see Notes 1, 13 and 16 within “Notes to Consolidated Financial Statements.”

Sources and Uses of Cash

We expect to generate positive cash flows from operations and believe our cash on hand, cash flows from operations and possible future credit facilities will be sufficient to satisfy our future working capital requirements, purchase commitments, research and development activities, debt repayments (including interest payments), share repurchases and other financing requirements for the foreseeable future. We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, our liquidity increasing or decreasing in any material way that will impact meeting our capital needs during or beyond the next twelve months. Our ability to generate positive cash flows from operations is dependent on general economic conditions, competitive pressures and other business risk factors. We believe that we have sufficient liquidity and cash on hand to satisfy our cash needs. If we are unable to generate sufficient cash flows from operations, or otherwise to comply with the terms of our credit facilities, we may be required to seek additional financing alternatives.

Short-term financing needs primarily consist of working capital requirements and interest payments on our 7.00% Senior Notes and Revolving Credit Facility. Long-term financing needs include the repayment of our 7.00% Senior Notes and Revolving Credit Facility. Additional long-term financing needs will depend largely on potential growth opportunities, including acquisition activity and other strategic transactions. Our asset-light business model requires modest capital expenditures, with annual capital expenditures over the last three fiscal years averaging less than 1% of net sales. No significant capital expenditures are planned for fiscal 2024. Additionally, we may seek to repurchase shares of our Common Stock. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Cash Requirements

Our cash requirements under our various contractual obligations and commitments include:

•Debt Obligations and Interest Payments — See Note 13 within “Notes to Consolidated Financial Statements” for additional information on our debt and the timing of expected future principal and interest payments.

•Operating Leases — See Note 11 within “Notes to Consolidated Financial Statements” for additional information on our operating leases and the timing of expected future payments.

•Purchase Obligations — Purchase obligations are legally binding agreements to purchase goods, services or equipment that specify all significant terms, including: fixed or minimum quantities to be purchased and/or penalties imposed for failing to meet contracted minimum purchase quantities (such as “take-or-pay” contracts); fixed, minimum or variable price provisions; and the approximate timing of the transaction. As of September 30, 2023, the Company had total purchase commitments of $1,487.7 million (with $459.6 million due in fiscal 2024) which extend through fiscal 2033.

•Other liabilities – Other liabilities include obligations associated with certain employee benefit programs, provisions for legal matters, unrecognized tax benefits and various other long-term liabilities, all of which have some inherent uncertainty as to the amount and timing of payments and were reflected on our Consolidated Balance Sheets as of September 30, 2023.

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The following table presents select cash flow data, which is discussed below.

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Operating Activities

Cash provided by operating activities for the year ended September 30, 2023 increased $194.6 million compared to the prior year. The increase was primarily due to lapping larger cash outflows in the prior year related to the rebuild of powder finished goods from previous supply-constrained levels, partially offset by input cost inflation. The increase was incrementally driven by higher net earnings and favorable changes related to fluctuations in the timing of sales and collections of trade receivables. These positive impacts were partially offset by increased tax payments (net of refunds) of $26.3 million and increased interest payments of $21.6 million.

Investing Activities

Cash used in investing activities for both the years ended September 30, 2023 and 2022 was $1.8 million and related to capital expenditures in each year.

Financing Activities

Fiscal 2023

Cash used in financing activities for the year ended September 30, 2023 was $201.7 million. We paid $125.5 million, including broker’s commissions, for the repurchase of Common Stock and borrowed and repaid $115.0 million and $189.0 million, respectively, under the Revolving Credit Facility.

Fiscal 2022

Cash used in financing activities for the year ended September 30, 2022 was $135.0 million. We repaid the outstanding principal balance of the Term B Facility of $609.9 million, repaid $65.0 million under the Revolving Credit Facility and paid $115.5 million to Old BellRing Class A common stockholders pursuant to the Merger. In addition, we paid $11.9 million of debt issuance costs, debt extinguishment costs and deferred financing fees related to the issuance of the 7.00% Senior Notes and the Revolving Credit Facility, and we paid $42.8 million, including broker’s commissions, for the repurchase of Common Stock. We received $550.4 million of cash from Post in connection with the Spin-off, which was partially offset by cash distributions to Post of $3.2 million related to quarterly tax distributions pursuant to BellRing LLC’s amended and restated limited liability company agreement prior to the Spin-off. Additionally, we borrowed $164.0 million under the Revolving Credit Facility.

Debt Covenants

The Credit Agreement contains affirmative and negative covenants applicable to us and our restricted subsidiaries customary for agreements of this type, including delivery of financial and other information; compliance with laws; maintenance of property; existence; insurance; books and records; inspection rights; obligation to provide collateral and guarantees by certain new subsidiaries; delivery of environmental reports; participation in an annual meeting with the agent and the lenders; further assurances; and limitations with respect to indebtedness, liens, fundamental changes, restrictive agreements, use of proceeds, amendments of organization documents, prepayments and amendments of certain indebtedness, dispositions of assets, acquisitions and other investments, sale leaseback transactions, changes in the nature of business, transactions with affiliates and dividends and redemptions or repurchases of stock. Under the terms of the Credit Agreement, we are also required to comply with a financial covenant requiring us to maintain a total net leverage ratio (as defined in the Credit Agreement) not to exceed 6.00:1.00, measured as of the last day of each fiscal quarter. We were in compliance with the financial covenant as of September 30, 2023, and we do not believe non-compliance is reasonably likely in the foreseeable future.

The Credit Agreement provides for potential incremental revolving and term facilities at our request and at the discretion of the lenders or other persons providing such incremental facilities, in each case on terms to be determined, and also permits us to incur other secured or unsecured debt, in all cases subject to conditions and limitations on the amount as specified in the Credit Agreement.

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In addition, the indenture governing the 7.00% Senior Notes contains negative covenants customary for this type of agreement that limit our ability and the ability of our restricted subsidiaries to, among other things: borrow money or guarantee debt; create liens; pay dividends on, or redeem or repurchase, stock; make specified types of investments and acquisitions; enter into or permit to exist contractual limits on the ability of our subsidiaries to pay dividends to us; enter into transactions with affiliates; and sell assets or merge with other companies. Certain of these covenants are subject to suspension when and if the 7.00% Senior Notes receive investment grade ratings.

COMMODITY TRENDS

We are exposed to price fluctuations primarily from purchases of ingredients and packaging materials, energy and other inputs. Our principal ingredients are milk-based, whey-based and soy-based proteins, protein blends, sweeteners and vitamin and mineral blends. Our principal packaging materials consist of aseptic foil and plastic lined cardboard cartons, flexible and rigid plastic film and containers, beverage packaging and corrugate. These costs have been volatile in recent years, and future changes in such costs may cause our results of operations and our operating margins to fluctuate significantly. We manage the impact of cost increases, wherever possible, on commercially reasonable terms, by locking in prices on the quantities through purchase commitments required to meet our production requirements. In addition, we may attempt to offset the effect of increased costs by raising prices to our customers. However, for competitive reasons, we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur them. See “Market Trends” section above for additional information regarding inflationary pressures on our commodity purchases.

CURRENCY

Certain sales and costs of our foreign operations are denominated in Euros. Consequently, profits from these operations are impacted by fluctuations in the value of this currency relative to the U.S. Dollar. We incur gains and losses within our stockholders’ equity due to the translation of our financial statements from foreign currencies into U.S. Dollars. Our income statement trends may be impacted by the translation of the income statements of our foreign operations into U.S. Dollars. The exchange rates used to translate our foreign sales into U.S. Dollars positively affected net sales by less than 1% during the year ended September 30, 2023, and did not have a material impact on our operating profit or net earnings during the year ended September 30, 2023.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires the use of judgment, estimates and assumptions. We make these subjective determinations after considering our historical performance, management’s experience, current economic trends and events and information from outside sources. Inherent in this process is the possibility that actual results could differ from these estimates and assumptions for any particular period.

Our significant accounting policies are described in Note 2 within “Notes to Consolidated Financial Statements.” Our critical accounting estimates are those that involve a significant amount of estimation uncertainty and have a meaningful impact on the reporting of our financial condition and results of operations.

Revenue Recognition, Allowance for Trade Promotions — The recognition of certain variable trade promotions, which are treated as a reduction of revenue, requires significant management judgment regarding estimated purchase volumes and program participation. Estimates are based on contractual provisions, redemption rate assumptions and our assessment of current market provisions. Redemption rate assumptions are based on historical results of similar promotions on a deal-by-deal basis, adjusted for current expectations of promotion performance based on the current market. We review and update estimates of variable consideration quarterly. Uncertainties related to the estimates of variable consideration are resolved in a short time frame and do not require any additional constraint on variable consideration. Less than 1% of our annual net sales represent variable consideration that will be resolved in the subsequent period. Based on historical experience, we do not believe that there will be significant changes to our estimates of variable consideration when any uncertainties are resolved with customers. However, significant changes in our estimates could have a material impact on our results of operations.

RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS

We considered all new accounting pronouncements and have concluded there are no new pronouncements that had or will have a material impact on our results of operations, comprehensive income, financial condition, cash flows, shareholders’ equity or related disclosures based on current information.

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