<PAGE>
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 June 28, 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 August 6, 1997, 50,923,804 shares of Playtex Products, Inc. common
stock, par value of $.01 per share, were outstanding.
<PAGE>
PLAYTEX PRODUCTS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements........................................................................... 3-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 12-15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 16
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits................................................................................... 16
(b) Reports on Form 8-K........................................................................ 16
Signatures............................................................................................... 17
</TABLE>
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<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
ASSETS 1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 4,536 $ 6,205
Receivables, less allowance for doubtful accounts................................... 87,357 63,982
Inventories......................................................................... 39,896 37,637
Current deferred taxes.............................................................. 9,861 9,702
Other current assets................................................................ 2,472 4,965
----------- ------------
Total current assets.............................................................. 144,122 122,491
Net property, plant and equipment..................................................... 55,617 53,408
Intangible assets, net:
Goodwill............................................................................ 342,806 348,449
Patents, trademarks and other....................................................... 35,606 36,405
Deferred financing costs............................................................ 14,254 15,337
Due from related party................................................................ 80,017 80,017
Other noncurrent assets............................................................... 4,085 4,224
----------- ------------
Total assets...................................................................... $ 676,507 $ 660,331
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 21,286 $ 36,131
Accrued expenses.................................................................... 53,390 49,252
Income taxes payable................................................................ 10,953 5,586
Current maturities of long-term debt................................................ 27,500 25,000
----------- ------------
Total current liabilities......................................................... 113,129 115,969
Long-term debt........................................................................ 717,700 714,700
Due to related party.................................................................. 78,386 78,386
Other noncurrent liabilities.......................................................... 13,440 14,207
Deferred income taxes................................................................. 23,146 19,796
----------- ------------
Total liabilities................................................................. 945,801 943,058
Stockholders' equity:
Common stock, $.01 par value, authorized 100,000,000 shares, issued 50,921,540
shares at June 28, 1997 and 50,887,200 shares at December 28, 1996................ 509 509
Additional paid-in capital.......................................................... 424,505 424,277
Retained earnings (deficit)......................................................... (692,353) (705,718)
Foreign currency translation adjustment............................................. (1,955) (1,795)
----------- ------------
Total stockholders' equity........................................................ (269,294) (282,727)
----------- ------------
Total liabilities and stockholders' equity...................................... $ 676,507 $ 660,331
----------- ------------
----------- ------------
</TABLE>
See condensed notes to consolidated financial statements.
-3-
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 28, JUNE 29,
1997 1996
------------- -------------
<S> <C> <C>
Net sales........................................................................... $ 134,872 $ 131,872
Cost of sales....................................................................... 53,362 49,960
------------- -------------
Gross profit.................................................................... 81,510 81,912
Operating expenses:
Advertising and sales promotion................................................... 32,275 33,296
Selling, distribution and research................................................ 15,133 14,403
Administrative.................................................................... 4,591 4,276
Amortization of intangibles....................................................... 3,224 3,202
------------- -------------
Total operating expenses........................................................ 55,223 55,177
------------- -------------
Operating earnings.............................................................. 26,287 26,735
Interest expense, including related party interest expense of $3,038 for both
periods presented, net of related party interest income of $3,000 for both periods
presented......................................................................... 15,927 16,300
------------- -------------
Earnings before income taxes...................................................... 10,360 10,435
Income taxes........................................................................ 4,843 4,946
------------- -------------
Net earnings.................................................................... $ 5,517 $ 5,489
------------- -------------
------------- -------------
Weighted average shares outstanding................................................. 50,917 50,881
------------- -------------
------------- -------------
Earnings per share (primary and fully diluted)...................................... $ .11 $ .11
------------- -------------
------------- -------------
</TABLE>
See condensed notes to consolidated financial statements.
-4-
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 28, JUNE 29,
1997 1996
----------- -----------
<S> <C> <C>
Net sales............................................................................... $ 271,282 $ 274,939
Cost of sales........................................................................... 105,666 105,610
----------- -----------
Gross profit.......................................................................... 165,616 169,329
Operating expenses:
Advertising and sales promotion....................................................... 64,006 71,602
Selling, distribution and research.................................................... 28,974 28,245
Administrative........................................................................ 9,223 8,504
Amortization of intangibles........................................................... 6,447 6,402
----------- -----------
Total operating expenses............................................................ 108,650 114,753
----------- -----------
Operating earnings.................................................................. 56,966 54,576
Interest expense, including related party interest expense of $6,075 for both periods
presented, net of related party interest income of $6,001 for both periods
presented............................................................................. 32,209 32,962
----------- -----------
Earnings before income taxes.......................................................... 24,757 21,614
Income taxes............................................................................ 11,392 10,144
----------- -----------
Net earnings........................................................................ $ 13,365 $ 11,470
----------- -----------
----------- -----------
Weighted average shares outstanding..................................................... 50,910 50,881
----------- -----------
----------- -----------
Earnings per share (primary and fully diluted).......................................... $ .26 $ .23
----------- -----------
----------- -----------
</TABLE>
See condensed notes to consolidated financial statements.
-5-
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL RETAINED CURRENCY
COMMON PAID-IN EARNINGS TRANSLATION
STOCK CAPITAL (DEFICIT) ADJUSTMENT
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 28, 1996....................................... $ 509 $ 424,277 $ (705,718) $ (1,795)
Net earnings................................................... -- -- 13,365 --
Issuance of common stock....................................... -- 228 -- --
Foreign currency translation adjustment........................ -- -- -- (160)
--------- ---------- ----------- -----------
Balance, June 28, 1997........................................... $ 509 $ 424,505 $ (692,353) $ (1,955)
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
</TABLE>
See condensed notes to consolidated financial statements.
-6-
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 28, JUNE 29,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows (used for) provided by operations:
Net earnings.......................................................................... $ 13,365 $ 11,470
Non-cash items included in earnings:
Amortization of intangibles......................................................... 6,447 6,402
Amortization of deferred financing costs............................................ 1,083 1,009
Depreciation........................................................................ 3,752 4,338
Deferred taxes...................................................................... 3,191 4,340
Other, net.......................................................................... 30 (15)
Net (increase) decrease in working capital accounts................................. (29,248) 1,450
----------- -----------
Net cash flows (used for) provided by operations.................................... (1,380) 28,994
----------- -----------
Cash flows used for investing activities:
Purchases of property, plant and equipment............................................ (6,017) (4,644)
----------- -----------
Net cash flows used for investing activities........................................ (6,017) (4,644)
----------- -----------
Cash flows provided by (used for) financing activities:
Borrowings (repayments) under working capital facilities, net......................... 18,000 (5,050)
Repayment of term loan facility....................................................... (12,500) (10,000)
Issuance of common stock.............................................................. 228 45
Other, net............................................................................ -- 6
----------- -----------
Net cash flows provided by (used for) financing activities.......................... 5,728 (14,999)
----------- -----------
Change in cash and cash equivalents..................................................... (1,669) 9,351
Cash and cash equivalents at beginning of period........................................ 6,205 5,940
----------- -----------
Cash and cash equivalents at end of period.............................................. $ 4,536 $ 15,291
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information
Net cash paid during the periods for:
Interest.............................................................................. $ 31,096 $ 32,326
----------- -----------
----------- -----------
Income taxes, net of refunds.......................................................... $ 2,842 $ 1,662
----------- -----------
----------- -----------
</TABLE>
See condensed notes to consolidated financial statements.
-7-
<PAGE>
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 June 28, 1997 are not
necessarily indicative of the results that may be expected for the full year.
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):
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
1997 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
Receivables............................................................................ $ 89,321 $ 65,740
Less allowance for doubtful accounts................................................... (1,964) (1,758)
---------- ------------
Net................................................................................ $ 87,357 $ 63,982
---------- ------------
---------- ------------
Inventories:
Raw materials........................................................................ $ 12,733 $ 13,854
Work in process...................................................................... 1,077 1,004
Finished goods....................................................................... 26,086 22,779
---------- ------------
Total.............................................................................. $ 39,896 $ 37,637
---------- ------------
---------- ------------
Net property, plant and equipment:
Land................................................................................. $ 1,190 $ 1,190
Buildings............................................................................ 24,506 24,818
Machinery and equipment.............................................................. 102,103 95,938
---------- ------------
127,799 121,946
Less accumulated depreciation........................................................ (72,182) (68,538)
---------- ------------
Net................................................................................ $ 55,617 $ 53,408
---------- ------------
---------- ------------
</TABLE>
-8-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BALANCE SHEET COMPONENTS (CONTINUED)
<TABLE>
<CAPTION> JUNE 28, DECEMBER 28,
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Goodwill............................................................................. $ 446,607 $ 446,602
Less accumulated amortization........................................................ (103,801) (98,153)
---------- ------------
Net................................................................................ $ 342,806 $ 348,449
---------- ------------
---------- ------------
Patents, trademarks and other........................................................ $ 49,644 $ 49,644
Less accumulated amortization........................................................ (14,038) (13,239)
---------- ------------
Net................................................................................ $ 35,606 $ 36,405
---------- ------------
---------- ------------
Deferred financing costs............................................................. $ 19,463 $ 19,463
Less accumulated amortization........................................................ (5,209) (4,126)
---------- ------------
Net................................................................................ $ 14,254 $ 15,337
---------- ------------
---------- ------------
Accrued expenses: (a)
Advertising and sales promotion.................................................... $ 15,890 $ 19,191
Interest........................................................................... 5,753 5,532
Employee compensation and benefits................................................. 10,350 14,167
Insurance.......................................................................... 2,677 2,913
Accrued returns reserve............................................................ 13,479 1,117
Other.............................................................................. 5,241 6,332
---------- ------------
Total............................................................................ $ 53,390 $ 49,252
---------- ------------
---------- ------------
</TABLE>
(a) Certain prior year accounts have been reclassified for consistency with
1997 presentation.
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
1995 Credit Agreement:
Term Loan Facility................................................................... $ 355,000 $ 367,500
Acquisition Credit Facility.......................................................... -- 10,000
Working Capital Facility............................................................. 30,200 2,200
9% Senior Subordinated Notes due 2003.................................................. 360,000 360,000
--------- ------------
745,200 739,700
Less current maturities................................................................ (27,500) (25,000)
--------- ------------
Total long-term debt................................................................. $ 717,700 $ 714,700
--------- ------------
--------- ------------
</TABLE>
-9-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 1995 Term Loan Facility provided for semi-annual repayment of
principal, including payments of $12.5 million due on September 15, 1997 and
$15.0 million on March 15, 1998. The rate of interest on borrowings under the
1995 Credit Agreement was, at the Company's option, a function of various
alternative short-term borrowing rates, as defined in the 1995 Credit
Agreement. At June 28, 1997 and June 29, 1996, the weighted average variable
interest rate was 7.58% and 7.27%, respectively. The weighted average
variable interest rate for the quarters ended June 28, 1997 and June 29, 1996
was 7.46% and 7.31%, respectively. Quarterly commitment fees of three-eighths
of 1% on the unutilized portion of the 1995 Credit Agreement and an agency
fee of $0.1 million per annum were also required. At June 28, 1997, aggregate
unused lines of credit (giving effect to outstanding letters of credit) under
the 1995 Credit Agreement amounted to $80.8 million.
On July 21, 1997 the Company completed a refinancing plan (the "1997
Refinancing") designed to increase 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 facility 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
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 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.
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. Subsequent to the quarter end, one agreement
expired and in conjunction with the 1997 Refinancing, the remaining two
agreements were canceled.
-10-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I- FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provisions of the 1995 Credit Agreement required and, subsequent to
the quarter end, 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 the 1995 Credit Agreement, the 1997 Term
Loan, the 1997 Senior Credit Facilities , the Senior Notes indenture and the
9% Notes indenture, 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 June 28, 1997 and December 28, 1996, no shares of
common stock were held in treasury.
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. SUBSEQUENT EVENT
As described in note 3, on July 21, 1997 the Company refinanced the 1995
Credit Agreement with the net proceeds from the 1997 Refinancing. As a result
of the 1997 Refinancing, the Company will record in the third quarter of 1997
an extraordinary loss of $4.1 million, net of $2.3 million of associated
income tax benefit, related to the write-off of deferred financing costs
associated with the 1995 Credit Agreement.
-11-
<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).
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.
-12-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
RESULTS OF OPERATIONS
Three Months Ended June 28, 1997 Versus Three Months Ended June 29, 1996:
Net Sales--Net sales for the quarter ended June 28, 1997 increased $3.0
million, or 2%, to $134.9 from $131.9 million for the same quarter in fiscal
1996. Net sales of the Company's Feminine Care products were down $5.8
million, or 11%, versus the second quarter of 1996. These results reflect:
(i) heavy promotional activities in the second quarter of 1996 which were not
repeated in the current period and (ii) a strategic decision by management to
reduce trade inventory levels, which had increased due to heavy trade
promotional activity in prior periods. With retail take away off only 5% from
the heavy promotional period of a year ago, the Company estimates that retail
inventories were reduced by the equivalent of two weeks worth of retail sales
during the second quarter. Net sales of the Company's Sun Care products
increased $7.0 million, or 24%, for the quarter while net sales of Infant
Care products increased $4.4 million, or 17%, over the same period in 1996.
This 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 $1.4 million, or 10%,
due in part to a change in pricing strategy for Playtex gloves 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 17% versus the
second quarter of 1996.
Gross Profit--Gross profit of $81.5 million for the second quarter of
fiscal 1997 decreased by $0.4 million, or 1%, from the corresponding fiscal
1996 quarter. Period to period, gross margin decreased 1.7% to 60.4%. This
decrease was attributable primarily to the change in the mix of products sold.
Operating Earnings--Operating earnings for the three months ended June
28, 1997 of $26.3 million were $0.5 million, or 2%, lower than for the
comparable period in fiscal 1996. The decrease in operating earnings was due
primarily to lower gross margins, increased consumer and media spending, and
marginally higher overhead costs offset in part by a 20% decrease in trade
spending.
Interest Expense--Interest expense of $15.9 million decreased $0.4
million, or 2%, as a result of marginal reductions in the average long-term
debt position and interest rates.
Net Earnings--Net earnings of $5.5 million for the second quarter of
fiscal 1997 were equal to the comparable quarter in fiscal 1996.
Six Months Ended June 28, 1997 Versus Six Months Ended June 29, 1996:
Net Sales--Net sales for the six months ended June 28, 1997 decreased
$3.7 million, or 1%, to $271.3 from $274.9 million for the same period in
fiscal 1996. Net sales of the Company's Feminine Care products were down
$24.7 million, or 22%, versus the first six months of 1996.
-13-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
These results reflect: (i) heavy promotional activities in the first half of
1996 which were not repeated in the current period 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 $17.8 million, or 28%, for the six
month period while net sales of Infant Care products increased $9.0 million,
or 17%, over the same period in 1996. This 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 $2.4 million, or 8%, due in part to a change in pricing strategy
for Playtex gloves 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 21% versus the first half of 1996.
Gross Profit--Gross profit of $165.6 million for the first six months of
fiscal 1997 decreased by $3.7 million, or 2%, from the corresponding period
in 1996. Period to period, gross margin decreased 0.6% to 61.0%. This
decrease was attributable primarily to the mix of products sold.
Operating Earnings--Operating earnings for the six months ended June 28,
1997 of $57.0 million were $2.4 million, or 4%, higher than for the
comparable period in fiscal 1996. The increase in operating earnings was due
primarily to a 29% 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 $32.2 million decreased $0.8
million, or 2%, as a result of marginal reductions in the average long-term
debt position and interest rates..
Net Earnings--Net earnings of $13.4 million for the first six months of
fiscal 1997 were $1.9 million, or 17%, higher than the same period in fiscal
1996.
FINANCIAL CONDITION
At June 28, 1997, the Company's working capital (current assets net of
current liabilities) increased by $24.5 million to $31.0 million from $6.5
million at December 28, 1996. The increase resulted from (i) an increase in
accounts receivable of $23.4 million, principally due to an increase in sales
in the second quarter of 1997 when compared with the fourth quarter of 1996
and the seasonal nature of Sun Care product sales with extended credit terms,
(ii) an increase in inventory of $2.3 million, due primarily to the build of
the seasonal Sun Care inventory, (iii) a decline in accounts payable of $14.8
million. These working capital increases were partly offset by (i) a $5.4
million increase in income taxes payable, primarily the result of the
difference in the earnings in the second quarter of 1997 versus the fourth
quarter of 1996 (ii) a $4.1 million increase in accrued expense due primarily
to the seasonal increase in returns provision for the Sun Care products and
(iii) a $2.5 million increase in the current portion of long term debt. All
other working capital components decreased by a net $4.0 million.
-14-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
Long-term debt (including current portion) of $745.2 million at June 28,
1997 was $5.5 million higher than at December 28, 1996. The net increase in
long-term borrowings was the result of the working capital requirements of
the seasonal Sun Care business offset in part by a $12.5 million principal
payment on the Term Loan Facility.
As disclosed in notes 3 and 6 to the condensed financial statements for
the quarter ended June 28, 1997 included herein, subsequent to the quarter
end, the Company used the net proceeds from the 1997 Refinancing to retire
the indebtedness outstanding under the 1995 Credit Agreement. As part of the
1997 Refinancing, the current portion of long-term debt was reduced to $1.5
million, a decrease of $26.0 million, thereby increasing working capital by
$26.0 million.
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 or the $150 million
principal payments due in 2004 on the Senior Notes. Accordingly, the Company
will have to either refinance its obligations with respect to the 9% Notes
and the Senior Notes prior to maturity, sell assets or raise equity capital
to repay the principal amount of the 9% Notes and the Senior 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 $6.0
million and $4.6 million for the six month periods ended June 28, 1997 and
June 29, 1996, respectively.
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.
-15-
<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 June 1997, there were approximately 12 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
10(t)(2) Amendment No. 2 to the 1994 Stock Option Plan
10(t)(3) Amendment No. 3 to the 1994 Stock Option Plan
10(t)(4) Amendment No. 4 to the 1994 Stock Option Plan
27 Financial Data Schedule
b. Reports on Form 8-K
On July 28, 1997 the Company filed with the Commission a Current Report
on Form 8-K dated July 21, 1997, pursuant to Item 7 of Form 8-K, with
respect to the transactions described in notes 3 and 6 of the condensed
notes to the unaudited consolidated financial statements included
elsewhere in this filing.
-16-
<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: August 6, 1997 By: /s/Michael R. Gallagher
------------------------- -------------------------
Michael R. Gallagher
Chief Executive Officer
Date: August 6, 1997 By: /s/Michael F. Goss
------------------------- -------------------------
Michael F. Goss
Executive Vice President
and
Chief Financial Officer
-17-
<PAGE>
EXHIBIT 10(t)(2)
AMENDMENT NO. 2
TO
PLAYTEX 1994 STOCK OPTION PLAN
FOR DIRECTORS AND EXECUTIVE AND KEY EMPLOYEES
OF
PLAYTEX PRODUCTS, INC.
THIS AMENDMENT NO. 2 to the Playtex 1994 Stock Option Plan for Directors
and Executive and Key Employees of Playtex Products, Inc. (the "Plan"), dated as
of June 6, 1995, is adopted by the Compensation and Stock Option Committee of
the Board of Directors at the Annual Meeting of the Board of Directors of
Playtex Products, Inc. (the "Company"), a Delaware corporation.
The Plan is hereby amended in the following manner:
1. The text of Section 6.1 is amended and restated as follows:
Section 6.1 - Grant of Stock Option Rights
- ----------- ----------------------------
A Stock Appreciation Right may be granted to any Employee who receives a
grant of an Option under the Plan, other than an Option granted pursuant to
Section 3.3(c). A Stock Appreciation Right may be granted in conjunction and
simultaneously with the grant of an Option or with respect to a previously
granted Option. A Stock Appreciation Right shall be subject to such terms and
conditions not inconsistent with the Plan as the Committee shall impose,
including the following:
(a) A Stock Appreciation Right shall be related to a particular Option and
shall be exercisable only to the extent the related Option is exercisable.
(b) A Stock Appreciation Right shall be granted to the Optionee to the
maximum extent of 100% of the number of shares subject to the simultaneously or
previously granted Option.
(c) A Stock Appreciation Right shall entitle the Optionee (or other person
entitled to exercise the Option pursuant to Section 5.1) to surrender
unexercised a portion of the Option to which the Stock Appreciation Right
relates to the Company and to receive from the Company in exchange therefor an
amount, payable in shares of the Company's Common Stock (valued pursuant to
Section 4.2 (b)) or, in the discretion of the Committee, in cash, determined by
multiplying the lesser of (i) the difference obtained by subtracting the Option
exercise price per share of the Company's Common Stock subject to the related
Option from the fair market value (as determined under Section 4.2 (b)) of a
share of the Company's Common Stock on the date of exercise of the Stock
Appreciation Right or (ii) two times the Option exercise price per share of the
Company's Common Stock subject to the related Option, by the number of shares of
the
<PAGE>
Company's Common Stock subject to the related Option with respect to which the
Stock Appreciation Right shall have been exercised.
2. The text of Section 8.2 is amended and restated as follows:
Section 8.2 - Amendment, Suspension or Termination of the Plan
- ----------- ------------------------------------------------
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Committee;
provided that the provisions set forth in Section 3.3 (c) of the Plan shall not
be amended more than once every six months, other than to comport with changes
in the Code, the Employee Retirement Income Security Act of 1974, or the rules
thereunder. However, without approval of the Company's shareholders given
within 12 months before or after the action by the Committee, no action of the
Committee may, except as provided in Section 2.4, increase any limit imposed in
Section 2.1 on the maximum number of shares which may be issued on exercise of
Options, materially modify the eligibility requirements of Section 3.1, reduce
the minimum Option price requirements of Section 4.2 (a), extend the limit
imposed in this Section 8.2 on the period during which Options or Stock
Appreciation Rights may be granted or amend or modify the Plan in a manner
requiring shareholder approval under the Rule 16b-3 or Code Section 162 (m).
Neither the amendment, suspension nor termination of the Plan shall, without the
consent of the holder of the Option or Stock Appreciation Right, alter or impair
any rights or obligations under any Option or Stock Appreciation Right
theretofore granted. No Option or Stock Appreciation Right may be granted
during any period of suspension nor after termination of the Plan, and in no
event may any Option or Stock Appreciation Right be granted under this Plan
after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by the
Board; or
(b) The expiration of ten years from the date the Plan is approved by the
Company's shareholders under Section 8.3.
3. In all other respects, the Plan, as amended, shall continue in full
force and effect.
I hereby certify that the foregoing Amendment was duly adopted by the
Compensation and Stock Option Committee of the Board of Directors of Playtex
Products, Inc. as of June 6, 1995.
Executed on this 6th day of June 1995.
/s/ William Stammer
-------------------
Assistant Secretary
<PAGE>
EXHIBIT 10(t)(3)
AMENDMENT NO. 3
TO
PLAYTEX 1994 STOCK OPTION PLAN
FOR DIRECTORS AND EXECUTIVE AND KEY EMPLOYEES
OF
PLAYTEX PRODUCTS, INC.
THIS AMENDMENT NO. 3 to the Playtex 1994 Stock Option Plan for Directors
and Executive and Key Employees of Playtex Products, Inc. (the "Plan"), dated as
of September 15, 1995, is adopted by the Compensation and Stock Option
Committee of the Board of Directors of Playtex Products, Inc. (the "Company"), a
Delaware corporation.
The Plan is hereby amended in the following manner:
1. The text of Section 2.1 is amended and restated as follows:
Section 2.1 - Shares Subject to Plan
- ----------- ----------------------
The shares of stock subject to Options and Stock Appreciation Rights shall
be shares of the Company's $.01 per value Common Stock. Subject to adjustment
as provided in Sections 2.4 and 4.6 of the Plan: the aggregate number of such
shares which may be issued upon exercise of Options and Stock Appreciation
Rights shall not exceed 3,047,785; and the maximum number of shares with respect
to which Options and Stock Appreciation Rights may be granted to any employee
under the Plan shall not exceed 1,000,000 in any calendar year or in total;
provided, that shares which may be issued upon exercise of Options or Stock
Appreciation Rights which expire or are canceled (whether pursuant to Section
3.3 (b) or otherwise) shall, solely to the extent required by Code Section 162
(m), be counted against this limitation.
2. The text of Section 8.6 is amended by adding the following two
sentences at the end thereof:
"Without limiting the generality of the foregoing, it is intended that the
grant of Options to Directors pursuant to Section 3.3 (c) be fixed and automatic
and that the Plan be administered in a manner so as to preclude the exercise of
any discretion by the Committee with respect to Options granted to Directors
pursuant to Section 3.3 (c) (other than the limited discretion provided in
Sections 2.4 and 4.6, relating to changes in shares and adjustments in
outstanding Options, Section 4.1 relating to certain terms and conditions
consistent with the Plan, and Sections 5.3 (d) and 5.5 relating to compliance
with securities laws). Consequently, notwithstanding any provision of the Plan
or any award agreement issued hereunder to the contrary, the Committee shall not
have the authority to consent to or take any of the discretionary actions set
forth in Sections 1.22, 4.4 (b), 4.7, 5.2, 5.3 (b) (ii), 5.3 (b) (iii), 5.3 (b)
(iv), 5.3 (c) (i), 5.3 (c) (ii), 5.4 (ii) and 5.7 with respect to Options
granted to Directors pursuant to Section 3.3 (c) and any purported consent or
discretionary action shall be deemed null and void and without effect. In
conformity with the foregoing, the Option expiration date with respect to
Options granted pursuant to Section 3.3 (c) shall be determined in accordance
with the fixed periods prescribed by Section 4.4 (a)."
<PAGE>
3. In all other respects, the Plan, as amended, shall continue in full
force and effect.
I hereby certify that the foregoing Amendment was duly adopted by the
Compensation and Stock Option Committee of the Board of Directors of Playtex
Products, Inc. as of September 15, 1995.
Executed this 15 day of September, 1995
/s/ William Stammer
-------------------
Assistant Secretary
<PAGE>
EXHIBIT 10(t)(4)
EXHIBIT 10(t)(3)
AMENDMENT NO. 4
TO
PLAYTEX 1994 STOCK OPTION PLAN
FOR DIRECTORS AND EXECUTIVE AND KEY EMPLOYEES
OF
PLAYTEX PRODUCTS, INC.
THIS AMENDMENT NO. 4 to the Playtex 1994 Stock Option Plan for Directors
and Executive and Key Employees if Playtex Products, Inc. (the "Plan"), dated as
of June 16, 1997, is adopted by the Compensation and Stock Option Committee of
the Board of Directors at the Annual Meeting of the Board of Directors of
Playtex Products, Inc. (the "Company"), a Delaware corporation.
The Plan is hereby amended in the following manner:
1. The text of Section 4.7 is amended and restated as follows (amended
language being underlined):
Section 4.7 - Merger, Consolidation, Acquisition, Liquidation or
- ----------- Dissolution
--------------------------------------------------
Notwithstanding the provisions of Section 4.6, in its absolute discretion,
and on such terms and conditions as it deems appropriate, the Committee may
provide by the terms of any Option that such Option cannot be exercised after
the merger or the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock, the acquisition of Common Stock from the Haas Wheat
group (the "Purchasers") of 25% or more of the Company's Voting Securities (all
such terms as defined in the Stock Purchase Agreement dated March 17, 1995)
("The Agreement"), the change in the majority of the Board of Directors of the
Company during any period of two consecutive years (excepting, however, such new
directors elected by or nominated by either a majority of all the Directors or a
majority of the Directors on either the "Purchaser Nominating Committee" or the
"Non-Purchaser Nominating Committee" as such terms are defined by the Agreement,
in each case who were either directors at the beginning of such period or were
previously so elected or nominated), or the liquidation or dissolution of the
Company and if the Committee so provides, it may, in its absolute discretion and
on such terms and conditions as it deems appropriate, also provide either by the
terms of such Option or by a resolution adopted prior to the occurrence of such
merger, consolidation, acquisition, Board change, liquidation or dissolution,
that, for some period of time prior to such event, such Option shall be
exercisable as to all shares covered thereby, notwithstanding anything to the
contrary in Section 4.3(a), Section 4.3(b) and/or any installment provisions of
such Option, but subject to Section 4.3(d).
<PAGE>
2. In all other respects, the Plan, as amended, shall continue in full
force and effect.
I hereby certify that the foregoing Amendment was duly adopted by the
Compensation and Stock Option Committee of the Board of Directors of Playtex
Products, Inc. as of June 16, 1997.
Executed on this 16 day of June, 1997.
/s/ Paul Yestrumskas
--------------------
Secretary
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