# Prestige Consumer Healthcare Inc. (PBH) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Prestige Consumer Healthcare Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1295947/000129594722000015/pbh-20220331.htm
Accession: 0001295947-22-000015
Filing date: 2022-05-06
Report date: 2022-03-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/PBH/
All MD&A years: /company/PBH/mda/
Next year: /company/PBH/mda/fy2023/ (FY 2023)

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

The following discussion of our financial condition and results of operations should be read together with the Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis may contain forward-looking statements that involve certain risks, assumptions and uncertainties that could cause actual results to differ materially from those implied or described by the forward-looking statements. 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 this Annual Report on Form 10-K, as well as those described in future reports filed with the SEC.

General

We are engaged in the development, manufacturing, marketing, sales and distribution of well-recognized, brand name OTC health and personal care 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 create our competitive advantage.

We have grown our product 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 consumer health and personal care 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 certain 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

On July 1, 2021, we completed the acquisition of the consumer health business assets from Akorn Operating Company LLC ("Akorn") pursuant to an Asset Purchase Agreement, dated May 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 our North American and International OTC Healthcare segments. The purchase price was funded by a combination of available cash on hand, additional borrowings under the 2012 ABL Revolver and the net proceeds from the refinancing of our term loan originally entered into on January 31, 2012 (the "2012 Term Loan").

The acquisition was accounted for as a business combination. During 2022, we incurred acquisition-related costs of $5.1 million, which are included in General and administrative expense. 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. These purchase price allocations are preliminary as we are in the process of finalizing the valuation. The following table summarizes our preliminary allocation of the assets acquired and liabilities assumed as of the July 1, 2021 acquisition date.

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[[GREPCENT_TABLE]]
[["(In thousands)"],["","July 1, 2021"],["Inventories","6,455"],["Goodwill","1,648"],["Intangible assets","225,410"],["Total assets acquired","233,513"],["Accounts payable","478"],["Reserves for sales allowances","747"],["Other accrued liabilities","3,374"],["Total liabilities assumed","4,599"],["Total purchase price","$","228,914"]]
[[/GREPCENT_TABLE]]

Based on this preliminary 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 $1.6 million based on the amount by which the purchase price exceeded the preliminary estimate of the fair value of the net assets acquired. Goodwill is deductible and is being amortized for income tax purposes.

Economic Environment

In March 2020, the World Health Organization ("WHO") declared a global pandemic due to a new strain of coronavirus ("COVID-19"). The pandemic has caused significant volatility in the United States and global economies. In addition, the Russian invasion of Ukraine has led to further economic uncertainty. We expect economic conditions will continue to be highly volatile and uncertain and could affect demand for our products and put pressure on prices. We experienced a temporary but significant decline in consumer consumption of our brands in the first quarter of fiscal 2021, followed by more stable consumption and customer orders over the remainder of the year. Generally, throughout the pandemic, some categories were positively impacted (for instance, Women’s Health, Oral Care and Dermatological) and some categories negatively impacted (for instance, Cough & Cold and Gastrointestinal). The positively impacted categories benefited from the consumer shift to over-the-counter healthcare products, as consumers increased their focus on hygiene and self-care at home related to COVID-19. The declining categories were impacted by reduced incidence levels and usage rates due to shelter-at-home restrictions and limited travel-related activity. In fiscal 2022, we experienced solid consumer consumption and share gains across most of our brand portfolio. Our business also benefited from a significant increase in demand in travel-related categories and channels as well as the Cough & Cold category, previously impacted by the COVID-19 virus. We have continued to see changes in the purchasing patterns of our consumers, including the frequency of visits by consumers to retailers and a shift in many markets to purchasing our products online.

Both the COVID-19 pandemic and the geopolitical environment have also impacted the supply of labor and raw materials and exacerbated rising costs. Although we have not experienced a material disruption to our overall supply chain to date, we have and may continue to experience 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 the COVID-19 outbreak worsens or geopolitical conditions cause further disruption in the global supply chain, the availability of labor 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 outbreak and recovery period 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.

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Tax Reform

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

Critical Accounting Estimates

Our significant accounting policies are described in the notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.  While all significant accounting policies are important to our Consolidated Financial Statements, certain of these policies may be viewed as being critical.  Such policies are those that are both most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses or the related disclosure of contingent assets and liabilities.  These estimates are based on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances.  Actual results may differ materially from these estimates. The following are our most critical accounting estimates:

Revenue Recognition, Customer Programs and Variable Consideration

Revenue is recognized when control of a promised good is transferred to a customer, in an amount that reflects the consideration that we expect to be entitled to receive in exchange for that good. This occurs either when finished goods are transferred to a common carrier for delivery to the customer or when product is picked up by the customer or the customer’s carrier.

Once a product has transferred to the common carrier or been picked up by the customer, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the product. It is at this point that we have a right to payment and the customer has legal title.

Provisions for certain rebates, customer promotional programs, product returns, and discounts to customers are accounted for as variable consideration and recorded as a reduction in sales.

We record an estimate of future product returns, chargebacks and logistic deductions concurrent with recording sales, which is made using the most likely amount method that incorporates (i) historical return rates, (ii) current economic trends, (iii) changes in customer demand, (iv) product acceptance, (v) seasonality of our product offerings, and (vi) the impact of changes in product formulation, packaging and advertising.

We participate in the promotional programs of our customers to enhance the sale of our products. These promotional programs consist of direct-to-consumer incentives, such as coupons and temporary price reductions, as well as incentives to our customers, such as allowances for new distribution, including slotting fees, and cooperative advertising. The costs of such activities are recorded as a reduction to revenue when the related sale takes place. Estimates of the costs of these promotional programs are derived using the most likely amount method, which incorporates (i) historical sales experience, (ii) the current promotional offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel. At the completion of the promotional program, the estimated amounts are adjusted to actual results.

Pension Obligations and Expense

Certain employees of our Lynchburg manufacturing facility are covered by defined benefit pension plans. The Company’s policy is to contribute at least the minimum amount required under The Employee Retirement Income Security Act of 1974 ("ERISA"). The Company may elect to make additional contributions. Benefits are based on years of service and levels of compensation. On December 16, 2014, the decision was made to freeze the benefits under the Company's U.S. qualified defined benefit pension plan with an effective date of March 1, 2015. During the fourth quarter of 2021, we adopted a plan termination date of April 30, 2021 for the U.S. qualified defined benefit pension plan and began the plan termination process. The plan termination is expected to be completed in the first quarter of fiscal 2023.

Our discount rate assumption for our defined benefit plans changed to a range of 3.26% to 3.48% at March 31, 2022 from a range of 2.58% to 2.95% at March 31, 2021. This increase was due to market changes. While we do not currently anticipate a change in our fiscal 2023 assumptions, as a sensitivity measure, a 0.25% decline or increase in our qualified discount rate would increase or decrease our qualified pension expense by less than $0.1 million. Similarly, a 0.25% decrease or increase in

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the expected return on our pension plan assets would increase or decrease our qualified pension expense by approximately $0.1 million.

The amounts that we recognize in our financial statements for pension benefit obligations are determined by actuarial valuations. Inherent in these valuations are certain assumptions, the more significant of which are: (i) the weighted average discount rate used for discounting the liability, (ii) the weighted average expected long-term rate of return on pension plan assets, (iii) the method used to determine the market-related value of pension plan assets, and (iv) the anticipated mortality rate tables. We believe the current assumptions used to estimate plan obligations and pension expense are appropriate in the current economic environment. However, as economic conditions change, we may change some of our assumptions, which could have a material impact on our financial condition and results of operations.

The funded status of our pension plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates. We review pension assumptions regularly, and we may from time to time make voluntary contributions to our pension plans that exceed the amounts required by statute. During fiscal 2022, we made total contributions to our pension plans of $0.4 million. We do not expect to make a contribution to our qualified defined benefit pension plan during fiscal 2023. Changes in interest rates and the market value of the securities held by the plans could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and required contributions.

Goodwill and Intangible Assets

Goodwill and intangible assets amounted to $3,275.6 million and $3,053.8 million at March 31, 2022 and 2021, respectively.  At March 31, 2022 and 2021, goodwill and intangible assets were apportioned among similar product groups within our operating segments as follows:

[[GREPCENT_TABLE]]
[["","March 31, 2022"],["(In thousands)","North American OTC Healthcare","","International OTC Healthcare","","","","Consolidated"],["Goodwill","$","548,291","","","$","30,685","","","","","$","578,976"],["Intangible assets"],["Indefinite-lived","2,391,517","","","85,042","","","","","2,476,559"],["Finite-lived","198,353","","","21,723","","","","","220,076"],["Intangible assets, net","2,589,870","","","106,765","","","","","2,696,635"],["Total","$","3,138,161","","","$","137,450","","","","","$","3,275,611"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","March 31, 2021"],["(In thousands)","North American OTC Healthcare","","International OTC Healthcare","","","","Consolidated"],["Goodwill","$","546,643","","","$","31,436","","","","","$","578,079"],["Intangible assets"],["Indefinite-lived","2,195,617","","","86,371","","","","","2,281,988"],["Finite-lived","190,462","","","3,279","","","","","193,741"],["Intangible assets, net","2,386,079","","","89,650","","","","","2,475,729"],["Total","$","2,932,722","","","$","121,086","","","","","$","3,053,808"]]
[[/GREPCENT_TABLE]]

At March 31, 2022, the brands with the highest carrying value were Monistat, Summer's Eve, BC/Goody's, TheraTears and DenTek, comprising 60.6% of our total intangible assets value.

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Goodwill and intangible assets comprise the majority of all of our assets.  Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination.  Intangible assets generally represent our tradenames, brand names and patents.  When we acquire a brand, we are required to make judgments regarding the value assigned to the associated intangible assets, as well as their respective useful lives.  Management considers many factors both prior to and after the acquisition of an intangible asset in determining the value, as well as the useful life, assigned to each intangible asset that we acquire or continue to own and promote.

The most significant factors are:

•Brand History

A brand that has been in existence for a long period of time (e.g., 25, 50 or 100 years) generally warrants a higher valuation and longer life (sometimes indefinite) than a brand that has been in existence for a very short period of time.  A brand that has been in existence for an extended period of time generally has been the subject of considerable investment by its previous owner(s) to support product innovation and advertising and marketing.

•Market Position

Consumer products that rank number one or two in their respective market generally have greater name recognition and are known as quality product offerings, which warrant a higher valuation and longer life than products that lag in the marketplace.

•Recent and Projected Sales Growth

Recent sales results present a snapshot as to how the brand has performed in the most recent time periods and represent another factor in the determination of brand value.  In addition, projected sales growth provides information about the strength and potential longevity of the brand.  A brand that has both strong current and projected sales generally warrants a higher valuation and a longer life than a brand that has weak or declining sales.  Similarly, consideration is given to the potential investment, in the form of advertising and marketing, required to reinvigorate a brand that has fallen from favor.

•History of and Potential for Product Extensions

Consideration is given to the product innovation that has occurred during the brand’s history and the potential for continued product innovation that will determine the brand’s future.  Brands that can be continually enhanced by new product offerings generally warrant a higher valuation and longer life than a brand that has always “followed the leader”.

After consideration of the factors described above, as well as current economic conditions and changing consumer behavior, management prepares a determination of an intangible asset’s value and useful life based on its analysis.  Under accounting guidelines, goodwill is not amortized, but must be tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below the carrying amount.  In a similar manner, indefinite-lived assets are not amortized.  They are also subject to an annual impairment test or more frequently if events or changes in circumstances indicate that the asset may be impaired.  Additionally, at each reporting period an evaluation must be made to determine whether events and circumstances continue to support an indefinite useful life.  Intangible assets with finite lives are amortized over their respective estimated useful lives and must also be tested for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable and exceeds its fair value.

On an annual basis, during the fourth fiscal quarter, concurrent with our annual strategic planning process, or more frequently if conditions indicate that the carrying value of the asset may not be recovered, management performs a review of both the values and, if applicable, useful lives assigned intangible assets and tests for impairment.

We report goodwill and indefinite-lived intangible assets in two reportable segments: North American OTC Healthcare and International OTC Healthcare. We identify our reporting units in accordance with the FASB ASC Subtopic 280. The carrying value and fair value for intangible assets and goodwill for a reporting unit are calculated based on key assumptions and valuation methodologies.  As a result, any material changes to these assumptions could require us to record additional impairment in the future.

In the past, we have experienced declines in revenues and profitability of certain brands in the North American OTC Healthcare segment.  Sustained or significant future declines in revenue, profitability, other adverse changes in expected operating results, and/or unfavorable changes in other economic factors used to estimate fair values of certain brands could indicate that fair value no longer exceeds carrying value, in which case additional non-cash impairment charges may be recorded in future periods.

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Goodwill

Goodwill is tested for impairment annually and whenever events and circumstances indicate that impairment may have occurred. As of February 28, 2022 (our annual impairment review date), we had 14 reporting units with goodwill. As part of our annual test for impairment of goodwill, management estimates the discounted cash flows of each reporting unit to estimate their respective fair values.  In performing this analysis, management considers current information and future events, such as competition, technological advances and changes in advertising support for our trademarks and tradenames, that could cause subsequent evaluations to utilize different assumptions.  The discount rate utilized in the analysis, as well as future cash flows, may be influenced by such factors as changes in interest rates and rates of inflation. Additionally, should the related fair value of goodwill be adversely affected as a result of declining sales or margins caused by competition, changing consumer needs or preferences, technological advances or changes in advertising and marketing expenses, we may be required to record additional impairment charges in the future. In addition, we considered our market capitalization at February 28, 2022, as compared to the aggregate fair values of our reporting units, to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology. An impairment charge is then recognized for the amount by which the carrying amount exceeds the reporting unit's fair value.

At February 28, 2021, in conjunction with the annual test for goodwill impairment, we recorded an impairment charge of $1.2 million to adjust the carrying amount of goodwill related to our Painstop brand in our International OTC Healthcare segment to its fair value.

At February 28, 2022, in conjunction with the annual test for goodwill impairment, we recorded an impairment charge of $0.3 million to write off the remaining goodwill related to our Painstop brand in our International OTC Healthcare segment.

As a result of our analysis at February 28, 2022, all other reporting units tested had a fair value that exceeded their carrying value by at least 10%. We performed a sensitivity analysis on our weighted average cost of capital and determined that a 50 basis point increase in the weighted average cost of capital would not have resulted in any of our other reporting units' implied fair value being less than their carrying value. Additionally, a 50 basis point decrease in the terminal growth rate used for each reporting unit would also not have resulted in any of our other reporting units’ implied fair value being less than their carrying value.

Indefinite-Lived Intangible Assets

Indefinite-lived intangibles are tested for impairment annually and whenever events and circumstances indicate that impairment may have occurred. We utilize the excess earnings method to estimate the fair value of our individual indefinite-lived intangible assets. The discount rate utilized in the analysis, as well as future cash flows, may be influenced by such factors as changes in interest rates and rates of inflation.

At each reporting period, management analyzes current events and circumstances to determine whether the indefinite life classification for a trademark or tradename continues to be valid.  If circumstances warrant a change to a finite life, the carrying value of the intangible asset would then be amortized prospectively over the estimated remaining useful life.

Management tests the indefinite-lived intangible assets for impairment by comparing the carrying value of the intangible asset to its estimated fair value.  Since quoted market prices are seldom available for trademarks and tradenames such as ours, we utilize present value techniques to estimate fair value.  Accordingly, management’s projections are utilized to assimilate all of the facts, circumstances and expectations related to the trademark or tradename and estimate the cash flows over its useful life.  In a manner similar to goodwill, future events, such as competition, technological advances and changes in advertising support for our trademarks and tradenames, could cause subsequent evaluations to utilize different assumptions.  Once that analysis is completed, a discount rate is applied to the cash flows to estimate fair value. In connection with this analysis, management:

•Reviews period-to-period sales and profitability by brand;

•Analyzes industry trends and projects brand growth rates;

•Prepares annual sales forecasts;

•Evaluates advertising effectiveness;

•Analyzes gross margins;

•Reviews contractual benefits or limitations;

•Monitors competitors’ advertising spend and product innovation;

•Prepares projections to measure brand viability over the estimated useful life of the intangible asset; and

•Considers the regulatory environment, as well as industry litigation.

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At February 28, 2022, in conjunction with the annual test for impairment of intangible assets, there were no indicators of impairment of indefinite-lived intangible assets under the analysis and accordingly, no impairment charge was taken.

As a result of our analysis at February 28, 2022, all indefinite-lived intangible assets tested had a fair value that exceeded their carrying value by at least 10%, with the exception of our TheraTears tradename which had a fair value exceeding its carrying value by 7%. We performed a sensitivity analysis of our weighted average cost of capital, and we determined that a 50 basis point increase in the weighted average cost of capital used to value the indefinite-lived intangible assets would not have resulted in any of our indefinite-lived intangible assets' fair value being less than their carrying value, with the exception of our TheraTears tradename. The TheraTears tradename was acquired on July 1, 2021 and, given the close proximity of the acquisition to the annual impairment test, we would expect the fair value to more closely approximate the carrying value. A 50 basis point increase in the weighted average cost of capital would result in an impairment charge of $4.3 million on our TheraTears tradename. Additionally, a 50 basis point decrease in the terminal growth rate used for each of our indefinite-lived intangible assets' would not have resulted in any of our indefinite-lived intangible assets' fair value being less than their carrying value.

Finite-Lived Intangible Assets

On an annual basis, or when events or changes in circumstances indicate the carrying value of the assets may not be recoverable, management performs a review similar to indefinite-lived intangible assets to ascertain the impact of events and circumstances on the estimated useful lives and carrying values of our trademarks and tradenames.

If the analysis warrants a change in the estimated useful life of the intangible asset, management will reduce the estimated useful life and amortize the carrying value prospectively over the shorter remaining useful life.  Management’s projections are utilized to assimilate all of the facts, circumstances and expectations related to the trademark or tradename and estimate the cash flows over its useful life.  Future events, such as competition, technological advances and changes in advertising support for our trademarks and tradenames, could cause subsequent evaluations to utilize different assumptions.  In the event that the long-term projections indicate that the carrying value is in excess of the undiscounted cash flows expected to result from the use of the intangible assets, management is required to record an impairment charge.  Once that analysis is completed, a discount rate is applied to the cash flows to estimate fair value.  The impairment charge is measured as the excess of the carrying amount of the intangible asset over fair value, as calculated using the excess earnings method.

During the third quarter of 2021, we determined that the fair value of one of our finite-lived intangible assets in our International OTC Healthcare segment, Painstop, did not exceed its carrying amount. As such, we recorded an impairment charge of $1.2 million. The decline in the fair value of Painstop was primarily related to a decline in expected future sales due to a regulatory change that now requires Painstop to be prescribed by physicians rather than sold over-the-counter direct to consumers. At February 28, 2021, in conjunction with the annual test for impairment of intangible assets, there were no additional indicators of impairment of our finite-lived intangible assets and accordingly, no additional impairment charge was taken.

At February 28, 2022, in conjunction with the annual test for impairment of intangible assets, an impairment charge of $0.7 million was recorded. In connection with our long-term planning, two non-core brands in our North American OTC Healthcare segment were discontinued and therefore the related finite-lived intangible assets were written off.

Stock-Based Compensation

The Compensation and Equity topic of the FASB ASC 718 requires us to measure the cost of services to be rendered based on the grant-date fair value of the equity award.  For most of our awards, compensation expense is to be recognized over the period during which an employee is required to provide service in exchange for the award, generally referred to as the requisite service period. We also grant performance stock units, which are contingent on the attainment of certain goals of the Company.  Information utilized in the determination of fair value includes the following:

•Type of instrument (i.e., restricted shares, stock options, warrants or performance shares);

•Strike price of the instrument;

•Market price of our common stock on the date of grant;

•Discount rates;

•Duration of the instrument; and

•Volatility of our common stock in the public market.

Additionally, management must estimate the expected attrition rate of the recipients to enable it to estimate the amount of non-cash compensation expense to be recorded in our financial statements.  While management prepares various analyses to

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estimate the respective variables, a change in assumptions or market conditions, as well as changes in the anticipated attrition rates, could have a significant impact on the future amounts recorded as non-cash compensation expense.  

Recent Accounting Pronouncements

A description of recently issued and adopted accounting pronouncements is included in the notes to the Consolidated Financial Statements in Item 8, Note 1 of this Annual Report.

Results of Operations

2022 compared to 2021

Total Segment Revenues

The following table represents total revenue by segment, including product groups, for each of the fiscal years ended March 31, 2022 and 2021.

[[GREPCENT_TABLE]]
[["","","","","","Increase (Decrease)"],["(In thousands)","2022","%","2021","%","Amount","%"],["North American OTC Healthcare"],["Analgesics","$","117,868","","10.8","","$","117,775","","12.5","","$","93","","0.1"],["Cough & Cold","86,855","","8.0","","56,158","","6.0","","30,697","","54.7"],["Women's Health","249,136","","22.9","","252,535","","26.7","","(3,399)","","(1.3)"],["Gastrointestinal","152,191","","14.0","","124,755","","13.2","","27,436","","22.0"],["Eye & Ear Care","149,454","","13.9","","99,774","","10.6","","49,680","","49.8"],["Dermatologicals","117,173","","10.8","","103,998","","11.0","","13,175","","12.7"],["Oral Care","85,239","","7.8","","88,903","","9.4","","(3,664)","","(4.1)"],["Other OTC","9,965","","0.9","","5,421","","0.6","","4,544","","83.8"],["Total North American OTC Healthcare","967,881","","89.1","","849,319","","90.0","","118,562","","14.0"],["International OTC Healthcare"],["Analgesics","1,455","","0.1","","1,367","","0.1","","88","","6.4"],["Cough & Cold","20,225","","1.9","","14,483","","1.5","","5,742","","39.6"],["Women's Health","15,373","","1.4","","15,562","","1.7","","(189)","","(1.2)"],["Gastrointestinal","52,368","","4.8","","36,381","","3.9","","15,987","","43.9"],["Eye & Ear Care","13,995","","1.3","","10,635","","1.2","","3,360","","31.6"],["Dermatologicals","3,213","","0.3","","3,085","","0.3","","128","","4.1"],["Oral Care","12,282","","1.1","","12,528","","1.3","","(246)","","(2.0)"],["Other OTC","20","","\u2014","5","","\u2014","15","","300.0"],["Total International OTC Healthcare","118,931","","10.9","","94,046","","10.0","","24,885","","26.5"],["Total Consolidated","$","1,086,812","","100.0","","$","943,365","","100.0","","$","143,447","","15.2"]]
[[/GREPCENT_TABLE]]

Total segment revenues for 2022 were $1,086.8 million, an increase of $143.4 million, or 15.2%, versus 2021. Both of our business segments contributed to the growth over the prior year.

North American OTC Healthcare Segment

Revenues for the North American OTC Healthcare segment increased $118.6 million, or 14.0%, during 2022 versus 2021. 2022 was primarily positively impacted by the Eye & Ear Care, Cough & Cold, and Gastrointestinal categories, as well as certain other categories. The positively impacted categories benefited from increased consumer travel, as well as improved demand, as a result of easing COVID-19 restrictions. The current period also benefited from the newly acquired TheraTears brand (included in the Eye & Ear Care category) as part of the Akorn asset acquisition, with revenues in North America of $42.2 million in 2022.

International OTC Healthcare Segment

Revenues for the International OTC Healthcare segment increased $24.9 million, or 26.5%, during 2022 versus 2021. The $24.9 million increase was mainly attributable to increased sales in our Australian subsidiary, primarily related to an increase in

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sales of Hydralyte (included in the Gastrointestinal category) as a result of easing COVID-19 restrictions, as well as an increase in consumer illnesses.

Gross Profit

The following table represents our gross profit and gross profit as a percentage of total segment revenues, by segment for each of the fiscal years ended March 31, 2022 and 2021.

[[GREPCENT_TABLE]]
[["(In thousands)","","","","","Increase (Decrease)"],["Gross Profit","2022","%","2021","%","Amount","%"],["North American OTC Healthcare","$","548,719","","56.7","","$","490,219","","57.7","","$","58,500","","11.9"],["International OTC Healthcare","71,927","","60.5","","57,253","","60.9","","14,674","","25.6"],["","$","620,646","","57.1","","$","547,472","","58.0","","$","73,174","","13.4"]]
[[/GREPCENT_TABLE]]

Gross profit for 2022 increased $73.2 million, or 13.4%, versus 2021. As a percentage of total revenues, gross profit decreased to 57.1% in 2022 from 58.0% in 2021. The decrease in gross profit as a percentage of revenues was primarily due to increased supply chain costs and related to charges for the step up of the inventory valuation of the acquired Akorn brands in fiscal 2022 of $1.6 million.

North American OTC Healthcare Segment

Gross profit for the North American OTC Healthcare segment increased $58.5 million, or 11.9%, during 2022 versus 2021.  As a percentage of North American OTC Healthcare revenues, gross profit decreased to 56.7% during 2022 from 57.7% during 2021, primarily due to increased supply chain costs and charges related to the inventory valuation of the acquired Akorn brands in fiscal 2022 of $1.6 million.

International OTC Healthcare Segment

Gross profit for the International OTC Healthcare segment increased $14.7 million, or 25.6%, during 2022 versus 2021. As a percentage of International OTC Healthcare revenues, gross profit decreased to 60.5% during 2022 from 60.9% during 2021, primarily due to 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 represents our contribution margin and contribution margin as a percentage of total segment revenues, by segment for each of the fiscal years ended March 31, 2022 and 2021.

[[GREPCENT_TABLE]]
[["(In thousands)","","","","","Increase (Decrease)"],["Contribution Margin","2022","%","2021","%","Amount","%"],["North American OTC Healthcare","$","410,005","","42.4","","$","367,362","","43.3","","$","42,643","","11.6"],["International OTC Healthcare","53,298","","44.8","","39,521","","42.0","","13,777","","34.9"],["","$","463,303","","42.6","","$","406,883","","43.1","","$","56,420","","13.9"]]
[[/GREPCENT_TABLE]]

North American OTC Healthcare Segment

Contribution margin for the North American OTC Healthcare segment increased $42.6 million, or 11.6%, during 2022 versus 2021. As a percentage of North American OTC Healthcare revenues, contribution margin for the North American OTC Healthcare segment decreased to 42.4% during 2022 from 43.3% during 2021. The contribution margin decrease as a percentage of revenues was primarily due to an increase in advertising and marketing expenses as well as the decrease in gross profit margin noted above.

International OTC Healthcare Segment

Contribution margin for the International OTC Healthcare segment increased $13.8 million, or 34.9%, during 2022 versus 2021. As a percentage of International OTC Healthcare revenues, contribution margin for the International OTC Healthcare segment increased to 44.8% during 2022 from 42.0% during 2021. The contribution margin increase as a percentage of revenues was primarily due to decreased advertising and marketing expenses as a percentage of revenues in 2022.

39

General and Administrative

General and administrative expenses were $108.5 million for 2022 versus $85.5 million for 2021. The increase in general and administrative expenses was primarily due to increases in compensation costs and professional fees, as well as costs related to the acquisition of Akorn of $5.1 million.

Depreciation and Amortization

Depreciation and amortization expense was $24.9 million for 2022 versus $23.9 million for 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 acquisition, partly offset by certain assets being fully depreciated during 2022.

Interest Expense, Net

Interest expense, net was $64.3 million during 2022 versus $82.3 million during 2021.  The average indebtedness remained at $1.6 billion during 2021 and 2022. The average cost of borrowing decreased to 4.1% for 2022 from 5.1% for 2021.

Loss on Extinguishment of Debt

During 2022, 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. During 2021, we recorded a loss on extinguishment of debt of $12.3 million, representing the premium paid to redeem our 6.375% 2016 Senior Notes in March 2021 of $9.6 million and the related write off of debt costs of $2.7 million.

Income Taxes

The provision for income taxes during 2022 was $57.1 million versus $39.4 million in 2021.  The effective tax rate on income before income taxes was 21.7% during 2022 versus 19.3% during 2021. The increase in the effective tax rate in 2022 compared to 2021 was primarily due to the final GILTI regulations issued in July 2020, which resulted in the release of the valuation allowance on foreign tax credit carryforwards of $5.4 million for 2021.

Results of Operations

2021 compared to 2020

For a discussion of fiscal 2021 compared to 2020, please refer to our 2021 Annual Report on Form 10-K Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, filed with the SEC on May 7, 2021.

Liquidity and Capital Resources

Liquidity

Our primary source of cash comes from our cash flow from operations. In the past, we have supplemented this source of cash with various debt facilities, primarily in connection with acquisitions. We have financed our operations, and expect to continue to finance our operations over the next twelve months, with a combination of funds generated from operations and borrowings.  Our principal uses of cash are for operating expenses, debt service, capital expenditures, share repurchases, and acquisitions. Based on our current levels of operations and anticipated growth, excluding acquisitions, we believe that our cash generated from operations and our existing credit facilities will be adequate to finance our working capital and capital expenditures through the next twelve months, although no assurance can be given in this regard. See "Economic Environment Since the Coronavirus Outbreak" above.

[[GREPCENT_TABLE]]
[["","Year Ended March 31,","","$ Change"],["(In thousands)","2022","","2021","","2020","","2022 vs. 2021","2021 vs. 2020"],["Net cash provided by (used in):"],["Operating activities","$","259,922","","","$","235,607","","","$","217,124","","","$","24,315","","$","18,483"],["Investing activities","(256,511)","","","(22,243)","","","(16,570)","","","(234,268)","","(5,673)"],["Financing activities","(7,569)","","","(279,419)","","","(131,431)","","","271,850","","(147,988)"],["Effects of exchange rate changes on cash and cash equivalents","(959)","","","3,597","","","(1,893)","","","(4,556)","","5,490"],["Net change in cash and cash equivalents","$","(5,117)","","","$","(62,458)","","","$","67,230","","","$","57,341","","$","(129,688)"]]
[[/GREPCENT_TABLE]]

2022 compared to 2021

Operating Activities

Net cash provided by operating activities was $259.9 million for 2022 compared to $235.6 million for 2021.  The $24.3 million increase in net cash provided by operating activities was due to an increase in net income after non-cash items, partly offset by increased working capital.

40

Investing Activities

Net cash used in investing activities was $256.5 million for 2022 compared $22.2 million for 2021.  The increase was primarily due to acquisitions of $247.0 million in the current period, partly offset by a decrease in capital expenditures in the current period.

Financing Activities

Net cash used in financing activities was $7.6 million for 2022 compared to $279.4 million for 2021. In 2022, we had no net change in our long-term debt principal, as prepayments served to offset the borrowings to finance the Akorn acquisition and payments of debt costs of $6.1 million. In 2021, we reduced our outstanding long-term debt by $250.0 million, paid debt costs of $17.7 million and repurchased common stock of $11.9 million.

2021 compared to 2020

Operating Activities

Net cash provided by operating activities was $235.6 million for 2021 compared to $217.1 million for 2020.  The $18.5 million increase in net cash provided by operating activities was due to an increase in net income after non-cash items, partly offset by increased working capital.

Investing Activities

Net cash used in investing activities was $22.2 million for 2021 compared $16.6 million for 2020.  The increase was primarily due to an increase in capital expenditures in 2021.

Financing Activities

Net cash used in financing activities was $279.4 million for 2021 compared to $131.4 million for 2020.  The increase was primarily due to increased repayments of debt of $97.0 million, decreased borrowings of $85.0 million and an increase in payment of debt costs of $11.1 million in 2021 compared to 2020, partly offset by a decrease in our repurchase of common stock of $44.8 million compared to the prior year.

Capital Resources

2012 Term Loan and 2012 ABL Revolver:

On January 31, 2012, Prestige Brands, Inc. ("the Borrower") entered into a senior secured credit facility, which consists of (i) a $660.0 million term loan (the "2012 Term Loan") with an original 7-year maturity and (ii) a $50.0 million asset-based revolving credit facility (the "2012 ABL Revolver") with an original 5-year maturity. In subsequent years, we have utilized portions of our accordion feature to increase the amount of our borrowing capacity under the 2012 ABL Revolver by $85.0 million to $135.0 million and reduced our borrowing rate on the 2012 ABL Revolver by 0.25% (discussed below). The 2012 Term Loan was issued with an original issue discount of 1.5% of the principal amount thereof, resulting in net proceeds to the Borrower of $650.1 million. The 2012 Term Loan is unconditionally guaranteed by Prestige Consumer Healthcare Inc. and certain of its domestic 100% owned subsidiaries, other than the Borrower. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries or to make payments to the Borrower or the Company.

On February 21, 2013, we entered into Amendment No. 1 ("Term Loan Amendment No. 1") to the 2012 Term Loan. Term Loan Amendment No. 1 provided for the refinancing of all of the Borrower's existing Term B Loans with new Term B-1 Loans (the "Term B-1 Loans"). The interest rate on the Term B-1 Loans under Term Loan Amendment No. 1 was based, at our option, on a LIBOR rate plus a margin of 2.75% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin. In addition, Term Loan Amendment No. 1 provided the Borrower with certain additional capacity to prepay subordinated debt, our then-outstanding senior notes and certain other unsecured indebtedness permitted to be incurred under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver.

On September 3, 2014, we entered into Amendment No. 2 ("Term Loan Amendment No. 2") to the 2012 Term Loan. Term Loan Amendment No. 2 provided for (i) the creation of a new class of Term B-2 Loans under the 2012 Term Loan (the "Term B-2 Loans") in an aggregate principal amount of $720.0 million, (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility and financial maintenance covenant relief, and (iii) an interest rate on (x) the Term B-1 Loans that was based, at our option, on a LIBOR rate plus a margin of 3.125% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin, and (y) the Term B-2 Loans that was based, at our option, on a LIBOR rate plus a margin of 3.50% per annum, with a LIBOR floor of 1.00%, or an alternate base rate, with a floor of 2.00%, plus a margin (with a margin step-down to 3.25% per annum, based upon achievement of a specified secured net leverage ratio).

41

Also on September 3, 2014, we entered into Amendment No. 3 ("ABL Amendment No. 3") to the 2012 ABL Revolver. ABL Amendment No. 3 provided for (i) a $40.0 million increase in revolving commitments under the 2012 ABL Revolver and (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility. Borrowings under the 2012 ABL Revolver, as amended, bore interest at a rate per annum equal to an applicable margin, plus, at our option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month, adjusted for certain additional costs, plus 1.00% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs. The applicable margin for borrowings under the 2012 ABL Revolver could be increased to 2.00% or 2.25% for LIBOR borrowings and 1.00% or 1.25% for base-rate borrowings, depending on average excess availability under the 2012 ABL Revolver during the prior fiscal quarter. In addition to paying interest on outstanding principal under the 2012 ABL Revolver, we were required to pay a commitment fee to the lenders under the 2012 ABL Revolver in respect of the unutilized commitments thereunder. The initial commitment fee rate was 0.50% per annum. The commitment fee rate will be reduced to 0.375% per annum at any time when the average daily unused commitments for the prior quarter is less than a percentage of total commitments by an amount set forth in the credit agreement covering the 2012 ABL Revolver. We may voluntarily repay outstanding loans under the 2012 ABL Revolver at any time without a premium or penalty.

On May 8, 2015, we entered into Amendment No. 3 ("Term Loan Amendment No. 3") to the 2012 Term Loan. Term Loan Amendment No. 3 provided for (i) the creation of a new class of Term B-3 Loans under the 2012 Term Loan (the "Term B-3 Loans") in an aggregate principal amount of $852.5 million, which combined the outstanding balances of the Term B-1 Loans of $207.5 million and the Term B-2 Loans of $645.0 million, and (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant relief. The maturity date of the Term B-3 Loans remained the same as the Term B-2 Loans' original maturity date of September 3, 2021.

On June 9, 2015, we entered into Amendment No. 4 (“ABL Amendment No. 4”) to the 2012 ABL Revolver. ABL Amendment No. 4 provided for (i) a $35.0 million increase in the accordion feature under the 2012 ABL Revolver and (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant relief and (iii) extended the maturity date of the 2012 ABL Revolver to June 9, 2020, which was five years from the effective date of ABL Amendment No. 4.

On February 5, 2016, we entered into Amendment No. 5 (“ABL Amendment No. 5”) to the 2012 ABL Revolver. ABL Amendment No. 5 temporarily suspended certain financial and related reporting covenants in the 2012 ABL Revolver until the earliest of (i) the date that was 60 calendar days following February 4, 2016, (ii) the date upon which certain of DenTek’s assets were included in the Company’s borrowing base under the 2012 ABL Revolver and (iii) the date upon which the Company received net proceeds from an offering of debt securities.

In connection with the Fleet acquisition, on January 26, 2017, we entered into Amendment No. 4 ("Term Loan Amendment No. 4") to the 2012 Term Loan. Term Loan Amendment No. 4 provided for (i) the refinancing of all of our outstanding term loans and the creation of a new class of Term B-4 Loans under the 2012 Term Loan (the "Term B-4 Loans") in an aggregate principal amount of $1,427.0 million and (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver, including additional investment, restricted payment, and debt incurrence flexibility and financial maintenance covenant relief. Term Loan Amendment No.4 also extended the maturity date of the 2012 Term Loan to January 26, 2024. In addition, Citibank, N.A. was succeeded by Barclays Bank PLC as administrative agent under the 2012 Term Loan.

Also on January 26, 2017, we entered into Amendment No. 6 ("ABL Amendment No. 6") to the 2012 ABL Revolver. ABL Amendment No. 6 provided for (i) a $40.0 million increase in revolving commitments under the 2012 ABL Revolver, (ii) an extension of the maturity date of revolving commitments to January 26, 2022, and (iii) increased flexibility under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver, including additional investment, restricted payment and debt incurrence flexibility consistent with Term Loan Amendment No. 4.

On March 21, 2018, we entered into Amendment No. 5 (“Term Loan Amendment No. 5”) to the 2012 Term Loan. Term Loan Amendment No. 5 provided for the creation of Term B-5 Loans (the "Term B-5 Loans") by repricing of the Term B-4 Loans under the credit agreement governing the 2012 Term Loan to an interest rate that is based, at our option, on a LIBOR rate plus a margin of 2.00% per annum, with a LIBOR floor of 0.00%, or an alternative base rate plus a margin of 1.00% per annum, with a floor of 1.00%.

42

On December 11, 2019, the Company and the Borrower entered into Amendment No. 7 ("ABL Amendment No. 7") to the 2012 ABL Revolver. ABL Amendment No. 7 provides for (i) an extension of the maturity date of the 2012 ABL Revolver to December 11, 2024, which is five years from the effective date of the ABL Amendment No. 7, (ii) increased flexibility under the 2012 ABL Revolver, including additional investment, restricted payment, and debt incurrence flexibility, (iii) an initial applicable margin for borrowings under the 2012 ABL Revolver that is 1.00% with respect to LIBOR borrowings and 0.0% with respect to base-rate borrowings (which may be increased to 1.25% or 1.50% for LIBOR borrowings and 0.25% or 0.50% for base-rate borrowings, depending on average excess availability under the facility during the prior fiscal quarter), and (iv) a commitment fee to the lenders under the 2012 ABL Revolver in respect of the unutilized commitments thereunder of 0.25% per annum.

On July 1, 2021, we entered into Amendment No. 6 ("Term Loan Amendment No. 6") to the 2012 Term Loan. Term Loan Amendment No. 6 provided for (i) the refinancing of our outstanding term loans and the creation of a new class of Term B-5 Loans under the credit agreement governing the 2012 Term Loan in an aggregate principal amount of $600.0 million, (ii) increased flexibility under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver, and (iii) an interest rate on the Term B-5 Loans that is based, at the Borrower's option, on a LIBOR rate plus a margin of 2.00% per annum, with a LIBOR floor of 0.50%, or an alternative base rate plus a margin of 1.00% per annum. In addition, Term Loan Amendment No. 6 provided for an extension of the maturity date of the 2012 Term Loan to July 1, 2028. In connection with this refinancing, we recorded a loss on extinguishment of debt of $2.1 million to write off a portion of new and old debt costs relating to this refinancing. Under Term Loan Amendment No. 6, we are required to make quarterly payments each equal to 0.25% of the aggregate principal amount of the 2012 Term Loan.

For the year ended March 31, 2022, the average interest rate on the 2012 Term Loan was 3.6%. For the year ended March 31, 2022, the average interest rate on the amounts borrowed under the 2012 ABL Revolver was 1.2%.

2013 Senior Notes:

On December 17, 2013, the Borrower issued $400.0 million of senior unsecured notes, with an interest rate of 5.375% and a maturity date of December 15, 2021 (the "2013 Senior Notes"). These notes were redeemed on December 16, 2019 using the funds from the issuance of our 2019 Senior Notes described below. In conjunction with the redemption of our 2013 Senior Notes, we wrote off related debt costs of $2.2 million in the year ended March 31, 2020.

2016 Senior Notes:

On February 19, 2016, the Borrower completed the sale of $350.0 million aggregate principal amount of 6.375% senior notes due March 1, 2024 (the “Initial Notes”). On March 21, 2018, the Borrower completed the sale of $250.0 million additional aggregate principal amount of 6.375% senior notes due March 1, 2024 (the “Additional Notes”). Both the Initial Notes and the Additional Notes (the "2016 Senior Notes") were redeemed on March 1, 2021 using funds from the issuance of our 2021 Senior Notes described below. In conjunction with the redemption of the 2016 Senior Notes, we wrote off related debt costs of $2.7 million and paid a premium to redeem the 2016 Senior Notes of $9.6 million in the year ended March 31, 2021.

2019 Senior Notes:

On December 2, 2019, the Borrower issued $400.0 million aggregate principal amount of 5.125% senior notes due January 15, 2028 (the "2019 Senior Notes") pursuant to an indenture dated December 2, 2019, among the Borrower, the guarantors party thereto (including the Company) and U.S. Bank National Association, as trustee. We used the net proceeds from the 2019 Senior Notes, together with cash on hand, to redeem all $400.0 million of our outstanding 2013 Senior Notes, which were due in 2021, and to pay related fees and expenses.

2021 Senior Notes:

On March 1, 2021, we issued $600.0 million aggregate principal amount of 3.750% senior notes due April 1, 2031, (the "2021 Senior Notes") pursuant to an indenture dated March 1, 2021, among the Borrower, the guarantors party thereto (including the Company), and U.S. Bank National Association, as trustee. We used the net proceeds from the 2021 Senior Notes to redeem all $600.0 million of our outstanding 2016 Senior Notes, which were due in 2024, and to pay related fees and expenses.

43

Redemptions and Restrictions:

We have the option to redeem all or a portion of the 2019 Senior Notes at any time on or after January 15, 2023 at the redemption prices set forth in the indenture governing the 2019 Senior Notes, plus accrued and unpaid interest, if any. Subject to certain limitations, in the event of a change of control (as defined in the indenture governing the 2019 Senior Notes), the Borrower will be required to make an offer to purchase the 2019 Senior Notes at a price equal to 101% of the aggregate principal amount of the notes repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.

We have the option to redeem all or a portion of the 2021 Senior Notes at any time on or after April 1, 2026 at the redemption prices set forth in the indenture governing the 2021 Senior Notes, plus accrued and unpaid interest, if any. Subject to certain limitations, in the event of a change of control (as defined in the indenture governing the 2021 Senior Notes), the Borrower will be required to make an offer to purchase the 2021 Senior Notes at a price equal to 101% of the aggregate principal amount of the notes repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.

The credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2021 Senior Notes and the 2019 Senior Notes contain provisions that restrict us from undertaking specified corporate actions, such as asset dispositions, acquisitions, dividend payments, repurchases of common shares outstanding, changes of control, incurrences of indebtedness, issuance of equity, creation of liens, making of loans and transactions with affiliates. Additionally, the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2021 Senior Notes and the 2019 Senior Notes contain cross-default provisions, whereby a default pursuant to the terms and conditions of certain indebtedness will cause a default on the remaining indebtedness under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2021 Senior Notes and the 2019 Senior Notes. At March 31, 2022, we were in compliance with the covenants under our long-term indebtedness.

As of March 31, 2022, we had an aggregate of $1.5 billion of outstanding indebtedness, which consisted of the following:

•$400.0 million of 5.125% 2019 Senior Notes due January 15, 2028;

•$600.0 million of 3.750% 2021 Senior Notes due April 1, 2031; and

•$495.0 million of borrowings under the Term B-5 Loans due July 1, 2028.

As of March 31, 2022, we had no balance outstanding on the 2012 ABL Revolver and a borrowing capacity of $123.3 million.

Interest Rate Swaps

In January 2020, we entered into two interest rate swaps to hedge a total of $400.0 million of our variable interest debt. One swap settled on January 31, 2021 and the other settled on January 31, 2022.

Debt Covenants

Our debt facilities contain various financial covenants, including provisions that require us to maintain certain leverage, interest coverage and fixed charge ratios.  Specifically, we must:

•Have a leverage ratio of less than 6.50 to 1.0 for the quarter ended March 31, 2022 and going forward (defined as, with certain adjustments, the ratio of our consolidated total net debt as of the last day of the fiscal quarter to our trailing twelve month consolidated net income before interest, taxes, depreciation, amortization, non-cash charges and certain other items (“EBITDA”));

•Have an interest coverage ratio of greater than 2.25 to 1.0 for the quarter ended March 31, 2022 and going forward (defined as, with certain adjustments, the ratio of our consolidated EBITDA to our trailing twelve month consolidated cash interest expense); and

•Have a fixed charge ratio of greater than 1.0 to 1.0 (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 agreement.

At March 31, 2022, we were in compliance with the applicable financial and restrictive covenants under the credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2021 Senior Notes and the 2019 Senior Notes. Additionally, management anticipates that in the normal course of operations, we will be in compliance with the financial and restrictive covenants during fiscal 2023. During the year ended March 31, 2022, we made a required repayment

44

of $1.5 million as well as voluntary principal payments of $103.5 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 on July 1, 2028.

Commitments

As of March 31, 2022, we had ongoing commitments under various contractual and commercial obligations as follows:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

(1)Represents the estimated interest obligations on the outstanding balances at March 31, 2022 of the 2021 Senior Notes, 2019 Senior Notes, Term B-5 Loans, and 2012 ABL Revolver, assuming scheduled principal payments (based on the terms of the loan agreements). We estimate our future obligations for interest on our variable rate debt by assuming the weighted average interest rates in effect on each variable rate debt obligation at March 31, 2022 remain constant into the future. This is an estimate, as actual rates will vary over time. In addition, we assume that the average balance outstanding for the last month of fiscal 2022 remains the same for the remaining term of the agreement. The actual balance outstanding may fluctuate significantly in future periods, depending on the availability of cash flow from operations and future investing and financing considerations. Estimated interest obligations would be different under different assumptions regarding interest rates or timing of principal payments.   

(2)Purchase obligations for inventory costs are legally binding commitments for projected inventory requirements to be utilized during the normal course of our operations.

(3)Purchase obligations for other costs are legally binding commitments for marketing, advertising and capital expenditures. Our capital expenditures primarily relate to manufacturing equipment.  Activity costs for molds and equipment to be paid, based solely on a per unit basis without any deadlines for final payment, have been excluded from the table because we are unable to determine the time period over which such activity costs will be paid.

(4)We have excluded obligations related to uncertain tax positions because we cannot reasonably estimate when they will occur.

We do not have any off-balance sheet arrangements or financing activities with special-purpose entities.

Inflation

Inflationary factors such as increases in the costs of raw materials, packaging materials, purchased product, labor costs, transportation costs and overhead may adversely affect our operating results and financial condition.  Although we do not believe that inflation has had a material impact on our financial condition or results of operations for the three most recent fiscal years, the COVID-19 pandemic, the Russian invasion of Ukraine and other supply and labor disruptions may have an inflationary impact on our costs and a high rate of inflation in the future could have a material adverse effect on our financial condition and results of operations.  More volatility in crude oil prices may have an adverse impact on transportation costs, as well as certain petroleum based raw materials and packaging material.  Although we make efforts to minimize the impact of inflationary factors, including raising prices to our customers, a high rate of pricing volatility associated with crude oil supplies or other raw materials used in our products may have an adverse effect on our operating results.