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 March 28, 1998
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 May 11, 1998, 60,296,851 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 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 4. Submission of Matters to a Vote of Security Holders 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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<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 28, December 27,
ASSETS 1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,558 $ 3,231
Receivables, less allowance for doubtful accounts 121,064 66,876
Inventories 60,000 42,500
Current deferred taxes 16,156 7,806
Other current assets 1,635 4,949
----------- -----------
Total current assets 204,413 125,362
Net property, plant and equipment 72,671 54,810
Intangible assets, net:
Goodwill 507,440 337,157
Patents, trademarks and other 34,437 34,835
Deferred financing costs 19,063 16,751
Due from related party 80,017 80,017
Other noncurrent assets 3,549 3,626
----------- -----------
Total assets $ 921,590 $ 652,558
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,541 $ 24,512
Accrued expenses 72,932 38,827
Income taxes payable 6,934 4,121
Current maturities of long-term debt 3,000 1,500
----------- -----------
Total current liabilities 108,407 68,960
Long-term debt 859,275 736,300
Due to related party 78,386 78,386
Other noncurrent liabilities 13,356 13,563
Deferred income taxes 26,725 23,412
----------- -----------
Total liabilities 1,086,149 920,621
Stockholders' equity:
Common stock, $.01 par value, authorized 100,000,000
shares, issued 60,282,650 shares at March 28,
1998 and 50,941,812 shares at December 27, 1997 603 509
Additional paid-in capital 516,695 424,706
Retained earnings (deficit) (679,755) (691,065)
Foreign currency translation adjustments (2,102) (2,213)
----------- -----------
Total stockholders' equity (164,559) (268,063)
----------- -----------
Total liabilities and stockholders' equity $ 921,590 $ 652,558
=========== ===========
</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 Ended
--------------------------
March 28, March 29,
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 172,689 $ 136,410
Cost of sales 72,946 52,304
----------- -----------
Gross profit 99,743 84,106
Operating expenses:
Advertising and sales promotion 36,891 31,731
Selling, distribution and research 15,778 13,841
Administrative 5,491 4,632
Amortization of intangibles 3,864 3,223
----------- -----------
Total operating expenses 62,024 53,427
----------- -----------
Operating earnings 37,719 30,679
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 17,950 16,282
----------- -----------
Earnings before income taxes 19,769 14,397
Income taxes 8,459 6,549
----------- -----------
Net earnings $ 11,310 $ 7,848
=========== ===========
Earnings per share (basic and diluted) $ .20 $ .15
=========== ===========
Weighted average shares outstanding:
Basic 56,969 50,901
=========== ===========
Diluted 57,725 51,094
=========== ===========
</TABLE>
See condensed notes to consolidated financial statements.
-4-
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Foreign
Additional Retained Currency
Common Paid-In Earnings Translation
Stock Capital (Deficit) Adjustments
----- ------- --------- -----------
<S> <C> <C> <C> <C>
Balance, December 27, 1997 $ 509 $ 424,706 $(691,065) $ (2,213)
Net earnings -- -- 11,310 --
Stock issued to employees
exercising stock options 1 665 -- --
Stock issued in conjunction
with business acquisition 93 91,324 -- --
Foreign currency translation
adjustments -- -- -- 111
--------- --------- --------- ---------
Balance, March 28, 1998 $ 603 $ 516,695 $(679,755) $ (2,102)
========= ========= ========= =========
</TABLE>
See condensed notes to consolidated financial statements.
-5-
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 28, March 29,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows (used for) provided by operations:
Net earnings $ 11,310 $ 7,848
Non-cash items included in earnings:
Amortization of intangibles 3,864 3,223
Amortization of deferred financing costs 715 542
Depreciation 2,069 1,887
Deferred taxes 5,486 1,766
Other, net 196 165
Net increase in working capital accounts,
net of acquisitions (34,903) (27,722)
----------- -----------
Net cash flows used for operations (11,263) (12,291)
----------- -----------
Cash flows used for investing activities:
Cash portion of businesses acquired (106,246) --
Purchases of property, plant and equipment (2,278) (2,426)
----------- -----------
Net cash flows used for investing activities (108,524) (2,426)
----------- -----------
Cash flows provided by (used for) financing activities:
Net borrowings under working capital facilities 24,600 24,700
Repayment of long-term debt (625) (12,500)
Issuance of note payable 500 --
Long-term debt borrowings 100,000 --
Payment of deferred financing costs (3,027) --
Issuance of shares of common stock 666 209
Other, net -- (80)
----------- -----------
Net cash flows provided by financing activities 122,114 12,329
----------- -----------
Change in cash and cash equivalents 2,327 (2,388)
Cash and cash equivalents at beginning of period 3,231 6,205
----------- -----------
Cash and cash equivalents at end of period $ 5,558 $ 3,817
=========== ===========
Supplemental disclosures of cash flow information
Net cash paid during the periods for:
Interest $ 11,545 $ 7,774
=========== ===========
Income taxes, net of refunds $ 160 $ 519
=========== ===========
</TABLE>
In connection with the acquisition of Personal Care Holdings, Inc, the
Company issued 9,257,345 shares of Common Stock with a value of $9.875 per
share, aggregating $91,416.
See condensed notes to consolidated financial statements.
-6-
<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 a fair presentation of the
financial position, results of operations and cash flows of the Company. The
results of the interim period ended March 28, 1998 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 27, 1997.
Accordingly, all footnote disclosures which would substantially duplicate the
disclosures contained therein have been omitted.
2. Acquisitions
On January 6, 1998, the Company acquired Carewell Industries, Inc.
("Carewell") for approximately $9.2 million in cash. Carewell manufactures and
markets the Dentax(R) line of toothbrushes, toothpaste, and dental floss for
distribution through food stores, drug chains, and mass merchandisers. The
acquisition, which was financed through the Company's revolving credit facility,
was accounted for as a purchase.
On January 26, 1998, the Company acquired certain tangible and intangible
assets related to the Binky(R) pacifier business ("Binky") from Binky-Griptight,
Inc. for approximately $1.2 million in cash and $0.5 million in notes payable
due July 27, 1998. The acquisition, which was financed through the Company's
revolving credit facility, was accounted for as a purchase.
On January 28, 1998, the Company acquired Personal Care Holdings, Inc.
("PCH") for approximately $91.0 million in cash and 9,257,345 shares of the
Company's Common Stock. PCH manufactures and markets a number of leading
consumer product brands, including Wet Ones(R) pre-moistened towelettes,
Chubs(R) baby wipes, Ogilvie(R) home permanent products, Binaca(R) breath spray
and drops, Mr. Bubble(R) children's bubble bath products, Diaparene(R) infant
care products, Tussy(R) deodorants, Dorothy Gray(R) skin care products and
Better Off(R) depilatories. The cash portion of the consideration paid for the
PCH transaction was financed with borrowings under the Company's credit facility
(see Note 6). The acquisition was accounted for as a purchase.
As indicated above, the acquisitions of PCH, Carewell, and Binky (the
"Acquisitions") were accounted for as purchases and at March 28, 1998 the
Company has substantially completed the assignment of fair value to all assets
acquired and liabilities assumed. Final fair value determinations are pending
for certain identifiable intangible assets acquired and certain employee benefit
obligations assumed. At March 28, 1998, the unallocated excess purchase price
has been assigned to goodwill pending final fair value assessment. The Company
does not believe that the fair value determinations, when completed, will have a
material impact on the recorded amounts of amortization of intangibles for the
three months ended March 28, 1998.
-7-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisitions (continued)
The following consolidated unaudited pro forma results of operations
assumes the Acquisitions occurred as of December 29, 1996. The pro forma
financial information is not necessarily indicative of operating results that
would have occurred had the Acquisitions been consummated as of December 29,
1996, nor is it indicative of future operating results. The pro forma
adjustments used to derive the unaudited pro forma results of operations are
based upon available information and certain assumptions that management of the
Company believes are reasonable, and do not give effect to consolidation savings
or other changes in revenue or other costs of the Acquisitions that may occur
subsequent to their acquisition by the Company.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 28, March 29,
(Unaudited, in thousands, except share data) 1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 179,423 $ 170,074
Net earnings $ 7,946 $ 7,593
Earnings per share (basic and diluted) $ 0.13 $ 0.13
Weighted average shares outstanding:
Basic 60,229 60,158
Diluted 60,985 60,351
</TABLE>
3. Changes in Accounting Principles
Playtex adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income" at the beginning of fiscal year 1998. This
Statement requires that all items recognized under accounting standards as
components of comprehensive earnings be reported in an annual financial
statement that is displayed with the same prominence as other annual financial
statements. This Statement also requires that an entity classify items of other
comprehensive earnings by their nature in an annual financial statement. For
example, other comprehensive earnings may include foreign currency translation
adjustments, minimum pension liability adjustments, and unrealized gains and
losses on marketable securities classified as available-for-sale. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS No. 130. There were no material differences between net earnings and
comprehensive earnings for the fiscal quarters ended March 28, 1998 and March
29, 1997 as the net change in the foreign currency translation adjustments, the
only component of other comprehensive earnings for the Company, for fiscal
quarters ended March 28, 1998 and March 29, 1997 was income of $0.1 million and
a loss of $0.1 million, respectively. Accumulated other comprehensive earnings
at March 28, 1998 and December 27, 1997 consisted solely of foreign currency
translation adjustments with debit balances of $2.1 million and $2.2 million,
respectively.
-8-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Balance Sheet Components
The components of certain balance sheet accounts are as follows (in
thousands):
<TABLE>
<CAPTION>
March 28, December 27,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Receivables $ 123,820 $ 68,545
Less allowance for doubtful accounts (2,756) (1,669)
----------- -----------
Net $ 121,064 $ 66,876
=========== ===========
Inventories:
Raw materials $ 12,267 $ 14,866
Work in process 848 845
Finished goods 46,885 26,789
----------- -----------
Total $ 60,000 $ 42,500
=========== ===========
Net property, plant and equipment:
Land $ 1,435 $ 1,190
Buildings 27,015 24,650
Machinery and equipment 120,971 103,767
----------- -----------
149,421 129,607
Less accumulated depreciation (76,750) (74,797)
----------- -----------
Net $ 72,671 $ 54,810
=========== ===========
Goodwill $ 620,355 $ 446,607
Less accumulated amortization (112,915) (109,450)
----------- -----------
Net $ 507,440 $ 337,157
=========== ===========
Patents, trademarks and other $ 49,669 $ 49,669
Less accumulated amortization (15,232) (14,834)
----------- -----------
Net $ 34,437 $ 34,835
=========== ===========
Deferred financing costs $ 23,377 $ 20,350
Less accumulated amortization (4,314) (3,599)
----------- -----------
Net $ 19,063 $ 16,751
=========== ===========
Accrued expenses:
Advertising and sales promotion $ 25,177 $ 13,480
Interest 14,312 8,622
Employee compensation and benefits 8,994 7,808
Insurance 2,947 2,945
Accrued returns reserve 5,309 1,551
Accrued expenses - business combinations 9,364 --
Other 6,829 4,421
----------- -----------
Total $ 72,932 $ 38,827
=========== ===========
</TABLE>
-9-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Accrued Expenses - Business Combinations
In connection with the Acquisitions (see Note 2), the Company accrued for
certain direct costs as part of the purchase price allocations. These costs
include $7.0 million for costs to exit activities of the acquired companies,
$2.0 million of costs to involuntarily terminate employees of the acquired
companies, and $0.8 million to relocate employees of the acquired companies. As
of March 28, 1998, $0.4 million of these liabilities were paid.
6. Long-Term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 28, December 27,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
7.25% Note Payable, due July 27, 1998 $ 500 $ --
1997 Credit Agreement:
Term A Loan 55,000 55,000
Revolving Credit Facility 48,150 23,550
Term Loan 248,625 149,250
8 7/8% Unsecured Senior Notes due 2004 150,000 150,000
9% Senior Subordinated Notes due 2003 360,000 360,000
----------- -----------
862,275 737,800
Less current maturities (3,000) (1,500)
----------- -----------
Total long-term debt $ 859,275 $ 736,300
=========== ===========
</TABLE>
In connection with the Company's acquisition of PCH on January 28, 1998
(see Note 2), the Company increased its borrowings under the Term Loan by $100
million. Quarterly principal repayments on the incremental borrowings commenced
on March 15, 1998, in aggregate annual amounts equal to $1.0 million through and
including December 15, 2002, and in the amount of $250,000 on March 15, 2003 and
June 15, 2003, with a final payment of $94.5 million on September 15, 2003. Fees
and expenses associated with the incremental borrowings are being amortized over
its term. Additionally, in connection with the Company's acquisition of Binky
(see Note 2), the Company issued a $0.5 million note payable due July 27, 1998.
The Term Loan provides for quarterly repayment of principal of $625,000 on
June 15, 1998, September 15, 1998, December 15, 1998 and March 15, 1999. The
rate of interest on borrowings under the 1997 Credit Agreement is, at the
Company's option, a function of various alternative short-term borrowing rates,
as defined in the 1997 Credit Agreement. At March 28,
-10-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-Term Debt (continued)
1998 and March 29, 1997, the weighted average variable interest rate was 7.13%
and 7.34%, respectively. The weighted average variable interest rate for the
quarters ended March 28, 1998 and March 29, 1997 was 7.24% and 7.33%,
respectively. Quarterly commitment fees of three-eighths of 1% on the unutilized
portion of the 1997 Credit Agreement and an agency fee of $0.1 million per annum
are also required. At March 28, 1998, aggregate unused lines of credit (giving
effect to outstanding letters of credit) under the 1997 Credit Agreement
amounted to $65.8 million.
7. 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 material adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.
-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 27, 1997 filed with
the Securities and Exchange Commission (No. 33-25485).
Cautionary Statement For Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
This document contains statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. When used in this document, the words "anticipates," "intends," "plans,"
"believes," "estimates," "expects" and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, but are not
limited to: the Company's highly leveraged capital structure, its substantial
principal repayment obligations, price and product changes and promotional
activity by competitors, the loss of a significant customer, the difficulties of
integrating acquisitions, adverse publicity and product liability claims and
dependence on key employees. 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 and investors, therefore, 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 such 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 of such factors. Further, management cannot assess 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.
Results of Operations
Basis of Management's Discussion and Analysis
The Company is a leading manufacturer and marketer of a diversified line
of well recognized branded consumer products in a variety of categories. In
January 1998, the Company acquired PCH, Carewell and Binky (the "Acquisitions")
(see Note 2 of the Condensed Notes to Consolidated Financial Statements included
elsewhere in this quarterly report). As a result of the Acquisitions, the
Company's brand portfiolio was strengthened with the addition of a number of
widely-recognized branded consumer products. The Feminine Care product category
includes a wide range of plastic and cardboard applicator tampons marketed under
such brand names as Playtex(R) Gentle Glide(R), Soft Comfort(TM), Slimfits(TM)
and Silk Glide(R). The Infant Care product
-12-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
category is comprised of the Playtex(R) disposable nurser system, cups and
mealtime products, reusable hard bottles and pacifiers. As a result of the
Acquisitions, the following brands were added to the Company's Infant Care
product category: Binky(R) pacifiers, Mr. Bubble(R) children's bubble bath,
Chubs(R) baby wipes, Diaparene(R) infant care products, and Wet Ones(R) hand and
face towelettes. The Company's Sun Care business consists of an extensive line
of sun care products marketed under the Banana Boat(R) and BioSun(R) trade
names. The Household Products category includes Playtex(R) household latex
gloves and Woolite(R) rug and upholstery cleaning products ("Woolite"). The
Company's Personal Grooming business consists of Jhirmack(R) hair care products
and Tek(R) toothbrushes. As a result of the Acquisitions, the following brands
were added to the Company's Personal Grooming product category: Better Off(R)
depilatories, Binaca(R) breath spray and drops, Dentax(R) oral care products,
and Dorothy Gray(R) skin care products, Ogilvie(R) at-home permanents and
Tussy(R) deoderant.
Three Months Ended March 28, 1998 Versus
Three Months Ended March 29, 1997:
Net Sales - The Company's net sales grew 27%, or $36.3 million, to $172.7
million for the first quarter of 1998 from $136.4 million in the first quarter
of 1997.
Net sales for the Feminine Care business were $50.9 million for the first
quarter of 1998, up $11.8 million, or 30%, versus $39.1 million in the first
quarter of 1997. These results reflect (i) an increase in dollar market share
from 24.9% for the first quarter of 1997 to 26.5% for the first quarter of 1998,
(ii) a 12% increase in retail dollar sales in the first quarter of 1998 compared
to the same quarter in 1997, (iii) 5% dollar category growth in the first
quarter of 1998 over the comparable quarter in 1997, and (iv) weak shipments to
retailers in the first quarter of 1997, which such shipments negatively impacted
by high retail inventories created by earlier price-oriented promotional
activities and by management's strategic decision to reduce these excess
inventories by curtailing its trade discount programs.
Infant Care net sales increased $18.0 million, or 55%, to $50.5 million in
the first quarter of 1998 from $32.5 million in the first quarter of 1997. Of
this increase in net sales, $16.6 million was contributed by the brands acquired
in the Acquisitions and the remainder of the change was due to a 4% increase in
the Company's existing Infant Care business.
Sun Care net sales increased $1.1 million, or 3%, to $44.8 million in the
first quarter of 1998 from $43.7 million in the comparable period in 1997.
Household Products net sales in the first quarter of 1998 of $14.3 million
were $0.1 million, or 1% lower than the year ago quarter of $14.4 million. Net
sales for Woolite were approximately the same as for the first quarter of 1997
and Glove net sales were down $0.1 million compared to the first quarter of
1997.
Personal Grooming 1998 first quarter net sales increased by $5.5 million,
or 84%, to $12.2 million, compared to $6.7 million in 1997. The Personal
Grooming brands acquired in the
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<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
Acquisitions increased net sales in the first quarter by $8.1 million offsetting
decreased net sales of Jhirmack(R) products.
Gross Profit - Gross profit increased $15.6 million, or 19%, to $99.7
million for the first quarter of 1998 compared to $84.1 million in the first
quarter of 1997. Gross profit as a percent of net sales decreased to 57.7% in
the first quarter of 1998 from 61.7% in the first quarter of 1997 due primarily
to lower overall gross margins of the brands acquired in the Acquisitions. The
increase in gross profit was due primarily to the higher net sales noted
previously.
Operating Earnings - Operating earnings for the first quarter of 1998 were
$37.7 million, up $7.0 million, or 23%, over operating earnings for the first
quarter of 1997 of $30.7 million. The increase in operating earnings was due
primarily to higher net sales resulting from the brands acquired in the
Acquisitions and increased Feminine Care volume and lower operating expenses as
a percent of net sales.
Interest Expense - Interest expense for the first quarter of 1998 was
$18.0 million, up $1.7 million, or a 10% increase over interest expense for the
first quarter of 1997 of $16.3 million. This resulted from an increase in long
term debt of $124.5 million of which $110.4 million was associated with the
Acquisitions.
Net Earnings - Net earnings increased 45%, or $3.5 million, to $11.3
million for the quarter ended March 28, 1998 from $7.8 million for the quarter
ended March 29, 1997. The favorable variance resulted from the combined effect
of all factors described above.
Financial Condition and Liquidity
At March 28, 1998, the Company's working capital (current assets net of
current liabilities) increased by $39.6 million to $96.0 million from $56.4
million at December 27, 1997. The increase resulted primarily from (i) an
increase of $54.2 million in receivables, primarily as a result of (a) higher
net sales versus the fourth quarter of 1997, especially in Sun Care, where sales
carry extended credit terms, and (b) the Acquisitions, and (ii) an increase of
$17.5 million in inventories and $8.4 million in current deferred tax assets,
both due principally to the Acquisitions. These working capital increases were
partially offset by an increase in accrued expenses of $34.1 million primarily
as a result of the Acquisitions, higher accrued interest due to timing of
payments, and higher returns reserves associated with the seasonal nature of Sun
Care sales. All other working capital components decreased $6.4 million.
The Company's businesses, with the exception of Sun Care, generally have
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. This seasonality
requires increased inventory to support the selling season, and extended credit
terms which are typical in the sun care industry result in higher receivables
for the Company during the first quarter of its fiscal year.
Capital expenditures for equipment and facility improvements were $2.3
million and $2.4 million for the three months ended March 28, 1998 and March 29,
1997, respectively. These expenditures were primarily to upgrade production
equipment and maintain facilities in the
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<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
ordinary course of business. Capital expenditures for 1998 are expected to be
$18 million, mostly for production related equipment and facility improvements
and for projects consistent with those of prior years. The 1998 projection
includes increased capital expenditures related to the acquired businesses.
At March 28, 1998 long-term debt (including current portion but excluding
obligations due to related party) was $862.3 million versus $737.8 million at
December 27, 1997, an increase of $124.5 million. The increase was primarily the
result of the Acquisitions and the seasonal increase in working capital to
support the Sun Care business. At March 28, 1998, the Company had unused lines
of credit (giving effect to outstanding letters of credit) under its credit
facility of $65.8 million.
Terms of the 1997 Revolving Credit Facility and the 1997 Term A Loan
(collectively the "1997 Senior Secured Credit Facilities") require the Company
to meet certain financial covenants and ratios and also include conditions or
restrictions on new indebtedness and liens, major acquisitions or mergers,
capital expenditures and disposition of assets, certain dividends and other
distributions, and prepayment and modification of indebtedness or equity
capitalization. The 9% Senior Subordinated Notes and the 8 7/8 % Unsecured
Senior Notes (collectively, the "Notes") also contain restrictions and
requirements with regard to similar matters. Under the terms of these debt
instruments, payment of cash dividends on the Common Stock of the Company is
restricted.
The Company believes that it will generate sufficient cash flow from
operations for working capital requirements, capital expenditures and to make
the scheduled interest and principal payments under the 1997 Term Loan and 1997
Senior Secured Credit Facilities, and interest payments on the 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% Senior
Subordinated Notes nor the $150 million principal payment due in 2004 on the
8 7/8 % Unsecured Senior Notes. Accordingly, the Company will have to either
refinance its obligations with respect to the Notes prior to their maturity,
sell assets or raise equity capital to repay the principal amounts of the 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 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 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.
In January 1998, the Company acquired PCH, Carewell and Binky. The
purchase of Carewell and Binky were financed from available borrowings under the
Company's revolving credit facility. The Company increased its borrowings under
the 1997 Term Loan by $100 million to fund the cash portion of the acquisition
price of PCH. The Company also issued 9,257,345 shares of its Common Stock as
part of the PCH acquisition.
The Company will continue to regularly consider the acquisition of other
companies or businesses engaged in the manufacture and distribution of related
products. Such potential
-15-
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
transactions may require substantial capital resources, which in certain
circumstances would require the Company to seek additional debt and/or equity
financing. As there can be no assurance that such financing will be available,
the Company's ability to expand its operations through acquisition may be
restricted. However, the Company believes that capital will be available to
achieve its acquisition objectives.
Inflation in the United States and Canada has not had a significant effect
on the Company during recent periods.
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued two accounting
pronouncements which the Company will adopt in the fourth quarter of 1998.
"Disclosures About Segments of an Enterprise and Related Information"("SFAS No.
131") establishes requirements for disclosure about operating segments in the
interim financial reports and annual financial statements. It also establishes
standards for related disclosures about products and services, geographic area
and major customers. This statement supersedes SFAS No. 14, "Financial Reporting
for Segments of Business Enterprises". The Company is in the process of
evaluating the disclosure requirements.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits"("SFAS No. 132"), which revises employers' disclosures
about these types of benefits. SFAS No. 132 does not change the measurement or
recognition of those plans, but requires additional information to facilitate
financial analysis and eliminates certain disclosures which are no longer
useful. To the extent practicable, the Statement also standardizes disclosure
for retiree benefits. SFAS No. 132 requires that comparative information from
earlier years be restated to conform to the requirements of the new standard.
The Company is in the process of evaluating the disclosure requirements.
-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 27, 1997.
As of the end of March 1998, there were approximately 9 pending toxic
shock syndrome claims relating to Playtex tampons, although additional claims
may be made in the future.
Item 2. Changes in Securities and Use of Proceeds
On January 28, 1998, in connection with the acquisition of Personal Care
Holdings, Inc. ("PCH") the Company issued 9,257,345 shares of unregistered
shares of the Company's Common Stock to former stockholders of PCH in a private
offering pursuant to Section 4(2) of the securities Act of 1933, as amended.
Item 4. Submission of Matters to a Vote of Security Holders
During the first quarter of 1998, a majority of the Company's
shareholders, acting by written consent, approved an amendment (the "Stock
Option Plan Amendment") to the Playtex 1994 Stock Option Plan for Directors and
Executives and Key Employees. The Stock Option Plan Amendment provides that an
additional 2,000,000 shares of Common Stock may be issued under such stock
option plan. A total of 31,424,107 shares of Common Stock, representing 53% of
the total outstanding shares of Common Stock at the time of such vote, were
voted for the Stock Option Plan Amendment. For a more complete description of
the Stock Option Plan Amendment, reference is hereby made to the Company's
Schedule 14(c) Information Statement, dated March 5, 1998, filed with the
Commission on March 5, 1998, and mailed to the Company's Shareholders on or
about March 11, 1998. The Company has included in its 1998 Proxy Statement a
proposal to afford all holders of Common Stock the opportunity to ratify the
Stock Option Plan Amendment at its Annual Meeting to be held on June 4, 1998.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
(27) Financial Data Schedule
b. The following report on Form 8-K was filed during the quarter ended
March 28, 1998:
On February 12, 1998, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission pursuant to Item 2 of such Form to report
a merger agreement dated as of December 22, 1997, among Playtex Products, Inc.,
PCG Acquisition Corp., a wholly-owned subsidiary of the Company, PCH, and J.W.
Childs Equity Partners L.P. (the principal stockholder of PCH). The agreement
provided for the merger of PCH with and into PCG Acquisition Corp at which time
it became a wholly owned subsidiary of the Company. Pursuant to Item 5 of such
Form, the Company also filed a copy of the press release announcing the merger.
-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: May 12, 1998 By: /s/ Michael R. Gallagher
------------------------- ---------------------------------
Michael R. Gallagher
Chief Executive Officer
Date: May 12, 1998 By: /s/ Michael F. Goss
------------------------- ---------------------------------
Michael F. Goss
Executive Vice President
and
Chief Financial Officer
-18-
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