UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 27, 1997
PLAYTEX PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-25485-01 51-0312772
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation or organization) Identification No.)
300 Nyala Farms Road
Westport, Connecticut 06880
(203) 341 - 4000
---------------------------------
(Address, including zip code, and
telephone number, including area
code, of principal executive offices)
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
registrants were required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
At November 5, 1997, 50,937,478 shares of Playtex Products, Inc. common
stock, par value of $.01 per share, were outstanding.
<PAGE>
PLAYTEX PRODUCTS, INC.
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits 17
(b) Reports on Form 8-K 17
Signatures 18
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PLAYTEX PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 27, December 28,
ASSETS 1997 1996
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 4,377 $ 6,205
Receivables, less allowance for doubtful accounts 70,284 63,982
Inventories 35,977 37,637
Current deferred taxes 9,849 9,702
Other current assets 1,345 4,965
--------- ---------
Total current assets 121,832 122,491
Net property, plant and equipment 55,958 53,408
Intangible assets, net:
Goodwill 339,918 348,449
Patents, trademarks and other 35,209 36,405
Deferred financing costs 17,355 15,337
Due from related party 80,017 80,017
Other noncurrent assets 3,888 4,224
--------- ---------
Total assets $ 654,177 $ 660,331
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,736 $ 36,131
Accrued expenses 54,306 49,252
Income taxes payable 9,124 5,586
Current maturities of long-term debt 1,500 25,000
--------- ---------
Total current liabilities 77,666 115,969
Long-term debt 731,225 714,700
Due to related party 78,386 78,386
Other noncurrent liabilities 12,927 14,207
Deferred income taxes 23,164 19,796
--------- ---------
Total liabilities 923,368 943,058
Stockholders' equity:
Common stock, $.01 par value, authorized
100,000,000 shares, issued 50,933,811
shares at September 27, 1997 and
50,887,200 shares at December 28, 1996 509 509
Additional paid-in capital 424,643 424,277
Retained earnings (deficit) (692,397) (705,718)
Foreign currency translation adjustment (1,946) (1,795)
--------- ---------
Total stockholders' equity (269,191) (282,727)
--------- ---------
Total liabilities and stockholders' equity $ 654,177 $ 660,331
========= =========
See condensed notes to consolidated financial statements.
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PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands, except per share data)
Three Months Three Months
Ended Ended
September 27, September 28,
1997 1996
------------- -------------
Net sales $ 117,675 $117,500
Cost of sales 44,533 44,135
--------- --------
Gross profit 73,142 73,365
Operating expenses:
Advertising and sales promotion 26,905 25,430
Selling, distribution and research 14,257 14,005
Administrative 4,625 4,373
Amortization of intangibles 3,225 3,223
--------- --------
Total operating expenses 49,012 47,031
--------- --------
Operating earnings 24,130 26,334
Interest expense, including related party
interest expense of $3,037 for both
periods presented, net of related party
interest income of $3,001 for both
periods presented 16,119 16,148
--------- --------
Earnings before income taxes 8,011 10,186
Income taxes 3,977 4,778
--------- --------
Earnings before extraordinary loss 4,034 5,408
--------- --------
Extraordinary loss on early extinguishment
of debt, net of $2,344 tax benefit (4,078) --
--------- --------
Net (loss) earnings $ (44) $ 5,408
========= ========
Weighted average shares outstanding 50,931 50,885
========= ========
Earnings per share (primary and fully diluted):
Before extraordinary loss $ .08 $ .11
========= ========
Net earnings $ -- $ .11
========= ========
See condensed notes to consolidated financial statements.
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PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands, except per share data)
Nine Months Nine Months
Ended Ended
September 27, September 28,
1997 1996
------------- -------------
Net sales $388,957 $392,439
Cost of sales 150,199 149,745
-------- --------
Gross profit 238,758 242,694
Operating expenses:
Advertising and sales promotion 90,911 97,032
Selling, distribution and research 43,231 42,250
Administrative 13,848 12,877
Amortization of intangibles 9,672 9,625
-------- --------
Total operating expenses 157,662 161,784
-------- --------
Operating earnings 81,096 80,910
Interest expense, including related
party interest expense of $9,112
for both periods presented, net of
related party interest income of $9,002
for both periods presented 48,328 49,110
-------- --------
Earnings before income taxes 32,768 31,800
Income taxes 15,369 14,922
-------- --------
Earnings before extraordinary loss 17,399 16,878
-------- --------
Extraordinary loss on early extinguishment
of debt, net of $2,344 tax benefit (4,078) --
-------- --------
Net earnings $ 13,321 $ 16,878
======== ========
Weighted average shares outstanding 50,917 50,883
======== ========
Earnings per share (primary and fully diluted):
Before extraordinary loss $ .34 $ .33
======== ========
Net earnings $ .26 $ .33
======== ========
See condensed notes to consolidated financial statements.
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<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited, in thousands)
Foreign
Additional Retained Currency
Common Paid-In Earnings Translation
Stock Capital (Deficit) Adjustment
----- ------- --------- ----------
Balance, December 28, 1996 $509 $424,277 $(705,718) $(1,795)
Net earnings -- -- 13,321 --
Issuance of common stock -- 366 -- --
Foreign currency translation adjustment -- -- -- (151)
---- -------- --------- -------
Balance, September 27, 1997 $509 $424,643 $(692,397) $(1,946)
==== ======== ========= =======
See condensed notes to consolidated financial statements.
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PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Nine Months
Ended Ended
September 27, September 28,
1997 1996
------------- -------------
Cash flows provided by operations:
Net earnings $ 13,321 $ 16,878
Non-cash items included in earnings:
Extraordinary loss 4,078 --
Amortization of intangibles 9,672 9,625
Amortization of deferred financing costs 1,558 1,514
Depreciation 5,575 6,600
Deferred taxes 3,221 5,431
Other, net 275 269
Net (increase) decrease in working capital
accounts (15,656) 21,946
-------- --------
Net cash flows provided by operations 22,044 62,263
-------- --------
Cash flows used for investing activities:
Purchases of property, plant and equipment (8,159) (6,880)
-------- --------
Net cash flows used for investing activities (8,159) (6,880)
-------- --------
Cash flows (used for) financing activities:
Borrowings under revolving credit facility, net 18,100 --
Long-term debt borrowings 355,000 --
Long-term debt payments (380,075) (54,300)
Payment of financing costs (9,104) --
Issuance of shares of common stock 366 45
Other, net -- (9)
-------- --------
Net cash flows used for financing activities (15,713) (54,264)
-------- --------
Change in cash and cash equivalents (1,828) 1,119
Cash and cash equivalents at beginning of period 6,205 5,940
-------- --------
Cash and cash equivalents at end of period $ 4,377 $ 7,059
======== ========
Supplemental disclosures of cash flow information
Net cash paid during the periods for:
Interest $ 38,815 $ 40,031
======== ========
Income taxes, net of refunds $ 5,309 $ 5,339
======== ========
See condensed notes to consolidated financial statements.
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PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements
The accompanying quarterly consolidated financial statements of Playtex
Products, Inc. ("Playtex" or the "Company") are unaudited; however, such
statements include all adjustments (consisting of normal recurring adjustments)
considered necessary in the opinion of management for fair presentation of the
financial position, results of operations and cash flows of the Company. The
results of the interim period ended September 27, 1997 are not necessarily
indicative of the results that may be expected for the full year. Certain prior
year accounts have been reclassified for consistency with the current year
presentation.
The Company presumes the users of this Quarterly Report on Form 10-Q
have read or have access to the audited financial statements contained in the
Company's Annual Report on Form 10-K for the year ended December 28, 1996.
Accordingly, all footnote disclosures which would substantially duplicate the
disclosures contained therein have been omitted.
2. Balance Sheet Components
The components of certain balance sheet accounts are as follows (in
thousands):
September 27, December 28,
1997 1996
------------- ------------
(Unaudited)
Receivables $ 72,155 $ 65,740
Less allowance for doubtful accounts (1,871) (1,758)
--------- ---------
Net $ 70,284 $ 63,982
========= =========
Inventories:
Raw materials $ 12,762 $ 13,854
Work in process 990 1,004
Finished goods 22,225 22,779
--------- ---------
Total $ 35,977 $ 37,637
========= =========
Net property, plant and equipment:
Land $ 1,190 $ 1,190
Buildings 24,585 24,818
Machinery and equipment 104,200 95,938
--------- ---------
129,975 121,946
Less accumulated depreciation (74,017) (68,538)
--------- ---------
Net $ 55,958 $ 53,408
========= =========
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PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Balance Sheet Components (continued)
September 27, December 28,
1997 1996
------------- ------------
(Unaudited)
Goodwill $ 446,547 $ 446,602
Less accumulated amortization (106,629) (98,153)
--------- ---------
Net $ 339,918 $ 348,449
========= =========
Patents, trademarks and other $ 49,644 $ 49,644
Less accumulated amortization (14,435) (13,239)
--------- ---------
Net $ 35,209 $ 36,405
========= =========
Deferred financing costs $ 20,350 $ 19,463
Less accumulated amortization (2,995) (4,126)
--------- ---------
Net $ 17,355 $ 15,337
========= =========
Accrued expenses:
Advertising and sales promotion $ 13,189 $ 19,191
Interest 13,485 5,532
Employee compensation and benefits 9,690 14,167
Insurance 2,653 2,913
Accrued returns reserve 9,514 1,117
Other 5,775 6,332
--------- ---------
Total $ 54,306 $ 49,252
========= =========
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PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Long-Term Debt
Long-term debt consists of the following (in thousands):
September 27, December 28,
1997 1996
------------- ------------
(Unaudited)
1995 Credit Agreement:
Term Loan Facility $ -- $ 367,500
Acquisition Credit Facility -- 10,000
Working Capital Facility -- 2,200
1997 Refinancing:
Term A Loan 55,000 --
Revolving Credit 18,100 --
Term Loan 149,625 --
8 7/8% Senior Notes due 2004 150,000 --
9% Senior Subordinated Notes due 2003 360,000 360,000
--------- ---------
732,725 739,700
Less current maturities (1,500) (25,000)
--------- ---------
Total long-term debt $ 731,225 $ 714,700
========= =========
On July 21, 1997 the Company completed a refinancing of its senior
indebtedness (the "1997 Refinancing") designed to increase its financial and
operational flexibility. The 1997 Refinancing includes: (i) the issuance of
$150.0 million principal amount of 8 7/8% unsecured senior notes due July 15,
2004 (the "Senior Notes"), and (ii) a $150.0 million senior secured term loan
due September 15, 2003 (the "1997 Term Loan") and (iii) senior secured credit
facilities of $170.0 million (the "1997 Senior Credit Facilities") comprised of
a $115.0 million revolving credit facility (the "1997 Revolving Credit
Facility") and a $55.0 million term loan facility (the "1997 Term A Loan").
The 1997 Term Loan provides for quarterly principal repayments of $375,000
from September 15, 1997 through June 15, 2003 and a payment of $141.0 million on
September 15, 2003. The 1997 Revolving Credit Facility will mature on June 15,
2003 and commitments thereunder are automatically and permanently reduced by (i)
$5.0 million on December 15, 2000 and June 15, 2001, (ii) $7.0 million on
December 15, 2001 and June 15, 2002, and (iii) $8.0 million on December 15, 2002
and June 15, 2003. The 1997 Term A Loan will require quarterly repayments of
principal beginning September 15, 1999 and will mature on June 15, 2003.
The net proceeds from the 1997 Refinancing were used to retire the
indebtedness
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<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
outstanding under the 1995 Credit Agreement; concurrently, the 1995 Credit
Agreement was terminated.
The rate of interest on borrowings under the 1997 Term Loan and the 1997
Senior Credit Facilities is, at the Company's option, a function of various
alternative short term borrowing rates, as defined in the associated credit
agreement. Quarterly commitment fees of three-eighths of one percent on the
unutilized portion of the 1997 Senior Credit Facilities and an agency fee of
approximately $0.1 million per annum are also required. At September 27, 1997
and September 28, 1996, the weighted average variable interest rate on the
Company's indebtedness was 7.12% and 7.35%, respectively. For the quarters ended
September 27, 1997 and September 28, 1996 the weighted average variable interest
rate on the Company's indebtedness was 7.37% and 7.34%, respectively.
The Company selectively enters into interest rate protection agreements to
reduce the impact of interest rate changes on its variable rate indebtedness.
The interest rate protection agreements involve exchanges of floating for fixed
rate interest payments without the exchange of the underlying notional amount.
The Company may also use interest rate caps which limit net interest expense if
interest rates rise above a defined level. The notional amounts of such
agreements are used to measure the interest to be paid or received and do not
represent the amount of exposure to loss.
The Company was party to three interest rate protection agreements which
hedged substantially all of the Company's outstanding variable rate debt under
the 1995 Credit Agreement. On July 7, 1997, one agreement with a notional amount
of $125.0 million expired and in conjunction with the 1997 Refinancing, the
remaining two agreements with a combined notional amount of $250.0 million were
canceled.
The provisions of the 1997 Senior Credit Facilities require the Company to
meet certain financial covenants and ratios and also include limitations or
restrictions on: indebtedness and liens; major acquisitions or mergers; capital
expenditures; disposition of assets; certain dividends and other distributions;
and prepayment and modification of all indebtedness or equity capitalization.
The 9% Senior Subordinated Notes (the "9% Notes"), the Senior Notes and the 1997
Term Loan also contain certain restrictions and requirements. Under the terms of
each of these agreements, payment of cash dividends on the common stock of the
Company is restricted.
4. Earnings Per Share
Earnings per share is calculated using net earnings divided by the
weighted average number of common shares issued and outstanding for the periods
presented. At September 27, 1997 and December 28, 1996, no shares of common
stock were held in treasury.
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<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Contingent Liabilities
In the opinion of management, there are no claims, commitments, guarantees
or litigation pending to which the Company or any of its subsidiaries is a party
which would have a materially adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.
6. Extraordinary Loss
In July 1997, in connection with the 1997 Refinancing, Playtex recorded an
extraordinary loss of $4.1 million (net of income tax benefit of $2.3 million)
for costs and expenses related to the write-off of the unamortized portion of
the deferred financing costs associated with the 1995 Credit Agreement (See Note
3 to Condensed Notes to Consolidated Financial Statements).
7. New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per
Share." This statement establishes and simplifies standards for computing and
presenting earnings per share "EPS". SFAS 128 replaces primary and fully diluted
EPS with basic and diluted earnings per share. Basic EPS excludes dilution and
is computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then share in the earnings of the
Company. The Company is required to adopt SFAS 128 with its December 27, 1997
financial statements and restate all prior-period EPS data. The adoption of SFAS
128 is not expected to have a material impact to the financial statements of the
Company.
-12-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the financial data
and condensed notes thereto included elsewhere in this quarterly report and with
the Annual Report on Form 10-K for the year ended December 28, 1996 filed with
the Securities and Exchange Commission (No. 33-25485-01).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provision of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in the
forward-looking statements (as such term is defined in the Reform Act) made in
this Quarterly Report or others made hereafter (including orally). Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, through the use of words or phrases such as "will likely result," "are
expected to," "will continue," "as anticipated," "estimated," "intends,"
"plans," "projection," and "outlook") are not historical facts and may be
forward-looking, accordingly, such statements involve estimates, assumptions and
uncertainties which could cause actual results to differ materially from those
expressed in the forward-looking statements. Accordingly, any such statements
are hereby qualified in their entirety by reference to, and accompanied by, the
factors discussed throughout the quarterly statement. Among the risk factors
that have a direct bearing on the Company's results from operations are the
substantial indebtedness and significant debt service obligations of the
Company; intensified competition; increased spending for advertising and
promotion; new product initiatives; the Company's ability to implement its
business and acquisition strategy and to successfully integrate acquired
companies into the Company; continued activity in the private label sector; the
loss of significant customers; reduction in the level of retail inventories;
product liability litigation and changes in governmental regulations.
The risk factors described herein could cause actual results or outcomes
to differ materially from those expressed in any forward-looking statements of
the Company made by or on the behalf of the Company and, therefore, investors
should not place undue reliance on any such forward-looking statements. Further,
any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which the statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all such factors. Further, management cannot access the
impact of each such factor on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
-13-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
RESULTS OF OPERATIONS
Three Months Ended September 27, 1997 Versus Three Months Ended September 28,
1996:
Net Sales - Net sales for the three months ended September 27, 1997
increased $0.2 million to $117.7 million from $117.5 million for the same
quarter in fiscal 1996. Net sales of the Company's Feminine Care products
increased $0.3 million, or 1%, versus the third quarter of 1996. Net sales of
the Company's Sun Care products increased $1.4 million, or 19%, for the quarter
while net sales of Infant Care products increased $2.8 million, or 9%, over the
same period in 1996. The growth in both Sun Care and Infant Care is due to (i)
successful new product launches, (ii) distribution gains, (iii) continued market
share gains, and (iv) continued category growth. Additionally, versus the same
period in 1996, Household Product net sales decreased $2.5 million, or 15%, due
in part to a change in pricing strategy for Playtex gloves which resulted in
lower net sales and the introduction of a new competitor in the carpet cleaning
business. The Household Products group includes the Woolite rug and upholstery
cleaning business and Playtex household latex gloves. Hair Care net sales, which
represents 4% of the Company's total net sales, decreased 25% versus the third
quarter of 1996.
Gross Profit - Gross profit of $73.1 million for the third quarter of
fiscal 1997 decreased by $0.2 million, or less than 1%, from the corresponding
fiscal 1996 quarter. Period to period, gross margin decreased 0.2% to 62.2%.
This decrease was attributable primarily to the change in the mix of products
sold.
Operating Earnings - Operating earnings for the three months ended
September 27, 1997 of $24.1 million were $2.2 million, or 8%, lower than for the
comparable period in fiscal 1996. The decrease in operating earnings was due
primarily to lower gross margins and increased advertising and promotional
spending.
Interest Expense - Interest expense of $16.1 million for the third quarter
of fiscal 1997 decreased less than $0.1 million versus the comparable quarter in
1996.
Net Earnings Before Extraordinary loss - Earnings before extraordinary
loss of $4.0 million for the third quarter of fiscal 1997 were $1.4 million, or
26%, lower than for the same quarter in fiscal 1996. The unfavorable variance
resulted from the combined effect of the factors described above.
Nine Months Ended September 27, 1997 Versus Nine Months Ended September 28,
1996:
Net Sales - Net sales for the nine months ended September 27, 1997
decreased $3.4 million, or 1%, to $389.0 million from $392.4 million for the
same period in fiscal 1996. Net sales of the Company's Feminine Care products
were down $24.4 million, or 14%, versus the first nine months of 1996. These
results reflect: (i) heavy promotional activities in the first half of 1996
which were not repeated in the first half of 1997 and (ii) a strategic decision
by management to reduce trade inventory levels, which had increased due to heavy
trade promotional activity in prior periods. Net sales of the Company's Sun Care
products increased $19.2 million, or 27%, for the
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<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
nine month period while net sales of Infant Care products increased $11.7
million, or 14%, over the same period in 1996. The growth in both Sun Care and
Infant Care is due to (i) successful new product launches, (ii) distribution
gains, (iii) continued market share gains, and (iv) continued category growth.
Additionally, versus the same period in 1996, Household Product net sales
decreased $4.9 million, or 11%, due in part to a change in pricing strategy for
Playtex gloves which resulted in lower reported net sales and the introduction
of a new competitor in the carpet cleaning products business. Hair Care net
sales, which represents 4% of the Company's total net sales, decreased 22%
versus the first nine months of 1996.
Gross Profit - Gross profit of $238.8 million for the first nine months of
fiscal 1997 decreased by $3.9 million, or 2%, from the corresponding period in
1996. Period to period, gross margin decreased 0.5% to 61.4%. This decrease was
attributable primarily to the mix of products sold.
Operating Earnings - Operating earnings for the nine months ended
September 27, 1997 of $81.1 million were $0.2 million higher than for the
comparable period in fiscal 1996. The increase in operating earnings was due
primarily to a 20% decrease in trade spending offset in part by lower gross
margins, increased consumer and media spending, and marginally higher overhead
costs.
Interest Expense - Interest expense of $48.3 million decreased $0.8
million, or 2%, versus the same period in 1996 as a result of marginal
reductions in the average long-term debt position and interest rates.
Net Earnings Before Extraordinary Loss - Earnings before extraordinary
loss of $17.4 million for the nine months ended September 27, 1997 were $0.5
million higher than for the same period in fiscal 1996. The favorable variance
resulted from the combined effect of all the factors described above.
FINANCIAL CONDITION
At September 27, 1997, the Company's working capital (current assets net
of current liabilities) increased to $44.2 million from $6.5 million at December
28, 1996. The increase resulted from (i) an increase in accounts receivable of
$6.3 million, principally due to an increase in sales in the third quarter of
1997 when compared with the fourth quarter of 1996, (ii) a decline in accounts
payable of $23.4 million due primarily to the seasonal nature of the sun care
season, and (iii) a decrease of $23.5 million in current maturities of long term
debt, due to the 1997 Refinancing. These working capital increases were partly
offset by (i) a $3.6 million increase in income taxes payable, primarily the
result of the difference in the earnings in the third quarter of 1997 versus the
fourth quarter of 1996 (ii) a $5.1 million increase in accrued expense due
primarily to the seasonal increase in returns provision for Sun Care products,
and all other working capital components decreased by $7.0 million.
Long-term debt (including current portion) of $732.7 million at September
27, 1997 was $7.0 million lower than at December 28, 1996. The net decrease in
long-term borrowings was
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<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
the result of favorable cash flow from operations offset in part by the fees and
expenses associated with the 1997 Refinancing.
The Company believes that it will generate sufficient cash flow from
operations to be able to make the scheduled interest and principal payments
under the 1997 Term Loan, the 1997 Senior Credit Facilities and interest
payments on the 9% Notes and the Senior Notes; however the Company does not
expect to generate sufficient cash flow from operations to make the $360 million
principal payment due in 2003 on the 9% Notes. Accordingly, the Company will
have to either refinance its obligations with respect to the 9% Notes prior to
maturity, sell assets or raise equity capital to repay the principal amount of
the 9% Notes. The Company's ability to make scheduled principal payments, to
refinance its obligations with respect to its indebtedness, sell assets or raise
equity capital depends on its financial and operating performance, which, in
turn, is in part subject to prevailing economic conditions and to financial,
business and other factors beyond its control. Although the Company's cash flow
from its operations and borrowings have been sufficient to meet its historical
debt service obligations, there can be no assurance that the Company's operating
results will continue to be sufficient or that future borrowing facilities will
be available for the payment or refinancing of the Company's indebtedness.
Capital Expenditures for equipment and facility improvements were $8.2
million and $6.9 million for the nine months ended September 27, 1997 and
September 28, 1996, respectively.
The provisions of the 1997 Senior Credit Facilities require the Company to
meet certain financial covenants and ratios and also include limitations or
restrictions on: indebtedness and liens; major acquisitions or mergers; capital
expenditures; disposition of assets; certain dividends and other distributions;
and prepayment and modification of all indebtedness or equity capitalization.
The 9% Senior Subordinated Notes (the "9% Notes"), the Senior Notes and the 1997
Term Loan also contain certain restrictions and requirements. Under the terms of
these agreements, payment of cash dividends on the common stock of the Company
is restricted.
Inflation in the United States and Canada has not been a significant
concern of the Company during recent periods.
The Company's businesses, with the exception of Sun Care, have generally
not been seasonal. Sun Care product sales are highly seasonal with 85 to 90
percent of sales occurring in the first six months of the year. In addition, the
seasonality requires increased working capital needs to support inventory builds
to support the selling season and higher receivable levels resulting from
extended credit terms which are typical in the sun care industry.
-16-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The following should be read in conjunction with Part 1, Item 3., "Legal
Proceedings" in the Registrant's Annual Report on Form 10-K for the year ended
December 28, 1996.
As of the end of September 1997, there were approximately 10 pending Toxic
Shock Syndrome ("TSS") claims relating to Playtex tampons, although additional
claims may be made in the future.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule
b. Reports on Form 8-K
None
-17-
<PAGE>
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.
PLAYTEX PRODUCTS, INC.
Date: November 10, 1997 By: /s/Michael R. Gallagher
----------------------- ---------------------------
Michael R. Gallagher
Chief Executive Officer
Date: November 10, 1997 By: /s/Michael F. Goss
----------------------- ---------------------------
Michael F. Goss
Executive Vice President
and
Chief Financial Officer
18
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<PERIOD-END> SEP-27-1997
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