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

FORM 10-Q
(Mark One)                                     
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____

Commission File Number: 001-32433
pbh-20221231_g1.jpg

PRESTIGE CONSUMER HEALTHCARE INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 20-1297589
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer Identification No.)
660 White Plains Road
Tarrytown, New York 10591
(Address of Principal Executive Offices) (Zip Code)
(914) 524-6800
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per sharePBHNew York Stock Exchange

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  
Large Accelerated Filer Accelerated Filer
Non-Accelerated Filer Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No
As of January 27, 2023, there were 49,687,668 shares of common stock outstanding.



Prestige Consumer Healthcare Inc.
Form 10-Q
Index

PART I.FINANCIAL INFORMATION 
   
Item 1.Financial Statements
 Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended December 31, 2022 and 2021 (unaudited)
 Condensed Consolidated Balance Sheets as of December 31, 2022 and March 31, 2022 (unaudited)
Condensed Consolidated Statements of Changes in Stockholders' Equity for the three and nine months ended December 31, 2022 and 2021 (unaudited)
 Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2022 and 2021 (unaudited)
 Notes to Condensed Consolidated Financial Statements (unaudited)
  
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
  
Item 3.Quantitative and Qualitative Disclosures About Market Risk
  
Item 4.Controls and Procedures
  
PART II.OTHER INFORMATION
  
Item 1A.Risk Factors
Item 2. Issuer Purchases of Equity Securities
Item 6.Exhibits
  
 Signatures
  

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


PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

Prestige Consumer Healthcare Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
 Three Months Ended December 31, Nine Months Ended December 31,
(In thousands, except per share data)2022202120222021
Revenues
Net sales$275,495 $274,454 $841,783 $819,843 
Other revenues29 16 73 33 
Total revenues275,524 274,470 841,856 819,876 
Cost of Sales    
Cost of sales excluding depreciation123,251 117,604 364,631 342,661 
Cost of sales depreciation1,871 1,806 5,695 5,431 
Cost of sales125,122 119,410 370,326 348,092 
Gross profit150,402 155,060 471,530 471,784 
Operating Expenses    
Advertising and marketing30,423 40,239 114,193 120,408 
General and administrative26,536 25,983 79,688 80,706 
Depreciation and amortization6,259 6,244 19,067 18,176 
Total operating expenses63,218 72,466 212,948 219,290 
Operating income87,184 82,594 258,582 252,494 
Other expense  
Interest expense, net17,917 16,924 50,188 48,314 
Loss on extinguishment of debt   2,122 
Other expense, net1,150 177 2,787 565 
Total other expense, net19,067 17,101 52,975 51,001 
Income before income taxes68,117 65,493 205,607 201,493 
Provision for income taxes16,166 15,278 47,361 48,198 
Net income $51,951 $50,215 $158,246 $153,295 
Earnings per share:  
Basic$1.05 $1.00 $3.17 $3.05 
Diluted$1.04 $0.99 $3.14 $3.02 
Weighted average shares outstanding:  
Basic49,693 50,303 49,919 50,225 
Diluted50,186 50,935 50,392 50,799 
Comprehensive income, net of tax:
Currency translation adjustments6,970 652 (9,667)(5,037)
Unrealized gain on interest rate swaps 561  1,631 
Net loss on termination of pension plan  (790) 
Total other comprehensive income (loss)6,970 1,213 (10,457)(3,406)
Comprehensive income $58,921 $51,428 $147,789 $149,889 
See accompanying notes.
-2-



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

(In thousands)December 31, 2022March 31, 2022
Assets
Current assets
Cash and cash equivalents$86,358 $27,185 
Accounts receivable, net of allowance of $21,370 and $19,720, respectively
157,081 139,330 
Inventories158,522 120,342 
Prepaid expenses and other current assets6,886 6,410 
Total current assets408,847 293,267 
Property, plant and equipment, net69,569 71,300 
Operating lease right-of-use assets16,410 20,372 
Finance lease right-of-use assets, net4,864 6,858 
Goodwill576,602 578,976 
Intangible assets, net2,670,328 2,696,635 
Other long-term assets3,154 3,273 
Total Assets$3,749,774 $3,670,681 
Liabilities and Stockholders' Equity  
Current liabilities  
Accounts payable64,254 55,760 
Accrued interest payable15,267 4,437 
Operating lease liabilities, current portion6,858 6,360 
Finance lease liabilities, current portion2,814 2,752 
Other accrued liabilities70,983 74,113 
Total current liabilities160,176 143,422 
Long-term debt, net1,424,095 1,476,658 
Deferred income tax liabilities455,826 444,917 
Long-term operating lease liabilities, net of current portion11,559 16,088 
Long-term finance lease liabilities, net of current portion2,383 4,501 
Other long-term liabilities8,872 7,484 
Total Liabilities2,062,911 2,093,070 
Commitments and Contingencies — Note 17
 
Stockholders' Equity  
Preferred stock - $0.01 par value
  
Authorized - 5,000 shares
  
Issued and outstanding - None
  
Common stock - $0.01 par value
  
Authorized - 250,000 shares
  
Issued - 54,852 shares at December 31, 2022 and 54,430 shares at March 31, 2022
548 544 
Additional paid-in capital532,508 515,583 
Treasury stock, at cost - 5,165 shares at December 31, 2022 and 4,151 shares at March 31, 2022
(189,114)(133,648)
Accumulated other comprehensive loss, net of tax(29,489)(19,032)
Retained earnings1,372,410 1,214,164 
Total Stockholders' Equity1,686,863 1,577,611 
Total Liabilities and Stockholders' Equity$3,749,774 $3,670,681 
 See accompanying notes.
-3-


Prestige Consumer Healthcare Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Three Months Ended December 31, 2022
Common StockAdditional Paid-in CapitalTreasury StockAccumulated
Other
Comprehensive
(Loss)
Retained
Earnings
Totals
(In thousands)SharesPar
Value
SharesAmount
Balances at September 30, 202254,690 $547 $524,392 5,164 $(189,098)$(36,459)$1,320,459 $1,619,841 
Stock-based compensation— — 2,433 — — — — 2,433 
Exercise of stock options161 1 5,683 — — — — 5,684 
Issuance of shares related to restricted stock1 — — — — — — — 
Treasury share repurchases— — — 1 (16)— — (16)
Net income— — — — — — 51,951 51,951 
Comprehensive income— — — — — 6,970 — 6,970 
Balances at December 31, 202254,852 $548 $532,508 5,165 $(189,114)$(29,489)$1,372,410 $1,686,863 

Three Months Ended December 31, 2021
Common StockAdditional Paid-in CapitalTreasury StockAccumulated
Other
Comprehensive (Loss)
Retained
Earnings
Totals
(In thousands)SharesPar
Value
SharesAmount
Balances at September 30, 202154,247 $542 $507,310 4,151 $(133,648)$(24,420)$1,111,863 $1,461,647 
Stock-based compensation— — 2,234 — — — — 2,234 
Exercise of stock options103 1 3,010 — — — — 3,011 
Net income— — — — — — 50,215 50,215 
Comprehensive income— — — — — 1,213 — 1,213 
Balances at December 31, 202154,350 $543 $512,554 4,151 $(133,648)$(23,207)$1,162,078 $1,518,320 


-4-


Nine Months Ended December 31, 2022
Common StockAdditional Paid-in CapitalTreasury StockAccumulated
Other
Comprehensive (Loss)
Retained
Earnings
Totals
(In thousands)SharesPar
Value
SharesAmount
Balances at March 31, 202254,430 $544 $515,583 4,151 $(133,648)$(19,032)$1,214,164 $1,577,611 
Stock-based compensation— — 9,756 — — — — 9,756 
Exercise of stock options200 2 7,171 — — — — 7,173 
Issuance of shares related to restricted stock222 2 (2)— — — —  
Treasury share repurchases— — — 1,014 (55,466)— — (55,466)
Net income— — — — — — 158,246 158,246 
Comprehensive loss— — — — — (10,457)— (10,457)
Balances at December 31, 202254,852 $548 $532,508 5,165 $(189,114)$(29,489)$1,372,410 $1,686,863 

Nine Months Ended December 31, 2021
Common StockAdditional Paid-in CapitalTreasury StockAccumulated
Other
Comprehensive
(Loss)
Retained
Earnings
Totals
(In thousands)SharesPar
Value
SharesAmount
Balances at March 31, 202153,999 $540 $499,508 4,088 $(130,732)$(19,801)$1,008,783 $1,358,298 
Stock-based compensation— — 7,331 — — — — 7,331 
Exercise of stock options191 1 5,717 — — — — 5,718 
Issuance of shares related to restricted stock160 2 (2)— — — —  
Treasury share repurchases— — — 63 (2,916)— — (2,916)
Net income— — — — — — 153,295 153,295 
Comprehensive loss— — — — — (3,406)— (3,406)
Balances at December 31, 202154,350 $543 $512,554 4,151 $(133,648)$(23,207)$1,162,078 $1,518,320 
See accompanying notes.

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Prestige Consumer Healthcare Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months Ended December 31,
(In thousands)2022 2021
Operating Activities 
Net income $158,246  $153,295 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization24,762  23,607 
Loss on disposal of property and equipment171 79 
Deferred income taxes14,021  11,296 
Amortization of debt origination costs2,613  2,811 
Stock-based compensation costs9,756  7,331 
Loss on extinguishment of debt 2,122 
Non-cash operating lease cost4,697 5,034 
Other447  
Changes in operating assets and liabilities, net of effects from acquisition:  
Accounts receivable(17,078) (21,848)
Inventories(38,587) 14,650 
Prepaid expenses and other current assets(596) (5,622)
Accounts payable8,892  (6,079)
Accrued liabilities8,345  15,053 
Operating lease liabilities(4,941)(4,807)
Other(19)(126)
Net cash provided by operating activities170,729  196,796 
Investing Activities   
Purchases of property, plant and equipment(5,226) (6,481)
Acquisition of Akorn (246,914)
Other 177 
Net cash used in investing activities(5,226) (253,218)
Financing Activities   
Term loan repayments(55,000)(545,000)
Proceeds from refinancing of Term Loan 597,000 
Borrowings under revolving credit agreement20,000 85,000 
Repayments under revolving credit agreement(20,000)(85,000)
Payments of debt costs (6,111)
Payments of finance leases(2,058)(2,145)
Proceeds from exercise of stock options7,173 5,718 
Fair value of shares surrendered as payment of tax withholding(5,466)(2,916)
Repurchase of common stock(50,000) 
Net cash (used in) provided by financing activities(105,351) 46,546 
Effects of exchange rate changes on cash and cash equivalents(979)(1,408)
Increase (decrease) in cash and cash equivalents59,173  (11,284)
Cash and cash equivalents - beginning of period27,185  32,302 
Cash and cash equivalents - end of period$86,358  $21,018 
Interest paid$36,716  $36,279 
Income taxes paid$27,632  $42,977 
See accompanying notes.
-6-


Prestige Consumer Healthcare Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

1.    Business and Basis of Presentation

Nature of Business
Prestige Consumer Healthcare Inc. (referred to herein as the “Company” or “we,” which reference shall, unless the context requires otherwise, be deemed to refer to Prestige Consumer Healthcare Inc. and all of its direct and indirect 100% owned subsidiaries on a consolidated basis) is engaged in the development, manufacturing, marketing, sales and distribution of over-the-counter (“OTC”) healthcare products to mass merchandisers, drug, food, dollar, convenience and club stores and e-commerce channels in North America (the United States and Canada) and in Australia and certain other international markets.  Prestige Consumer Healthcare Inc. is a holding company with no operations and is also the parent guarantor of the senior credit facility and the senior notes described in Note 8 to these Condensed Consolidated Financial Statements.

Economic Environment
There has been economic uncertainty in the United States and globally due to several factors including global supply chain constraints, rising interest rates, a high inflationary environment, geopolitical events and the effects from the COVID-19 pandemic. We expect economic conditions will continue to be highly volatile and uncertain, put pressure on prices and supply, and could affect demand for our products. In fiscal 2022, we experienced solid consumer consumption and share gains across most of our brand portfolio; however, that may not be sustained at the same levels in the uncertain economic environment. We have continued to see changes in the purchasing patterns of our consumers, including a reduction in the frequency of visits to retailers and a shift in many markets to purchasing our products online.

The volatile environment has impacted the supply of labor and raw materials and exacerbated rising input costs. Although we have not experienced a material disruption to our overall supply chain to date, we have and may continue to experience shortages, delays and backorders for certain ingredients and products, difficulty scheduling shipping for our products, as well as price increases from many of our suppliers for both shipping and product costs. In addition, labor shortages have impacted our manufacturing operations and may impact our ability to supply certain products to our customers. To date, the pandemic and other global conditions have not had a material negative impact on our operations, supply chain, overall costs or demand for most of our products or resulting aggregate sales and earnings, and, as such, it has also not negatively impacted our liquidity position. We continue to generate operating cash flows to meet our short-term liquidity needs. These circumstances could change, however, in this dynamic, unprecedented environment. If conditions cause further disruption in the global supply chain, the availability of labor and materials or otherwise increase costs, it may materially affect our operations and those of third parties on which we rely, including causing disruptions in the supply and distribution of our products. The extent to which these conditions impact our results and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity and duration of any further COVID-19 outbreaks, global supply chain constraints, the high inflationary environment and further global instability. These effects could have a material adverse impact on our business, liquidity, capital resources, and results of operations and those of the third parties on which we rely.

Basis of Presentation
The unaudited Condensed Consolidated Financial Statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  All significant intercompany transactions and balances have been eliminated in consolidation.  In the opinion of management, these Condensed Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, that are considered necessary for a fair statement of our consolidated financial position, results of operations and cash flows for the interim periods presented.  Our fiscal year ends on March 31st of each year. References in these Condensed Consolidated Financial Statements or related notes to a year (e.g., 2023) mean our fiscal year ending or ended on March 31st of that year. Operating results for the nine months ended December 31, 2022 are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2023.  These unaudited Condensed Consolidated Financial Statements and related notes should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

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

Recently Adopted Accounting Pronouncements

There have been no accounting pronouncements adopted in fiscal 2023.

Recently Issued Accounting Pronouncements

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU responds to feedback received by the FASB during the post-implementation review of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which we adopted effective April 1, 2020. The amendments in this update, among other things, eliminate the troubled debt restructuring recognition and measurement guidance and, instead, require the entity to evaluate whether the modification represents a new loan or a continuation of an existing loan. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of the standard is not expected to have a material effect on our Consolidated Financial Statements.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method. The purpose of the ASU is to address questions raised on ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU expands the currently used single-layer method of hedge accounting to allow multiple layers of a single closed portfolio under the method. This ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The impact of adoption of this new standard is not expected to have a material effect on our Consolidated Financial Statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires entities to apply Topic 606 to recognize and measure contract assets and liabilities in a business combination. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The impact of adoption of this new standard will depend on the magnitude of future acquisitions.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and also issued subsequent amendments to the initial guidance (collectively, "Topic 848"). Topic 848 provides optional guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. We will adopt Topic 848 when relevant contracts are modified upon transition to alternate reference rates, but no later than December 31, 2024. The adoption of the standard is not expected to have a material effect on our Consolidated Financial Statements.

2.     Acquisition

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 our asset-based revolving credit facility entered into January 31, 2012, as amended (the "2012 ABL Revolver") and the net proceeds from the refinancing of our term loan entered into on January 31, 2012 (the "2012 Term Loan") (see Note 8).

The acquisition was accounted for as a business combination. In connection with the acquisition, we entered into a supply arrangement with Akorn for a term of three years with optional renewals at prevailing market rates.

-8-


We finalized our analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the July 1, 2021 acquisition date.

(In thousands)
July 1, 2021
Inventories$6,455 
Goodwill1,098 
Intangible assets225,410 
Total assets acquired232,963
Accounts payable428 
Reserves for sales allowances 497 
Other accrued liabilities3,124 
Total liabilities assumed4,049 
Total purchase price$228,914 

Based on this analysis, we allocated $195.9 million to non-amortizable intangible assets and $29.5 million to amortizable intangible assets. The non-amortizable intangible assets are classified as trademarks and, of the amortizable intangible assets, $20.4 million are classified as customer relationships and $9.1 million are classified as trademarks. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of 12.5 years (see Note 5).

We recorded goodwill of $1.1 million based on the amount by which the purchase price exceeded the fair value of the net assets acquired (see Note 4). Goodwill is deductible and is being amortized for income tax purposes.

The financial impact of this acquisition was not material to our Consolidated Financial Statements, and, therefore, we have not presented pro forma results of operations for the acquisition.

3.     Inventories

Inventories consist of the following:
(In thousands)December 31, 2022March 31, 2022
Components of Inventories
Packaging and raw materials$20,306 $16,984 
Work in process453 338 
Finished goods137,763 103,020 
Inventories$158,522 $120,342 

Inventories are carried and depicted above at the lower of cost or net realizable value, which includes a reduction in inventory values of $4.5 million at December 31, 2022 and $4.9 million at March 31, 2022 related to obsolete and slow-moving inventory.

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4.    Goodwill

A reconciliation of the activity affecting goodwill by operating segment is as follows:
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Balance - March 31, 2022
Goodwill$712,002 $32,272 $744,274 
Accumulated impairment loss(163,711)(1,587)(165,298)
Balance - March 31, 2022548,291 30,685 578,976 
 Adjustment related to acquisition(550) (550)
Effects of foreign currency exchange rates (1,824)(1,824)
Balance - December 31, 2022
Goodwill711,452 30,448 741,900 
Accumulated impairment loss(163,711)(1,587)(165,298)
Balance - December 31, 2022$547,741 $28,861 $576,602 

As discussed in Note 2, on July 1, 2021, we completed the acquisition of certain assets from Akorn. In connection with this acquisition, we recorded goodwill of $1.1 million based on the amount by which the purchase price exceeded the estimate of the fair value of the net assets acquired.

On an annual basis during the fourth quarter of each fiscal year, or more frequently if conditions indicate that the carrying value of the asset may not be recoverable, management performs a review of the values assigned to goodwill and tests for impairment. The date of our annual impairment review was February 28, 2022, and we recorded impairment charges to goodwill of $0.3 million in our March 31, 2022 financial statements. We utilized the discounted cash flow method to estimate the fair value of our reporting units as part of the goodwill impairment test. We also considered our market capitalization at February 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. The estimates and assumptions made in assessing the fair value of our reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties related to future sales, gross margins, and advertising and marketing expenses, which can be impacted by increases in competition, changing consumer preferences, technical advances, or the potential impacts of COVID-19, supply chain constraints, labor shortages, and inflation. The discount rate assumption may be influenced by such factors as changes in interest rates and rates of inflation, which can have an impact on the determination of fair value. For example, the significant increase in interest rates over the last fiscal year, if sustained at year-end, will significantly impact the discount rate we use in our year-end analysis, impacting the final analysis of many of our brands. If these assumptions are adversely affected, we may be required to record impairment charges in the future. We continuously monitor events that could trigger an interim impairment analysis, which included the impact of COVID-19, supply chain constraints, labor shortages, and inflation for the period ended December 31, 2022.

As of December 31, 2022, we determined no events have occurred that would indicate potential impairment of goodwill.
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5.    Intangible Assets, net

A reconciliation of the activity affecting intangible assets, net is as follows:
(In thousands)Indefinite-
Lived
Trademarks
Finite-Lived
Trademarks and Customer Relationships
Totals
Gross Carrying Amounts
Balance — March 31, 2022$2,476,559 $436,174 $2,912,733 
Effects of foreign currency exchange rates(7,646)(1,993)(9,639)
Balance — December 31, 20222,468,913 434,181 2,903,094 
    
Accumulated Amortization   
Balance — March 31, 2022— 216,098 216,098 
Additions— 16,865 16,865 
Effects of foreign currency exchange rates— (197)(197)
Balance — December 31, 2022— 232,766 232,766 
Intangible assets, net - December 31, 2022$2,468,913 $201,415 $2,670,328 

On July 1, 2021, we completed the acquisition of certain assets from Akorn (see Note 2), and on December 15, 2021, our Australian subsidiary acquired the rights to the Zaditen brand in certain territories from Novartis Pharma AG. In connection with these acquisitions, we allocated $225.4 million to intangible assets for Akorn and $18.1 million for Zaditen.

Amortization expense was $5.6 million and $16.9 million for the three and nine months ended December 31, 2022, respectively, and $5.4 million and $15.6 million for the three and nine months ended December 31, 2021, respectively.  

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

(In thousands)
Year Ending March 31,Amount
2023 (remaining three months ended March 31, 2023)$5,619 
202422,434 
202520,382 
202618,134 
202716,493 
Thereafter118,353 
$201,415 

Under accounting guidelines, indefinite-lived assets are not amortized, but must be tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below the carrying amount. The date of our annual impairment review was February 28, 2022, and we recorded impairment charges to intangible assets of $0.7 million in our March 31, 2022 financial statements. Additionally, at each reporting period, an evaluation must be made to determine whether events and circumstances continue to support an indefinite useful life.  Intangible assets with finite lives are amortized over their respective estimated useful lives and are also tested for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable and exceeds its fair value.

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We utilize the excess earnings method to estimate the fair value of our individual indefinite-lived intangible assets. The assumptions subject to significant uncertainties include the discount rate utilized in the analyses, as well as future sales, gross margins, and advertising and marketing expenses. The discount rate assumption may be influenced by such factors as changes in interest rates and rates of inflation, which can have an impact on the determination of fair value. For example, the significant increase in interest rates over the last fiscal year, if sustained at year-end, will significantly impact the discount rate we use in our year-end analysis, impacting the final analysis of many of our brands. Additionally, should the related fair values of intangible assets be adversely affected as a result of declining sales or margins caused by competition, changing consumer needs or preferences, technological advances, changes in advertising and marketing expenses, or the potential impacts of COVID-19, supply chain constraints, labor shortages, or inflation, we may be required to record impairment charges in the future.

As of December 31, 2022, no events have occurred that would indicate potential impairment of intangible assets.

6.    Leases

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

The components of lease expense for the three and nine months ended December 31, 2022 and 2021 were as follows:
Three Months Ended December 31, Nine Months Ended December 31,
(In thousands)2022202120222021
Finance lease cost:
     Amortization of right-of-use assets$665 $642 $1,994 $1,926 
     Interest on lease liabilities41 57 136 186 
Operating lease cost1,621 1,651 4,872 5,021 
Short term lease cost35 30 120 76 
Variable lease cost14,727 9,770 43,742 33,419 
Total net lease cost$17,089 $12,150 $50,864 $40,628 

As of December 31, 2022, the maturities of lease liabilities were as follows:
(In thousands)
Year Ending March 31,Operating LeasesFinance
Lease
Total
2023 (Remaining three months ending March 31, 2023)$2,121 $730 $2,851 
20247,017 2,923 9,940 
20254,750 1,509 6,259 
20262,264 96 2,360 
20271,886 80 1,966 
Thereafter1,685  1,685 
Total undiscounted lease payments19,723 5,338 25,061 
Less amount of lease payments representing interest(1,306)(141)(1,447)
Total present value of lease payments$18,417 $5,197 $23,614 

The weighted average remaining lease term and weighted average discount rate were as follows:
December 31, 2022
Weighted average remaining lease term (years)
Operating leases3.43
Finance leases1.92
Weighted average discount rate
Operating leases3.29 %
Finance leases2.95 %

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7.    Other Accrued Liabilities

Other accrued liabilities consist of the following:
(In thousands)December 31, 2022March 31, 2022
Accrued marketing costs$35,936 $36,149 
Accrued compensation costs10,436 19,587 
Accrued broker commissions1,474 1,179 
Income taxes payable6,973 2,670 
Accrued professional fees4,179 4,150 
Accrued production costs5,435 3,686 
Other accrued liabilities6,550 6,692 
$70,983 $74,113 

8.    Long-Term Debt

Long-term debt consists of the following, as of the dates indicated:

(In thousands, except percentages)December 31, 2022March 31, 2022
2021 Senior Notes bearing interest at 3.750%, with interest payable on April 1 and October 1 of each year. The 2021 Senior Notes mature on April 1, 2031.
$600,000 $600,000 
2019 Senior Notes bearing interest at 5.125%, with interest payable on January 15 and July 15 of each year. The 2019 Senior Notes mature on January 15, 2028.
400,000 400,000 
2012 Term B-5 Loans bearing interest at the Borrower's option at either LIBOR plus a margin of 2.00%, with a LIBOR floor of 0.50%, or an alternate base rate plus a margin of 1.00% per annum, due on July 1, 2028.
440,000 495,000 
2012 ABL Revolver bearing interest at the Borrower's option at either a base rate plus applicable margin or LIBOR plus applicable margin. Any unpaid balance is due on December 11, 2024.  
Long-term debt1,440,000 1,495,000 
Less: unamortized debt costs(15,905)(18,342)
Long-term debt, net$1,424,095 $1,476,658 

At December 31, 2022, we had no balance outstanding on the 2012 ABL Revolver, and a borrowing capacity of $155.3 million.

As of December 31, 2022, aggregate future principal payments required in accordance with the terms of the 2012 Term B-5 Loans, 2012 ABL Revolver and the indentures governing the senior unsecured notes due 2031 (the "2021 Senior Notes") and the senior unsecured notes due 2028 (the "2019 Senior Notes") are as follows:
(In thousands)
Year Ending March 31,Amount
2023 (remaining three months ending March 31, 2023)$ 
2024 
2025 
2026 
2027 
Thereafter1,440,000 
$1,440,000 

9.    Fair Value Measurements
For certain of our financial instruments, including cash, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their respective fair values due to the relatively short maturity of these amounts.

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

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

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

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

The market values have been determined based on market values for similar instruments adjusted for certain factors. As such, the 2021 Senior Notes, the 2019 Senior Notes, the 2012 Term B-5 Loans, and the 2012 ABL Revolver are measured in Level 2 of the above hierarchy. The summary below details the carrying amounts and estimated fair values of these instruments at December 31, 2022 and March 31, 2022.
December 31, 2022March 31, 2022
(In thousands)Carrying ValueFair ValueCarrying ValueFair Value
2021 Senior Notes$600,000 $496,500 $600,000 $534,000 
2019 Senior Notes400,000 379,000 400,000 397,000 
2012 Term B-5 Loans440,000 437,800 495,000 493,144 

At December 31, 2022 and March 31, 2022, we did not have any assets or liabilities measured in Level 1 or 3.

10.    Derivative Instruments

Changes in interest rates expose us to risks. To help us manage these risks, in January 2020 we entered into an interest rate swap to hedge a total of $200.0 million of our variable interest debt, which settled on January 31, 2022. We do not use derivatives for trading purposes.

The following table summarizes our interest rate swaps, net of tax, for the periods shown:

Three Months Ended December 31,Nine Months Ended December 31,
(In thousands)Location2022202120222021
Gain Recognized in Other Comprehensive Loss (effective portion)Other comprehensive income (loss)$ $561 $ $1,631 
Loss Reclassified from Accumulated Other Comprehensive Loss into IncomeInterest expense$ $(735)$ $(2,185)

11.    Stockholders' Equity

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

Each share of common stock has the right to one vote on all matters submitted to a vote of stockholders.  The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to prior rights of holders of all classes of outstanding stock having priority rights as to dividends.  No dividends have been declared or paid on our common stock through December 31, 2022.

During the three and nine months ended December 31, 2022 and 2021, we repurchased shares of our common stock and recorded them as treasury stock. Our share repurchases consisted of the following:
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Three Months Ended December 31, Nine Months Ended December 31,
2022202120222021
Shares repurchased pursuant to the provisions of the various employee restricted stock awards:
Number of shares303  99,522 63,614 
Average price per share$50.63$ $54.92$46.04
Total amount repurchased$0.02 million$ $5.5 million$2.9 million
Shares repurchased in conjunction with our share repurchase program:
Number of shares  914,236  
Average price per share$ $ $54.69$ 
Total amount repurchased$ $ $50.0 million$ 

12.    Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consisted of the following at December 31, 2022 and March 31, 2022:
(In thousands)December 31, 2022March 31, 2022
Components of Accumulated Other Comprehensive Loss 
Cumulative translation adjustment$(29,871) $(20,204)
Unrecognized net gain on pension plans, net of tax of $(114) and $(350), respectively
382 1,172 
Accumulated other comprehensive loss, net of tax$(29,489) $(19,032)

As of December 31, 2022 and March 31, 2022, no amounts were reclassified from accumulated other comprehensive loss into earnings.

13.    Earnings Per Share

Basic earnings per share is computed based on income available to common stockholders and the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on income available to common stockholders and the weighted average number of shares of common stock outstanding plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method, which includes stock options, restricted stock units ("RSUs") and performance stock units ("PSUs"). Potential common shares, composed of the incremental common shares issuable upon the exercise of outstanding stock options and unvested RSUs, are included in the diluted earnings per share calculation to the extent that they are dilutive. In loss periods, the assumed exercise of in-the-money stock options and RSUs has an anti-dilutive effect, and therefore these instruments are excluded from the computation of diluted earnings per share.
-15-


The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended December 31, Nine Months Ended December 31,
(In thousands, except per share data)2022202120222021
Numerator
Net income $51,951 $50,215 $158,246 $153,295 
   
Denominator  
Denominator for basic earnings per share — weighted average shares outstanding49,693 50,303 49,919 50,225 
Dilutive effect of unvested restricted stock units and options issued to employees and directors493 632 473 574 
Denominator for diluted earnings per share50,186 50,935 50,392 50,799 
   
Earnings per Common Share:  
Basic earnings per share$1.05 $1.00 $3.17 $3.05 
   
Diluted earnings per share$1.04 $0.99 $3.14 $3.02 

For the three months ended December 31, 2022 and 2021, there were 0.2 million shares and a nominal amount of shares, respectively, attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the nine months ended December 31, 2022 and 2021, there were 0.4 million shares and 0.1 million shares, respectively, attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

14.    Stock-Based Compensation

In connection with our initial public offering, the Board of Directors adopted the 2005 Long-Term Equity Incentive Plan (the “2005 Plan”), which provided for grants of up to a maximum of 5.0 million shares of restricted stock, stock options, RSUs and other equity-based awards. In June 2014, the Board of Directors approved, and in July 2014, our stockholders ratified, an increase of an additional 1.8 million shares of our common stock for issuance under the 2005 Plan, among other changes.

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

The following table provides information regarding our stock-based compensation:
Three Months Ended December 31, Nine Months Ended December 31,
(In thousands)2022202120222021
Pre-tax stock-based compensation costs charged against income$2,433 $2,234 $9,756 $7,331 
Income tax benefit recognized on compensation costs$49 $132 $924 $644 
Total fair value of options and RSUs vested during the period$63 $ $10,352 $7,943 
Cash received from the exercise of stock options$5,684 $3,011 $7,173 $5,718 
Tax benefits realized from tax deductions resulting from RSU issuances and stock option exercises$731 $789 $3,626 $2,860 

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At December 31, 2022, there were $3.9 million of unrecognized compensation costs related to unvested stock options under the 2005 Plan and the 2020 Plan, excluding an estimate for forfeitures which may occur.  We expect to recognize such costs over a weighted average period of 1.9 years. At December 31, 2022, there were $11.4 million of unrecognized compensation costs related to unvested RSUs and PSUs under the 2005 Plan and the 2020 Plan, excluding an estimate for forfeitures which may occur.  We expect to recognize such costs over a weighted average period of 1.7 years.

At December 31, 2022, there were 2.2 million shares available for issuance under the 2020 Plan.

On May 2, 2022, the Compensation and Talent Management Committee (the "Committee") of our Board of Directors granted 67,959 PSUs, 65,721 RSUs, and stock options to acquire 195,526 shares of our common stock under the 2020 Plan to certain executive officers and employees. The stock options were granted at an exercise price of $54.47 per share, which was equal to the closing price for our common stock on the date of the grant.
Each of the independent members of the Board of Directors received a grant of 2,495 RSUs on August 2, 2022. The RSUs fully vest one year after receipt of the award, subject to the continued service of the director on such vesting date, and will be settled by delivery to each director of one share of our common stock for each vested RSU either (a) at the election of the director prior to the grant date, immediately upon vesting, or (b) promptly following the earliest of (i) such director's death, (ii) such director's separation from service or (iii) a change in control of the Company.
Restricted Stock Units
The fair value of the RSUs is determined using the closing price of our common stock on the date of the grant. A summary of the RSUs granted under the 2005 Plan and the 2020 Plan is presented below:
 
 
 
RSUs
 
Shares
(in thousands)
Weighted
Average
Grant-Date
Fair Value
Nine Months Ended December 31, 2021
Unvested at March 31, 2021457.0 $33.52 
Granted170.8 45.32 
Vested (162.3)32.99 
Forfeited(24.6)30.54 
Unvested at December 31, 2021440.9 38.45 
Vested at December 31, 2021152.3 33.92 
   
Nine Months Ended December 31, 2022
Unvested at March 31, 2022440.9 $38.45 
Granted151.0 55.03 
Incremental performance shares42.4 — 
Vested (223.4)32.09 
Forfeited(1.9)49.51 
Unvested at December 31, 2022409.0 47.17 
Vested at December 31, 2022108.5 36.54 
Options
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The fair value of each award is estimated on the date of grant using the Black-Scholes Option Pricing Model that uses the assumptions presented below:
 Nine Months Ended December 31,
 2022 2021
Expected volatility
30.8% - 30.9%
 
31.1% - 31.9%
Expected dividends$  $ 
Expected term in years
6.0 to 7.0
 
6.0 to 7.0
Risk-free rate
2.8% to 2.9%
 
1.0% to 1.3%
Weighted average grant date fair value of options granted$20.10 $14.87 

A summary of option activity under the 2005 Plan and the 2020 Plan is as follows:
 
 
 
 
Options
 
 
Shares
(in thousands)
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
(in thousands)
Nine Months Ended December 31, 2021
Outstanding at March 31, 20211,114.9 $37.92 
Granted234.2 44.74 
Exercised(191.3)29.90 
Forfeited(13.7)37.83 
Expired(8.5)56.63 
Outstanding at December 31, 20211,135.6 40.54 6.8$22,833 
Vested at December 31, 2021656.0 40.65 5.5$13,122 
Nine Months Ended December 31, 2022    
Outstanding at March 31, 20221,100.9 $40.62 
Granted197.6 54.48 
Exercised(200.2)35.82 
Forfeited (10.3)49.53 
Expired(0.8)44.33 
Outstanding at December 31, 20221,087.2 43.94 6.7$20,289 
Vested at December 31, 2022670.5 41.18 5.4$14,360 

The aggregate intrinsic value of options exercised during the nine months ended December 31, 2022 was $4.9 million.

15.    Income Taxes

Income taxes are recorded in our quarterly financial statements based on our estimated annual effective income tax rate, subject to adjustments for discrete events, should they occur. The effective tax rates used in the calculation of income taxes were 23.7% and 23.3% for the three months ended December 31, 2022 and 2021, respectively. The effective tax rates used in the calculation of income taxes were 23.0% and 23.9% for the nine months ended December 31, 2022 and 2021, respectively. The decrease in the effective tax rate for the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021 was due to discrete items primarily pertaining to state tax rate legislative changes and stock-based compensation.

16.     Employee Retirement Plans

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The primary components of Net Periodic Benefits consist of the following:
Three Months Ended December 31, Nine Months Ended December 31,
 (In thousands)2022202120222021
Interest cost$30 $278 $390 $834 
Expected return on assets (290)(252)(870)
Net periodic benefit expense (income)$30 $(12)$138 $(36)

During the nine months ended December 31, 2022, we contributed $0.3 million to our non-qualified defined benefit plan and made no contributions to the qualified defined benefit plan. During the remainder of fiscal 2023, we expect to contribute an additional $0.1 million to our non-qualified plan and to make no contributions to the qualified plan.

During the fourth quarter of 2021, we adopted a plan termination date of April 30, 2021 for our U.S. qualified defined benefit pension plan (the "Plan") and began the Plan termination process. The settlements of the terminated Plan occurred during the first quarter of fiscal 2023 with lump sum settlements in the amount of $13.8 million being paid to eligible Plan participants who elected such payments and the purchase of annuity contracts for $31.1 million to the remaining participants. These settlements were paid using Plan assets and resulted in a settlement loss of $0.4 million. No further contributions to the Plan were necessary.

17.    Commitments and Contingencies

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

18.    Concentrations of Risk

Our revenues are concentrated in the area of OTC Healthcare. We sell our products to mass merchandisers, drug, food, dollar, convenience and club stores and e-commerce channels. During the three and nine months ended December 31, 2022, approximately 36.9% and 38.7%, respectively, of our gross revenues were derived from our five top selling brands. During the three and nine months ended December 31, 2021, approximately 39.6% and 41.7%, respectively, of our gross revenues were derived from our five top selling brands. One customer, Walmart, accounted for more than 10% of our gross revenues for each of the periods presented. Walmart accounted for approximately 19.9% and 19.8%, respectively, of our gross revenues for the three and nine months ended December 31, 2022. Walmart accounted for approximately 20.2% and 20.9%, respectively, of our gross revenues for the three and nine months ended December 31, 2021. An additional customer, Walgreens, accounted for approximately 10.4% of our gross revenues for the third quarter of the prior fiscal year.

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

At December 31, 2022, we had relationships with 133 third-party manufacturers.  Of those, we had long-term contracts with 27 manufacturers that produced items that accounted for approximately 70.5% of gross sales for the nine months ended December 31, 2022. At December 31, 2021, we had relationships with 127 third-party manufacturers.  Of those, we had long-term contracts with 24 manufacturers that produced items that accounted for approximately 68.6% of gross sales for the nine
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months ended December 31, 2021. The fact that we do not have long-term contracts with certain manufacturers means that they could cease manufacturing our products at any time and for any reason or initiate arbitrary and costly price increases, which could have a material adverse effect on our business and results of operations. Although we are continually in the process of negotiating long-term contracts with certain key manufacturers, we may not be able to reach a timely agreement, which could have a material adverse effect on our business and results of operations.

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19.    Business Segments

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

The tables below summarize information about our reportable segments.

 Three Months Ended December 31, 2022
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Total segment revenues*$236,884 $38,640 $275,524 
Cost of sales110,554 14,568 125,122 
Gross profit126,330 24,072 150,402 
Advertising and marketing24,831 5,592 30,423 
Contribution margin$101,499 $18,480 119,979 
Other operating expenses 32,795 
Operating income $87,184 
* Intersegment revenues of $1.1 million were eliminated from the North American OTC Healthcare segment.

 Nine Months Ended December 31, 2022
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Total segment revenues*$731,456 $110,400 $841,856 
Cost of sales327,008 43,318 370,326 
Gross profit404,448 67,082 471,530 
Advertising and marketing99,559 14,634 114,193 
Contribution margin$304,889 $52,448 357,337 
Other operating expenses 98,755 
Operating income $258,582 
* Intersegment revenues of $2.8 million were eliminated from the North American OTC Healthcare segment.


 Three Months Ended December 31, 2021
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Total segment revenues*$240,857 $33,613 $274,470 
Cost of sales106,790 12,620 119,410 
Gross profit 134,067 20,993 155,060 
Advertising and marketing34,907 5,332 40,239 
Contribution margin$99,160 $15,661 114,821 
Other operating expenses 32,227 
Operating income $82,594 
* Intersegment revenues of $0.6 million were eliminated from the North American OTC Healthcare segment.
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 Nine Months Ended December 31, 2021
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Total segment revenues*$734,978 $84,898 $819,876 
Cost of sales314,817 33,275 348,092 
Gross profit 420,161 51,623 471,784 
Advertising and marketing106,630 13,778 120,408 
Contribution margin$313,531 $37,845 351,376 
Other operating expenses 98,882 
Operating income $252,494 
* Intersegment revenues of $2.4 million were eliminated from the North American OTC Healthcare segment.


The tables below summarize information about our segment revenues from similar product groups.
Three Months Ended December 31, 2022
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Analgesics$29,396 $648 $30,044 
Cough & Cold31,246 6,336 37,582 
Women's Health53,918 4,138 58,056 
Gastrointestinal38,194 18,555 56,749 
Eye & Ear Care32,653 5,229 37,882 
Dermatologicals27,223 978 28,201 
Oral Care21,371 2,738 24,109 
Other OTC2,883 18 2,901 
Total segment revenues$236,884 $38,640 $275,524 

Nine Months Ended December 31, 2022
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Analgesics$89,943 $1,642 $91,585 
Cough & Cold76,896 19,775 96,671 
Women's Health174,481 13,750 188,231 
Gastrointestinal119,533 48,619 168,152 
Eye & Ear Care109,225 14,699 123,924 
Dermatologicals89,550 2,886 92,436 
Oral Care63,597 8,988 72,585 
Other OTC8,231 41 8,272 
Total segment revenues$731,456 $110,400 $841,856 

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Three Months Ended December 31, 2021
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Analgesics$30,805 $225 $31,030 
Cough & Cold25,861 5,864 31,725 
Women's Health61,826 3,741 65,567 
Gastrointestinal34,830 16,423 51,253 
Eye & Ear Care35,996 3,572 39,568 
Dermatologicals26,589 777 27,366 
Oral Care22,202 3,007 25,209 
Other OTC2,748 4 2,752 
Total segment revenues$240,857 $33,613 $274,470 
Nine Months Ended December 31, 2021
(In thousands)North American OTC
Healthcare
International OTC
Healthcare
Consolidated
Analgesics$93,569 $1,027 $94,596 
Cough & Cold62,928 15,717 78,645 
Women's Health190,094 11,030 201,124 
Gastrointestinal115,160 35,268 150,428 
Eye & Ear Care109,801 10,018 119,819 
Dermatologicals90,104 2,555 92,659 
Oral Care66,062 9,274 75,336 
Other OTC7,260 9 7,269 
Total segment revenues$734,978 $84,898 $819,876 

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

The following discussion of our financial condition and results of operations should be read together with the Condensed Consolidated Financial Statements and the related notes included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.  This discussion and analysis may contain forward-looking statements that involve certain risks, assumptions and uncertainties.  Future results could differ materially from the discussion that follows for many reasons, including the factors described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 and in future reports filed with the U.S. Securities and Exchange Commission ("SEC").

See also “Cautionary Statement Regarding Forward-Looking Statements” on page 34 of this Quarterly Report on Form 10-Q.
Unless otherwise indicated by the context, all references in this Quarterly Report on Form 10-Q to “we,” “us,” “our,” the “Company” or “Prestige” refer to Prestige Consumer Healthcare Inc. and our subsidiaries. Similarly, reference to a year (e.g., 2023) refers to our fiscal year ended March 31 of that year.

General
We are engaged in the development, manufacturing, marketing, sales and distribution of well-recognized, brand name, over-the-counter ("OTC") healthcare products to mass merchandisers, drug, food, dollar, convenience, and club stores and e-commerce channels in North America (the United States and Canada) and in Australia and certain other international markets.  We use the strength of our brands, our established retail distribution network, a low-cost operating model and our experienced management team to our competitive advantage.

We have grown our brand portfolio both organically and through acquisitions. We develop our existing brands by investing in new product lines, brand extensions and strong advertising support. Acquisitions of OTC brands have also been an important part of our growth strategy. We have acquired well-recognized brands from consumer products and pharmaceutical companies and private equity firms. While many of these brands have long histories of brand development and investment, we believe that, at the time we acquired them, most were considered “non-core” by their previous owners. As a result, these acquired brands did not benefit from adequate management focus and marketing support during the period prior to their acquisition, which created opportunities for us to reinvigorate these brands and improve their performance post-acquisition. After adding a core brand to our portfolio, we seek to increase its sales, market share and distribution in both existing and new channels through our established retail distribution network.  We pursue this growth through increased spending on advertising and marketing support, new sales and marketing strategies, improved packaging and formulations, and innovative development of brand extensions.

Acquisition

Acquisition of Akorn
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 our asset-based revolving credit facility entered into January 31, 2012, as amended (the "2012 ABL Revolver") and the net proceeds from the refinancing of our term loan entered into on January 31, 2012 (the "2012 Term Loan").

The acquisition was accounted for as a business combination. In connection with the acquisition, we also entered into a supply arrangement with Akorn for a term of three years with optional renewals at prevailing market rates.

We prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes our allocation of the assets acquired and liabilities assumed as of the July 1, 2021 acquisition date.

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(In thousands)
July 1, 2021
Inventories$6,455 
Goodwill1,098 
Intangible assets225,410 
Total assets acquired232,963
Accounts payable428 
Reserves for sales allowances and cash discounts497 
Other accrued liabilities3,124 
Total liabilities assumed4,049 
Total purchase price$228,914 

Based on this analysis, we allocated $195.9 million to non-amortizable intangible assets and $29.5 million to amortizable intangible assets. The non-amortizable intangible assets are classified as trademarks and, of the amortizable intangible assets, $20.4 million are classified as customer relationships and $9.1 million are classified as trademarks. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of 12.5 years.

We recorded goodwill of $1.1 million based on the amount by which the purchase price exceeded the fair value of the net assets acquired.

Economic Environment
There has been economic uncertainty in the United States and globally due to several factors including global supply chain constraints, rising interest rates, a high inflationary environment, geopolitical events and the effects from the COVID-19 pandemic. We expect economic conditions will continue to be highly volatile and uncertain, put pressure on prices and supply, and could affect demand for our products. In fiscal 2022, we experienced solid consumer consumption and share gains across most of our brand portfolio; however, that may not be sustained at the same levels in the uncertain economic environment. We have continued to see changes in the purchasing patterns of our consumers, including a reduction in the frequency of visits to retailers and a shift in many markets to purchasing our products online.

The volatile environment has impacted the supply of labor and raw materials and exacerbated rising input costs. Although we have not experienced a material disruption to our overall supply chain to date, we have and may continue to experience shortages, delays and backorders for certain ingredients and products, difficulty scheduling shipping for our products, as well as price increases from many of our suppliers for both shipping and product costs. In addition, labor shortages have impacted our manufacturing operations and may impact our ability to supply certain products to our customers. To date, the pandemic and other global conditions have not had a material negative impact on our operations, supply chain, overall costs or demand for most of our products or resulting aggregate sales and earnings, and, as such, it has also not negatively impacted our liquidity position. We continue to generate operating cash flows to meet our short-term liquidity needs. These circumstances could change, however, in this dynamic, unprecedented environment. If conditions cause further disruption in the global supply chain, the availability of labor and materials or otherwise increase costs, it may materially affect our operations and those of third parties on which we rely, including causing disruptions in the supply and distribution of our products. The extent to which these conditions impact our results and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity and duration of any further COVID-19 outbreaks, global supply chain constraints, the high inflationary environment and further global instability. These effects could have a material adverse impact on our business, liquidity, capital resources, and results of operations and those of the third parties on which we rely.
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Results of Operations

Three Months Ended December 31, 2022 compared to the Three Months Ended December 31, 2021

Total Segment Revenues

The following table represents total revenue by segment, including product groups, for the three months ended December 31, 2022 and 2021.

Three Months Ended December 31,
Increase (Decrease)
(In thousands)2022%2021%Amount%
North American OTC Healthcare
Analgesics$29,396 10.7 $30,805 11.2 $(1,409)(4.6)
Cough & Cold31,246 11.3 25,861 9.4 5,385 20.8 
Women's Health53,918 19.5 61,826 22.6 (7,908)(12.8)
Gastrointestinal38,194 13.9 34,830 12.7 3,364 9.7 
Eye & Ear Care32,653 11.9 35,996 13.1 (3,343)(9.3)
Dermatologicals27,223 9.9 26,589 9.7 634 2.4 
Oral Care21,371 7.8 22,202 8.1 (831)(3.7)
Other OTC2,883 1.0 2,748 1.0 135 4.9 
Total North American OTC Healthcare236,884 86.0 240,857 87.8 (3,973)(1.6)
International OTC Healthcare
Analgesics$648 0.2 $225 0.1 423 188.0 
Cough & Cold6,336 2.3 5,864 2.1 472 8.0 
Women's Health4,138 1.5 3,741 1.4 397 10.6 
Gastrointestinal18,555 6.6 16,423 5.9 2,132 13.0 
Eye & Ear Care5,229 2.0 3,572 1.3 1,657 46.4 
Dermatologicals978 0.4 777 0.3 201 25.9 
Oral Care2,738 1.0 3,007 1.1 (269)(8.9)
Other OTC18 — — 14 350.0 
Total International OTC Healthcare38,640 14.0 33,613 12.2 5,027 15.0 
Total Consolidated$275,524 100.0 $274,470 100.0 $1,054 0.4 

Total revenues for the three months ended December 31, 2022 were $275.5 million, an increase of $1.1 million, or 0.4%, versus the three months ended December 31, 2021.

North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment decreased $4.0 million, or 1.6%, during the three months ended December 31, 2022 versus the three months ended December 31, 2021. The $4.0 million decrease was primarily attributable to a decline in sales in the Women's Health and Eye & Ear categories, partially offset by an increase in sales in the Cough & Cold and Gastrointestinal categories.

International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment increased $5.0 million, or 15.0%, during the three months ended December 31, 2022 versus the three months ended December 31, 2021. The $5.0 million increase was mainly attributable to increased consumer demand across the segment's key brands, largely as a result of easing COVID-19 restrictions, as well as an increase in consumer illnesses.

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Gross Profit
The following table presents our gross profit and gross profit as a percentage of total segment revenues, by segment for each of the periods presented.

Three Months Ended December 31,
(In thousands)Increase (Decrease)
Gross Profit2022%2021%Amount%
North American OTC Healthcare$126,330 53.3 $134,067 55.7 $(7,737)(5.8)
International OTC Healthcare24,072 62.3 20,993 62.5 3,079 14.7 
$150,402 54.6 $155,060 56.5 $(4,658)(3.0)

Gross profit for the three months ended December 31, 2022 decreased $4.7 million, or 3.0%, when compared with the three months ended December 31, 2021.  As a percentage of total revenues, gross profit decreased to 54.6% during the three months ended December 31, 2022, from 56.5% during the three months ended December 31, 2021. The decrease in gross profit as a percentage of revenues was primarily a result of increased supply chain costs and product mix.

North American OTC Healthcare Segment
Gross profit for the North American OTC Healthcare segment decreased $7.7 million, or 5.8%, during the three months ended December 31, 2022 versus the three months ended December 31, 2021. As a percentage of North American OTC Healthcare revenues, gross profit decreased to 53.3% during the three months ended December 31, 2022 from 55.7% during the three months ended December 31, 2021, primarily due to increased supply chain costs and product mix, partly offset by pricing actions.

International OTC Healthcare Segment
Gross profit for the International OTC Healthcare segment increased $3.1 million, or 14.7%, during the three months ended December 31, 2022 versus the three months ended December 31, 2021. As a percentage of International OTC Healthcare revenues, gross profit decreased slightly to 62.3% during the three months ended December 31, 2022 from 62.5% during the three months ended December 31, 2021, primarily due to increased supply chain costs, partly offset by product mix.

Contribution Margin
Contribution margin is our segment measure of profitability. It is defined as gross profit less advertising and marketing expenses.

The following table presents our contribution margin and contribution margin as a percentage of total segment revenues, by segment for each of the periods presented.

Three Months Ended December 31,
(In thousands)Increase (Decrease)
Contribution Margin2022%2021%Amount%
North American OTC Healthcare$101,499 42.8 $99,160 41.2 $2,339 2.4 
International OTC Healthcare18,480 47.8 15,661 46.6 2,819 18.0 
 $119,979 43.5 $114,821 41.8 $5,158 4.5 

North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment increased $2.3 million, or 2.4%, during the three months ended December 31, 2022 versus the three months ended December 31, 2021. As a percentage of North American OTC Healthcare revenues, contribution margin increased to 42.8% during the three months ended December 31, 2022 from 41.2% during the three months ended December 31, 2021. The contribution margin increase as a percentage of revenues was primarily due to lower advertising and marketing spend in the three months ended December 31, 2022, partly offset by the decrease in gross profit discussed above.

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International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment increased $2.8 million, or 18.0%, during the three months ended December 31, 2022 versus the three months ended December 31, 2021. As a percentage of International OTC Healthcare revenues, contribution margin increased to 47.8% during the three months ended December 31, 2022 from 46.6% during the three months ended December 31, 2021. The contribution margin increase as a percentage of revenues was primarily due to lower advertising and marketing spend as a percent of net sales.

General and Administrative
General and administrative expenses were $26.5 million for the three months ended December 31, 2022 and $26.0 million for the three months ended December 31, 2021. The increase in general and administrative expenses was primarily due to increased compensation costs, partially offset by a decrease in professional fees and acquisition costs incurred in the prior period associated with the Akorn acquisition.

Depreciation and Amortization
Depreciation and amortization expenses remained relatively flat at $6.3 million for the three months ended December 31, 2022 compared to $6.2 million for the three months ended December 31, 2021.

Interest Expense, Net
Interest expense, net was $17.9 million during the three months ended December 31, 2022 versus $16.9 million during the three months ended December 31, 2021. The average indebtedness decreased to $1.4 billion during the three months ended December 31, 2022 from $1.6 billion during the three months ended December 31, 2021. The average cost of borrowing increased to 5.0% for the three months ended December 31, 2022 from 4.2% for the three months ended December 31, 2021.

Income Taxes
The provision for income taxes during the three months ended December 31, 2022 was $16.2 million versus $15.3 million during the three months ended December 31, 2021.  The effective tax rate during the three months ended December 31, 2022 was 23.7% versus 23.3% during the three months ended December 31, 2021. The increase in the effective tax rate for the three months ended December 31, 2022 was due to the impact of discrete items primarily pertaining to stock-based compensation.

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Results of Operations

Nine Months Ended December 31, 2022 compared to the Nine Months Ended December 31, 2021

Total Segment Revenues

The following table represents total revenue by segment, including product groups, for the nine months ended December 31, 2022 and 2021.
Nine Months Ended December 31,
Increase (Decrease)
(In thousands)2022%2021%Amount%
North American OTC Healthcare
Analgesics$89,943 10.7 $93,569 11.4 $(3,626)(3.9)
Cough & Cold76,896 9.1 62,928 7.7 13,968 22.2 
Women's Health174,481 20.7 190,094 23.1 (15,613)(8.2)
Gastrointestinal119,533 14.2 115,160 14.0 4,373 3.8 
Eye & Ear Care109,225 13.0 109,801 13.4 (576)(0.5)
Dermatologicals89,550 10.6 90,104 11.0 (554)(0.6)
Oral Care63,597 7.6 66,062 8.1 (2,465)(3.7)
Other OTC8,231 1.0 7,260 0.9 971 13.4 
Total North American OTC Healthcare731,456 86.9 734,978 89.6 (3,522)(0.5)
International OTC Healthcare
Analgesics1,642 0.2 1,027 0.1 615 59.9 
Cough & Cold19,775 2.4 15,717 2.0 4,058 25.8 
Women's Health13,750 1.6 11,030 1.3 2,720 24.7 
Gastrointestinal48,619 5.8 35,268 4.4 13,351 37.9 
Eye & Ear Care14,699 1.7 10,018 1.2 4,681 46.7 
Dermatologicals2,886 0.3 2,555 0.3 331 13.0 
Oral Care8,988 1.1 9,274 1.1 (286)(3.1)
Other OTC41 — — 32 355.6 
Total International OTC Healthcare110,400 13.1 84,898 10.4 25,502 30.0 
Total Consolidated$841,856 100.0 $819,876 100.0 $21,980 2.7 

Total revenues for the nine months ended December 31, 2022 were $841.9 million, an increase of $22.0 million, or 2.7%, versus the nine months ended December 31, 2021.

North American OTC Healthcare Segment
Revenues for the North American OTC Healthcare segment decreased $3.5 million, or 0.5%, during the nine months ended December 31, 2022 versus the nine months ended December 31, 2021. The $3.5 million decrease was primarily attributable to a decline in sales in the Women's Health category, partially offset by an increase in sales in the Cough & Cold category.

International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment increased $25.5 million, or 30.0%, during the nine months ended December 31, 2022 versus the nine months ended December 31, 2021. The $25.5 million increase was mainly attributable to increased sales in our Australian business of the Hydralyte brand (included in the Gastrointestinal category) as a result of easing COVID-19 restrictions, as well as an increase in consumer illnesses.

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Gross Profit
The following table presents our gross profit and gross profit as a percentage of total segment revenues, by segment for each of the periods presented.
Nine Months Ended December 31,
(In thousands)Increase (Decrease)
Gross Profit 2022%2021%Amount%
North American OTC Healthcare $404,448 55.3 $420,161 57.2 $(15,713)(3.7)
International OTC Healthcare 67,082 60.8 51,623 60.8 15,459 29.9 
 $471,530 56.0 $471,784 57.5 $(254)(0.1)

Gross profit for the nine months ended December 31, 2022 was relatively flat, decreasing $0.3 million, or 0.1%, when compared with the nine months ended December 31, 2021.  As a percentage of total revenues, gross profit decreased to 56.0% during the nine months ended December 31, 2022, from 57.5% during the nine months ended December 31, 2021, primarily due to increased supply chain costs and product mix.

North American OTC Healthcare Segment
Gross profit for the North American OTC Healthcare segment decreased $15.7 million, or 3.7%, during the nine months ended December 31, 2022 versus the nine months ended December 31, 2021. As a percentage of North American OTC Healthcare revenues, gross profit decreased to 55.3% during the nine months ended December 31, 2022 from 57.2% during the nine months ended December 31, 2021, primarily due to increased supply chain costs and product mix, partly offset by pricing actions.

International OTC Healthcare Segment
Gross profit for the International OTC Healthcare segment increased $15.5 million, or 29.9%, during the nine months ended December 31, 2022 versus the nine months ended December 31, 2021. As a percentage of International OTC Healthcare revenues, gross profit remained flat at 60.8% during the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021. Increases in supply chain costs were mainly offset by product mix.

Contribution Margin
Contribution margin is our segment measure of profitability. It is defined as gross profit less advertising and marketing expenses.

The following table presents our contribution margin and contribution margin as a percentage of total segment revenues, by segment for each of the periods presented.
Nine Months Ended December 31,
(In thousands)Increase (Decrease)
Contribution Margin2022%2021%Amount%
North American OTC Healthcare$304,889 41.7 $313,531 42.7 $(8,642)(2.8)
International OTC Healthcare52,448 47.5 37,845 44.6 14,603 38.6 
 $357,337 42.4 $351,376 42.9 $5,961 1.7 
    
North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment decreased $8.6 million, or 2.8%, during the nine months ended December 31, 2022 versus the nine months ended December 31, 2021. As a percentage of North American OTC Healthcare revenues, contribution margin decreased to 41.7% during the nine months ended December 31, 2022 from 42.7% during the nine months ended December 31, 2021. The contribution margin decrease as a percentage of revenues was primarily due to the decrease in gross profit margin noted above, partly offset by a decrease in advertising and marketing spend in the nine months ended December 31, 2022.

International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment increased $14.6 million, or 38.6%, during the nine months ended December 31, 2022 versus the nine months ended December 31, 2021. As a percentage of International OTC Healthcare revenues, contribution margin increased to 47.5% during the nine months ended December 31, 2022 from 44.6% during the nine months ended December 31, 2021. The contribution margin increase as a percentage of revenues was primarily due to lower advertising and marketing spend as a percent of net sales.

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General and Administrative
General and administrative expenses were $79.7 million for the nine months ended December 31, 2022 and $80.7 million for the nine months ended December 31, 2021. The decrease in general and administrative expenses was primarily due to acquisition costs in the prior period associated with the Akorn acquisition, partially offset by increases in compensation costs in the nine months ended December 31, 2022.

Depreciation and Amortization
Depreciation and amortization expenses were $19.1 million for the nine months ended December 31, 2022 and $18.2 million for the nine months ended December 31, 2021. The increase in depreciation and amortization expenses was attributable to an increase in amortization expense due to the addition of certain brands purchased in conjunction with our 2022 acquisitions.

Interest Expense, Net
Interest expense, net was $50.2 million during the nine months ended December 31, 2022 versus $48.3 million during the nine months ended December 31, 2021. The average indebtedness decreased to $1.5 billion during the nine months ended December 31, 2022 from $1.6 billion during the nine months ended December 31, 2021. The average cost of borrowing increased to 4.5% for the nine months ended December 31, 2022 compared to 4.1% for the nine months ended December 31, 2021.

Loss on Extinguishment of Debt
During the nine months ended December 31, 2021, we recorded a loss on extinguishment of debt of $2.1 million related to the amendment of our 2012 Term Loan on July 1, 2021.

Income Taxes
The provision for income taxes during the nine months ended December 31, 2022 was $47.4 million versus $48.2 million during the nine months ended December 31, 2021.  The effective tax rate during the nine months ended December 31, 2022 was 23.0% versus 23.9% during the nine months ended December 31, 2021. The decrease in the effective tax rate for the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021 was due to the impact of discrete items primarily pertaining to state tax rate legislative changes and stock-based compensation.
Liquidity and Capital Resources

Liquidity
Our primary source of cash comes from our cash flow from operations. In the past, we have supplemented this source of cash with various debt facilities, primarily in connection with acquisitions. We have financed our operations, and expect to continue to finance our operations for the next twelve months and the foreseeable future, with a combination of funds generated from operations and borrowings.  Our principal uses of cash are for operating expenses, debt service, share repurchases, capital expenditures, and acquisitions. Based on our current levels of operations and anticipated growth, excluding acquisitions, we believe that our cash generated from operations and our existing credit facilities will be adequate to finance our working capital and capital expenditures through the next twelve months. See "Economic Environment" above.

As of December 31, 2022, we had cash and cash equivalents of $86.4 million, an increase of $59.2 million from March 31, 2022. The following table summarizes the change:
 Nine Months Ended December 31,
(In thousands)20222021$ Change
Cash provided by (used in): 
Operating Activities$170,729 $196,796 $(26,067)
Investing Activities(5,226) (253,218)247,992 
Financing Activities(105,351) 46,546 (151,897)
Effects of exchange rate changes on cash and cash equivalents(979)(1,408)429 
Net change in cash and cash equivalents$59,173 $(11,284)$70,457 

Operating Activities
Net cash provided by operating activities was $170.7 million for the nine months ended December 31, 2022, compared to $196.8 million for the nine months ended December 31, 2021. The $26.1 million decrease was due to increased working capital, partly offset by an increase in net income before non-cash items.

Investing Activities
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Net cash used in investing activities was $5.2 million for the nine months ended December 31, 2022, compared to $253.2 million for the nine months ended December 31, 2021. The decrease in net cash used in investing activities was primarily due to the purchase of Akorn assets in the nine months ended December 31, 2021.

Financing Activities
Net cash used in financing activities was $105.4 million for the nine months ended December 31, 2022, compared to net cash provided by financing activities of $46.5 million for the nine months ended December 31, 2021. This change was primarily due to lower net borrowings of $107.0 million, and the repurchase of shares of our common stock in conjunction with our share repurchase program of $50.0 million in the nine months ended December 31, 2022.

Capital Resources

As of December 31, 2022, we had an aggregate of $1.4 billion of outstanding indebtedness, which consisted of the following:

$400.0 million of 5.125% 2019 senior unsecured notes, which mature on January 15, 2028 (the "2019 Senior Notes");
$600.0 million of 3.750% 2021 senior unsecured notes, which mature on April 1, 2031 (the "2021 Senior Notes"); and
$440.0 million of borrowings under the 2012 Term B-5 Loans due July 1, 2028.

As of December 31, 2022, we had no outstanding balance on our 2012 ABL Revolver and a borrowing capacity of $155.3 million.

During the year ended March 31, 2022, we made required repayments of $1.5 million as well as voluntary principal payments of $103.5 million against the outstanding balance under our 2012 Term Loan. During the nine months ended December 31, 2022, we made voluntary principal repayments of $55.0 million against the outstanding balance under our 2012 Term Loan. Since we have made optional payments that exceed all of our required quarterly payments, we will not be required to make another payment on the 2012 Term Loan until maturity.

Maturities:
(In thousands)
Year Ending March 31,Amount
2023 (remaining three months ending March 31, 2023)$— 
2024— 
2025— 
2026— 
2027— 
Thereafter1,440,000 
$1,440,000 

Covenants:
Our debt facilities contain various financial covenants, including provisions that require us to maintain certain leverage, interest coverage and fixed charge ratios.  The credit agreement governing the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2021 Senior Notes and 2019 Senior Notes contain provisions that accelerate our indebtedness on certain changes in control and restrict us from undertaking specified corporate actions, including asset dispositions, acquisitions, payments of dividends and other specified payments, repurchasing our equity securities in the public markets, incurrence of indebtedness, creation of liens, making loans and investments and transactions with affiliates. Specifically, we must:

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

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

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Have a fixed charge ratio of greater than 1.0 to 1.0 for the quarter ended December 31, 2022 (defined as, with certain adjustments, the ratio of our consolidated EBITDA minus capital expenditures to our trailing twelve month consolidated interest paid, taxes paid and other specified payments). Our fixed charge requirement remains level throughout the term of the debt facilities.

At December 31, 2022, we were in compliance with the applicable financial and restrictive covenants under the 2012 Term Loan and the 2012 ABL Revolver and the indentures governing the 2021 Senior Notes and the 2019 Senior Notes. Management anticipates that in the normal course of operations, we will be in compliance with the financial and restrictive covenants during the next twelve months.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.  Although these estimates are based on our knowledge of current events and actions that we may undertake in the future, actual results could differ from those estimates.  A summary of our critical accounting policies is presented in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.  There were no material changes to our critical accounting policies during the nine months ended December 31, 2022.

Recent Accounting Pronouncements
A description of recently issued and recently adopted accounting pronouncements is included in the notes to the unaudited Condensed Consolidated Financial Statements in Part I, Item I, Note 1 of this Quarterly Report on Form 10-Q.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), including, without limitation, information within Management's Discussion and Analysis of Financial Condition and Results of Operations.  The following cautionary statements are being made pursuant to the provisions of the PSLRA and with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA.  

Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q.  Except as required under federal securities laws and the rules and regulations of the SEC, we do not intend to update any forward-looking statements to reflect events or circumstances arising after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise.  As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements included in this Quarterly Report on Form 10-Q or that may be made elsewhere from time to time by, or on behalf of, us.  All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

These forward-looking statements generally can be identified by the use of words or phrases such as “believe,” “anticipate,” “expect,” “estimate,” "plan," “project,” "intend," "strategy," "goal," "objective," "future," "seek," "may," "might," "should," "would," "will," "will be," or other similar words and phrases.  Forward-looking statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including, without limitation:

Price increases for raw materials, labor, energy and transportation costs, and for other input costs;
Disruptions of supply of sourced goods or components;
The impact of the COVID-19 pandemic or other disease outbreaks on global economic conditions, consumer demand, retailer product availability, and business operations including manufacturing, supply chain and distribution;
The high level of competition in our industry and markets;
The success of new product introductions, line extensions, increased spending on advertising and marketing support, and other new sales and marketing strategies;
Our dependence on a limited number of customers for a large portion of our sales;
Our inability to successfully identify, negotiate, complete and integrate suitable acquisition candidates and to obtain necessary financing;
Changes by retailers in inventory management practices, delivery requirements, and demands for marketing and promotional spending in order to retain or increase shelf space or online share;
Our inability to grow our international sales;
General economic conditions and incidence levels affecting sales of our products and their respective markets;
Volatility in or worsening conditions from geopolitical conflicts, public health issues, and other factors beyond our control;
Financial factors, such as increases in interest rates and currency exchange rate fluctuations;
Changing consumer trends, additional store brand or branded competition, accelerating shifts to online shopping or pricing pressures;
Our dependence on third-party manufacturers to produce many of the products we sell and our ability to transfer production to our own facilities or other third-party suppliers;
Our dependence on third-party logistics providers to distribute our products to customers;
Disruptions in our distribution center or manufacturing facility;
Potential changes in export/import and trade laws, regulations and policies including any increased trade restrictions or tariffs;
Acquisitions, dispositions or other strategic transactions diverting managerial resources, and creating additional liabilities;
Actions of government agencies in connection with our manufacturing plant, products, advertising or regulatory matters governing our industry;
Product liability claims, product recalls and related negative publicity;
Our inability to protect our intellectual property rights;
Our dependence on third parties for intellectual property relating to some of the products we sell;
Our inability to protect our information technology systems from threats or disruptions;
Our dependence on third-party information technology service providers and their ability to protect against security threats and disruptions;
Our assets being comprised virtually entirely of goodwill and intangibles and possible changes in their value based on adverse operating results and/or changes in the discount rate used to value our brands;
Our dependence on key personnel;
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The costs associated with any claims in litigation or arbitration and any adverse judgments rendered in such litigation or arbitration;
Our level of indebtedness and possible inability to service our debt or to obtain additional financing;
The restrictions imposed by our financing agreements on our operations; and
Changes in federal, state and other geographic tax laws.

For more information, see Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.
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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to changes in interest rates because our 2012 Term Loan and 2012 ABL Revolver are variable rate debt. At December 31, 2022, approximately $440.0 million of our debt carries a variable rate of interest.

Holding other variables constant, including levels of indebtedness, a 1.0% increase in interest rates on our variable rate debt would have an adverse impact on pre-tax earnings and cash flows for the three and nine months ended December 31, 2022 of approximately $1.1 million and $3.5 million, respectively.

Foreign Currency Exchange Rate Risk

During the three and nine months ended December 31, 2022, approximately 14.9% and 13.8%, respectively, of our gross revenues were denominated in currencies other than the U.S. Dollar. During the three and nine months ended December 31, 2021, approximately 14.2% and 12.8%, respectively, of our gross revenues were denominated in currencies other than the U.S. Dollar. As such, we are exposed to transactions that are sensitive to foreign currency exchange rates. These transactions are primarily with respect to the Canadian and Australian Dollars.

We performed a sensitivity analysis with respect to exchange rates for the three and nine months ended December 31, 2022 and 2021. Holding all other variables constant, and assuming a hypothetical 10.0% adverse change in foreign currency exchange rates, this analysis resulted in a less than 5.0% impact on pre-tax income of approximately $2.3 million for the three months ended December 31, 2022 and approximately $7.1 million for the nine months ended December 31, 2022. It represented a less than 5.0% impact on pre-tax income of approximately $1.8 million for the three months ended December 31, 2021 and approximately $5.2 million for the nine months ended December 31, 2021.


ITEM 4.    CONTROLS AND PROCEDURES
              
Disclosure Controls and Procedures

The Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a–15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of December 31, 2022.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2022, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II.    OTHER INFORMATION

ITEM 1A. RISK FACTORS

You should carefully consider the risk factors discussed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended March 31, 2022, which could materially affect our business, financial condition or results of operations. The risk factors described in our Annual Report on Form 10-K have not materially changed in the period covered by this Quarterly Report on Form 10-Q, but such risks are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations.

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

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
ISSUER PURCHASES OF EQUITY SECURITIES
PeriodTotal Number of Shares Purchased (a)Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
October 1 to October 31, 2022303 $50.63 — $— 
November 1 to November 30, 2022— $— — $— 
December 1 to December 31, 2022— $— — $— 
Total303 — 
(a) These purchases were made pursuant to our 2020 Plan, which allows for the indirect purchase of shares through a net-settlement feature upon the vesting of shares in order to satisfy minimum statutory tax-withholding requirements.

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ITEM 6.     EXHIBITS
3.1
3.1.1
3.2
31.1
31.2
32.1
32.2
*Incorporated herein by reference.
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 PRESTIGE CONSUMER HEALTHCARE INC. 
    
    
Date:February 2, 2023By:/s/ Christine Sacco 
  Christine Sacco 
  Chief Financial Officer 
  (Principal Financial Officer and Duly Authorized Officer) 
   


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