================================================================================
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 25, 1999
Commission File No. 1-12620
PLAYTEX PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0312772
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Nyala Farms Road
Westport, Connecticut 06880
---------------------------
(Address of principal executive offices)
Telephone number: (203) 341-4000
--------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
At November 3, 1999, 60,547,026 shares of Playtex Products, Inc. common
stock, par value $.01 per share, were outstanding.
================================================================================
<PAGE>
PLAYTEX PRODUCTS, INC
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements................... 3 - 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 14 - 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................. 23
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits................................................ 23
(b) Reports on Form 8-K.................................... 23
Signatures.................................................... 24
Exhibit Index 25
2
<PAGE>
PLAYTEX PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 25, December 26,
1999 1998
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash ................................................................... $ 7,499 $ 6,871
Receivables, less allowance for doubtful accounts ...................... 116,160 103,185
Inventories ............................................................ 66,917 58,790
Deferred income taxes .................................................. 14,805 14,650
Other current assets ................................................... 2,103 5,650
----------- -----------
Total current assets ............................................. 207,484 189,146
Net property, plant and equipment ............................................ 107,398 78,906
Intangible assets, net ....................................................... 702,975 531,592
Deferred financing costs ..................................................... 16,442 16,448
Due from related party ....................................................... 80,017 80,017
Other non-current assets ..................................................... 4,144 3,112
----------- -----------
Total assets ..................................................... $ 1,118,460 $ 899,221
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................... $ 33,605 $ 38,298
Accrued expenses ....................................................... 80,091 59,981
Income taxes payable ................................................... 8,618 8,444
Current maturities of long-term debt ................................... 17,031 3,875
----------- -----------
Total current liabilities ........................................ 139,345 110,598
Long-term debt ............................................................... 960,256 807,875
Due to related party ......................................................... 78,386 78,386
Other non-current liabilities ................................................ 11,641 14,049
Deferred income taxes ........................................................ 35,016 29,288
----------- -----------
Total liabilities ................................................ 1,224,644 1,040,196
----------- -----------
Stockholders' equity:
Common stock, $0.01 par value, authorized 100,000,000 shares, issued and
outstanding 60,545,459 shares at September 25, 1999
and 60,401,822 shares at December 26, 1998 .......................... 605 604
Additional paid-in capital ............................................. 519,438 518,179
Retained earnings (deficit) ............................................ (623,570) (656,835)
Foreign currency translation adjustment ................................ (2,657) (2,923)
----------- -----------
Total stockholders' equity ....................................... (106,184) (140,975)
----------- -----------
Total liabilities and stockholders' equity ....................... $ 1,118,460 $ 899,221
=========== ===========
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
September 25, September 26,
1999 1998
-------- --------
<S> <C> <C>
Net sales .................................................................. $187,926 $162,597
Cost of sales .............................................................. 78,329 66,158
-------- --------
Gross profit .......................................................... 109,597 96,439
Operating expenses:
Advertising and sales promotion ....................................... 42,061 35,440
Selling, distribution and research .................................... 21,036 19,064
Administrative ........................................................ 6,501 5,831
Amortization of intangibles ........................................... 5,593 4,333
-------- --------
Total operating expenses ........................................ 75,191 64,668
Operating earnings .......................................... 34,406 31,771
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 .................. 20,560 17,872
-------- --------
Earnings before income taxes ................................ 13,846 13,899
Income taxes ............................................................... 5,817 5,976
-------- --------
Net earnings ................................................ $ 8,029 $ 7,923
======== ========
Earnings per share:
Basic ................................................................. $ 0.13 $ 0.13
======== ========
Diluted ............................................................... $ 0.13 $ 0.13
======== ========
Weighted average shares outstanding:
Basic ................................................................. 60,514 60,326
======== ========
Diluted ............................................................... 61,523 61,228
======== ========
</TABLE>
See the accompanying notes to condensed consolidated financial statements
4
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
September 25, September 26,
1999 1998
------------- -------------
<S> <C> <C>
Net sales .................................................................. $587,573 $512,846
Cost of sales .............................................................. 246,767 209,568
-------- --------
Gross profit .......................................................... 340,806 303,278
Operating expenses:
Advertising and sales promotion ....................................... 129,179 115,609
Selling, distribution and research .................................... 60,508 53,838
Administrative ........................................................ 19,768 17,295
Amortization of intangibles ........................................... 15,487 12,648
-------- --------
Total operating expenses ........................................ 224,942 199,390
Operating earnings .......................................... 115,864 103,888
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 .................. 58,327 54,190
-------- --------
Earnings before income taxes ................................ 57,537 49,698
Income taxes ............................................................... 24,272 21,361
-------- --------
Net earnings ................................................ $ 33,265 $ 28,337
======== ========
Earnings per share:
Basic ................................................................. $ 0.55 $ 0.48
======== ========
Diluted ............................................................... $ 0.54 $ 0.47
======== ========
Weighted average shares outstanding:
Basic ................................................................. 60,458 59,196
======== ========
Diluted ............................................................... 62,970 60,117
======== ========
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
5
<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) Adjustment Total
--------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 26, 1998 ....................... $ 604 $ 518,179 $(656,835) $ (2,923) $(140,975)
Net earnings ..................................... -- -- 33,265 -- 33,265
Foreign currency translation adjustment .......... -- -- -- 266 266
--------- --------- --------- --------- ---------
Comprehensive earnings ..................... 33,531
Stock issued to employees exercising stock options 1 1,259 -- -- 1,260
--------- --------- --------- --------- ---------
Balance, September 25, 1999 .......... $ 605 $ 519,438 $(623,570) $ (2,657) $(106,184)
========= ========= ========= ========= =========
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
6
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
September 25, September 26,
1999 1998
-------------- -------------
<S> <C> <C>
Cash flows from operations:
Net earnings ............................................................... $ 33,265 $ 28,337
Non-cash items included in earnings:
Amortization of intangibles ............................................ 15,487 12,648
Amortization of deferred financing costs ............................... 2,487 2,233
Depreciation ........................................................... 7,234 7,083
Deferred income taxes .................................................. 7,357 8,882
Other, net ............................................................. 497 (354)
Net (increase) decrease in working capital accounts, net of acquisitions (1,544) 1,704
--------- ---------
Net cash flows from operations ................................... 64,783 60,533
Cash flows used for investing activities:
Purchases of property, plant and equipment ................................. (18,363) (9,781)
Businesses acquired, net of cash acquired .................................. (210,108) (106,246)
--------- ---------
Net cash flows used for investing activities ..................... (228,471) (116,027)
Cash flows provided by (used for) financing activities:
Net borrowings (repayments) under credit facilities ........................ 19,350 (23,550)
Long-term debt borrowings .................................................. 150,000 100,000
Long-term debt repayments .................................................. (3,813) (1,875)
Payment of financing costs ................................................. (2,481) (3,027)
Issuance of shares of common stock ......................................... 1,260 1,104
--------- ---------
Net cash flows provided by financing activities .................. 164,316 72,652
Increase in cash ................................................................ 628 17,158
Cash at beginning of period ..................................................... 6,871 3,231
--------- ---------
Cash at end of period ........................................................... $ 7,499 $ 20,389
========= =========
Supplemental disclosures of cash flow information
Cash paid during the periods for:
Interest ................................................................ $ 49,643 $ 46,331
Income taxes, net of refunds ............................................ $ 16,723 $ 9,701
</TABLE>
In connection with our acquisition of Personal Care Holdings, Inc. in
January 1998, we issued 9,257,345 shares of Common Stock with a value of $9.875
per share, aggregating $91,417.
See the accompanying notes to condensed consolidated financial statements.
7
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements
The quarterly condensed consolidated financial statements, which are a
part of our Quarterly Report on Form 10-Q, are unaudited. In preparing our
financial statements, we make certain adjustments (consisting of normal
recurring adjustments) considered necessary in our opinion for a fair
presentation of our financial position and results of operations. The results of
the three and nine month interim periods ended September 25, 1999 are not
necessarily indicative of the results that you may expect for the full year.
We presume you have access to the audited financial statements contained
in our Annual Report on Form 10-K for the year ended December 26, 1998. As a
result, we have not included footnote disclosures that would substantially
duplicate the disclosures contained in the 10-K. If you do not have a copy of
our Annual Report on Form 10-K you can obtain one by contacting our Director of
Investor Relations at (203) 341-4000 or view it on-line at the SEC's web site
WWW.SEC.GOV.
2. Acquisitions and Divestiture
1999 Acquisitions
On June 30, 1999, we acquired the Baby Magic brand of infant-related bath,
lotion, shampoo, oil and powder products from The Colgate-Palmolive Company for
$90.0 million in cash. We borrowed $100.0 million in cash from our Term A Loan
at variable rates of interest to pay for the acquisition and related fees.
On January 29, 1999, we acquired the Diaper Genie business, the leading
diaper disposal system in the U.S., from privately-held Mondial Industries for
$72.0 million in cash and the issuance to Mondial of $50.0 million of
convertible notes. We borrowed the cash portion of the purchase price from our
revolving credit facility. The newly issued convertible notes have an interest
rate of 6% and are convertible after January 29, 2000, at the holders' option,
into approximately 2.6 million shares of our Common Stock. The conversion price
is approximately $19.15 per share. The notes will mature in 2004 and are
callable by us after January 29, 2002.
The acquisitions of Baby Magic and Diaper Genie were accounted for as
asset purchases.
1998 Acquisitions
On January 28, 1998, we acquired Personal Care Holdings, Inc. ("PCH") for
approximately $91.0 million in cash and 9,257,345 shares of our Common Stock. We
borrowed money under our credit facility for the cash portion of the deal (see
Note 5). On January 6, 1998, we acquired Carewell Industries, Inc. ("Carewell")
for approximately $9.2 million in cash. On January 26, 1998, we acquired the
Binky(R) pacifier business ("Binky") from Binky-Griptight, Inc. for
approximately $1.2 million in cash and $0.5 million in notes. The acquisitions
of PCH, Binky, and Carewell were accounted for as purchases.
In connection with the acquisitions, we reserved amounts on our balance
sheet for certain direct costs likely to be incurred as a result of the
acquisitions. These costs include at September 25, 1999 (in thousands):
Reserved Amount Balance
Amount Spent Remaining
------ ------ ------
Exit costs ........................... $4,162 $1,700 $2,462
Involuntary terminations ............. 3,031 2,387 644
Relocation costs ..................... 168 135 33
------ ------ ------
Total .......................... $7,361 $4,222 $3,139
====== ====== ======
8
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Acquisitions and Divestiture (continued)
The following pro forma results of operations assumes the 1999
acquisitions occurred on December 28, 1997. We did not adjust for any
consolidation savings or other changes in revenues or expenses that we feel
could occur as a result of our acquiring these businesses. As a result, the
following pro forma financial information may not represent our operating
results or future operating results if we had acquired these businesses on
December 28, 1997.
Nine Months Ended
-----------------------------
(Unaudited, in thousands, except per share data) September 25, September 26,
1999 1998
-------- --------
Net sales ........................................ $617,172 $581,737
Net earnings ..................................... $ 35,168 $ 29,722
Earnings per share:
Basic ...................................... $ .58 $ .50
Diluted .................................... $ .57 $ .49
Weighted average shares outstanding:
Basic ...................................... 60,458 59,196
Diluted .................................... 64,156 60,117
1999 Divestiture
On May 12, 1999, we sold our U.S and International Jhirmack hair care
business, with the exception of the Canadian business, to Allegheny Pharmacal
Corporation for cash and future guaranteed minimum royalty payments.
3. Comprehensive Earnings
Foreign currency translation adjustments is the only reconciling item
between net earnings and comprehensive earnings. For the three and nine month
periods ended September 25, 1999 and September 26, 1998 there were no material
differences between net earnings and comprehensive earnings. For the three and
nine month periods ended September 25, 1999 and September 26, 1998 our
comprehensive earnings were (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -----------------------------
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings ............................................ $ 8,029 $ 7,923 $ 33,265 $ 28,337
Foreign currency translation adjustment ................. (34) (180) 266 (417)
-------- -------- -------- --------
Comprehensive earnings ........................ $ 7,995 $ 7,743 $ 33,531 $ 27,920
======== ======== ======== ========
</TABLE>
9
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Balance Sheet Components
The components of certain balance sheet accounts are as follows (in
thousands):
September 25, December 26,
1999 1998
------------ ------------
(Unaudited)
Receivables .................................. $ 118,484 $ 105,280
Less allowance for doubtful accounts ......... (2,324) (2,095)
--------- ---------
Net ................................. $ 116,160 $ 103,185
========= =========
Inventories:
Raw materials ........................... $ 24,852 $ 17,722
Work in process ......................... 730 763
Finished goods .......................... 41,335 40,305
--------- ---------
Total ............................... $ 66,917 $ 58,790
========= =========
Net property, plant and equipment:
Land .................................... $ 2,376 $ 1,435
Buildings ............................... 36,403 30,000
Machinery and equipment ................. 156,673 130,000
--------- ---------
195,452 161,435
Less accumulated depreciation ........... (88,054) (82,529)
--------- ---------
Net ................................. $ 107,398 $ 78,906
========= =========
Accrued expenses:
Advertising and sales promotion ......... $ 22,851 $ 22,580
Employee compensation and benefits ...... 11,783 11,917
Interest ................................ 15,250 9,053
Insurance ............................... 2,978 3,038
Other ................................... 27,229 13,393
--------- ---------
Total ............................... $ 80,091 $ 59,981
========= =========
5. Long-Term Debt
Long-term debt consists of the following (in thousands):
September 25, December 26,
1999 1998
--------- ---------
(Unaudited)
1997 Credit Agreement:
Term A Loan $ 153,062 $ 55,000
Revolving Credit Facility 19,350 --
Term Loan 244,875 246,750
6% Convertible Subordinated Notes due 2004 50,000 --
8 7/8% Senior Notes due 2004 150,000 150,000
9% Senior Subordinated Notes due 2003 360,000 360,000
--------- ---------
977,287 811,750
Less current maturities (17,031) (3,875)
--------- ---------
Total long-term debt $ 960,256 $ 807,875
========= =========
10
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Long-Term Debt (continued)
On July 21, 1997, we completed a refinancing of our senior indebtedness,
which included:
o the issuance of $150.0 million principal amount of 8 7/8% senior
notes due July 15, 2004,
o a $150.0 million senior secured term loan due September 15, 2003
(the "Term Loan"), and
o senior secured credit facilities of $170.0 million comprised of:
o $115.0 million revolving credit facility (the "Revolving
Credit Facility") and
o $55.0 million term loan facility (the "Term A Loan").
In connection with the 1999 acquisitions (see Note 2), we increased our
indebtedness by:
o $100.0 million under the Term A Loan for the Baby Magic acquisition,
o $72.0 million under the Revolving Credit Facility and
o $50.0 million by issuing the Convertible Notes for the Diaper Genie
acquisition.
In connection with the 1998 acquisitions (see Note 2), we increased our
indebtedness by:
o $100.0 million under the Term Loan for the PCH acquisition,
o $10.4 million under the Revolving Credit Facility and
o $0.5 million by issuing a note for the acquisitions of Carewell and
Binky.
The Term Loan provides for quarterly repayment of principal of $625,000
from March 15, 1998 through June 15, 2003. The final payment of $235.5 million
is due on September 15, 2003.
Principal repayments on the Term A Loan, are:
o $3.9 million in fiscal 1999,
o $21.3 million in fiscal 2000,
o $42.6 million in fiscal 2001,
o $56.2 million in fiscal 2002, and
o $31.0 million in fiscal 2003.
The Revolving Credit Facility matures on June 15, 2003. The amounts we are
able to borrow under this facility decrease by:
o $5.0 million on December 15, 2000 and June 15, 2001,
o $7.0 million on December 15, 2001 and June 15, 2002, and
o $8.0 million on December 15, 2002 and June 15, 2003.
We periodically use financial instruments to manage the impact of interest
rate changes on our variable rate debt. At September 25, 1999 our total
indebtedness consisted of $560.0 million in fixed rate debt and $417.3 million
in variable rate debt. In July 1998, we entered into an interest rate swap
agreement, which effectively fixed the LIBOR rate on $100.0 million of our
variable rate debt at 5.455%. This swap agreement is for a four-year period and
may be cancelled by the other party after July 23, 2000 upon two days written
notice to us. Based on our interest rate exposure at September 25, 1999, a 1%
increase in interest rates would result in an estimated $3.2 million of
additional interest expense on an annualized basis.
11
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Long-Term Debt (continued)
The interest rate on our Term Loan, Term A Loan, and Revolving Credit
facility varies over time depending on short term interest rates. At September
25, 1999 and September 26, 1998, the weighted average interest rate on our
floating rate debt was 7.08% and 7.14%, respectively. The weighted average
interest rate on our floating rate debt for the quarters ended September 25,
1999 and September 26, 1998 was 6.79% and 7.15%, respectively. We also pay fees
equal to three-eighths of 1% on the unused portion of the Revolving Credit
Facility. At September 25, 1999, we had $94.2 million of unused borrowings
available to us under the Revolving Credit Facility.
6. Business Segments
We are organized in three divisions:
Our U.S. Personal Products Division includes Infant Care and Feminine Care
products sold in the United States. The Infant Care product category includes
the following brands:
o Playtex disposable nurser system, cups and reusable hard bottles
o Wet Ones hand and face towelettes
o Baby Magic bath, oil, lotion and powders
o Binky pacifiers
o Mr. Bubble children's bubble bath
o Chubs baby wipes
o Diaparene infant care products, and
o Diaper Genie diaper disposal system.
The Feminine Care product category includes a wide range of plastic and
cardboard applicator tampons marketed under such brand names as Playtex: Gentle
Glide, Silk Glide and Slimfits.
Our U.S. Consumer Products Division includes Sun Care, Household Products,
and Personal Grooming products sold in the United States.
Sun Care Household Products
-------- ------------------
o Banana Boat o Playtex Gloves
o BioSun o Woolite rug and upholstery cleaning products
Personal Grooming
-----------------
o Binaca breath spray and drops
o Ogilvie at-home permanents
o Tek toothbrushes
o Dentax oral care products
o Better Off depilatories
o Tussy deodorant
o Dorothy Gray skin care products
o Jhirmack hair care products (through May 12, 1999)
Our International and Other Division includes:
o export sales
o sales in Puerto Rico
o results from our Canadian subsidiary
o sales of private label tampons
We evaluate division performance based on their product contribution
before allocating any general corporate overhead costs. Product contribution is
defined as gross profit less advertising and sales promotion expenses. All other
operating expenses are managed at a corporate level and are not used by our
management to evaluate the results of the divisions. We do not look at assets,
amortization, capital expenditures, or interest income and interest expense in
assessing division performance.
12
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Business Segments (continued)
The results of our divisions for the three and nine months ended September
25, 1999 and September 26, 1998 are as follows (unaudited, dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
September 25, 1999 September 26, 1998
--------------------- ---------------------
Net Product Net Product
Sales Contrib. Sales Contrib.
-------- ------- -------- --------
<S> <C> <C> <C> <C>
U.S. Personal Products .............. $133,986 $ 54,023 $110,636 $ 48,397
U.S. Consumer Products .............. 32,607 7,396 34,797 8,749
International and Other ............. 21,333 7,414 17,164 5,498
Unallocated charges (1) ............. -- (1,297) -- (1,645)
-------- ------ -------- ------
Total consolidated ............. $187,926 67,536 $162,597 60,999
======== ========
Reconciliation to operating earnings:
- -------------------------------------
Selling, distribution and research .. 21,036 19,064
Administrative ...................... 6,501 5,831
Amortization of intangibles ......... 5,593 4,333
-------- --------
Operating earnings ............. $ 34,406 $ 31,771
======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------------------
September 25, 1999 September 26, 1998
--------------------- ---------------------
Net Product Net Product
Sales Contrib. Sales Contrib.
-------- ------- -------- --------
<S> <C> <C> <C> <C>
U.S. Personal Products .............. $ 357,068 $ 144,741 $ 294,063 $ 120,531
U.S. Consumer Products .............. 170,170 54,017 161,905 55,003
International and Other ............. 60,335 18,028 56,878 17,402
Unallocated charges (1) ............. -- (5,159) -- (5,267)
--------- --------- --------- ---------
Total consolidated ............. $ 587,573 211,627 $ 512,846 187,669
========= =========
Reconciliation to operating earnings:
- -------------------------------------
Selling, distribution and research .. 60,508 53,838
Administrative ...................... 19,768 17,295
Amortization of intangibles ......... 15,487 12,648
--------- ---------
Operating earnings ............. $ 115,864 $ 103,888
========= =========
</TABLE>
- ---------
(1) Includes expenses such as business license taxes and product liability
insurance that are included in our reported consolidated gross margin, but
not included in the evaluation of division performance.
7. Contingent Liabilities
In our opinion, there are no claims, commitments, guarantees or litigation
pending which would materially and negatively impact our financial results.
13
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with:
o the financial statements and condensed notes included in this report
and
o audited consolidated financial statements and notes to consolidated
financial statements included in our report on Form 10-K for the
year ended December 26, 1998.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
This document includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future results. When we use words in this document such as "anticipates,"
"intends," "plans," "believes," "estimates," "expects," and similar expressions
we do so to identify forward-looking statements. Our actual results could differ
materially from those anticipated in these forward-looking statements. These
forward-looking statements are affected by risks, uncertainties, and assumptions
that we make, including, among other things:
o price and product changes,
o promotional activity by competitors,
o the loss of a significant customer,
o capacity limitations,
o the difficulties of integrating acquisitions,
o issues related to the year 2000,
o adverse publicity and product liability claims,
o our level of debt,
o future cash flows, and
o dependence on key employees.
We have no obligation to publicly update or revise any forward-looking
statement that we make. Further, you should keep in mind that any
forward-looking statement made by us in this document, or elsewhere, speaks only
as of the date on which we make it. New risks and uncertainties come up from
time to time, and it's impossible for us to predict these events or how they may
affect us. In light of these risks and uncertainties, you should keep in mind
that any forward-looking statement made in this report or elsewhere might not
occur.
Trademarks
We have proprietary rights to a number of trademarks important to our
businesses, such as: Baby Magic, Binky, Chubs, CoolStraw, Diaparene, Diaper
Genie, Drop-Ins, Mr. Bubble, Most Like Mother, Natural Action, QuickStraw,
Safe'N Sure, SipEase, Soft Comfort, Wet Ones, Gentle Glide, Silk Glide,
Slimfits, Banana Boat, BioSun, Bite Block, Cool Colorz, Quik Blok, Tan Express,
HandSaver, Binaca, Dentax, Tek, Dorothy Gray, Ogilvie, and Tussy. We also own a
royalty free license in perpetuity to the Playtex and Living trademarks, and to
the Woolite trademark for rug and upholstery cleaning products in the United
States and Canada.
14
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Results of Operations
Three Months Ended September 25, 1999 Compared To
Three Months Ended September 26, 1998
Consolidated Net Sales--Our consolidated net sales increased 16% to $187.9
million for the third quarter of 1999. Excluding the impact of the Diaper Genie
and Baby Magic acquisitions and the divested Jhirmack business, our consolidated
net sales grew by $3.4 million in the third quarter of 1999, or 2%, compared to
the third quarter of 1998.
U.S. Personal Products Division--Net sales for the third quarter of 1999
increased 21% to $134.0 million. Excluding the impact of the Diaper Genie
and Baby Magic acquisitions, the net sales of the division grew by $0.3
million in the third quarter of 1999.
Net sales of our Infant Care products increased 34% to $73.6
million in the third quarter of 1999. Excluding the impact of the
Diaper Genie and Baby Magic acquisitions, our Infant Care net sales
decreased by $4.2 million in the third quarter of 1999, or 8%,
compared to the third quarter of 1998. This decrease is attributable
to competitive pressures in our cups and baby wipes businesses,
capacity constraints in some of our more popular infant feeding
brands and a very strong promotion aided 1998 third quarter. Our
dollar market share in the infant feeding category grew by 0.1
percentage points to 42.5% in the third quarter of 1999. The infant
feeding category grew 5.0% in dollars and the retail consumption of
our products grew 5.1%.
Net sales of our Feminine Care products increased 8% to $60.3
million in the third quarter of 1999. In December 1997, we
successfully launched Gentle Glide Odor Absorbing, a plastic
applicator tampon with an all-natural material which absorbs odors
without the use of fragrance or deodorant. In late 1998, we
incorporated the odor-absorbing feature into our cardboard
applicator line, Silk Glide. These introductions, combined with
general strength in our branded tampon business, increased our
dollar market share 3.5 percentage points in the third quarter of
1999 to 30.5% from 27.0% in the third quarter of 1998. Total retail
consumption for the tampon category, in dollars, grew 4.4% in the
third quarter of 1999 while consumer purchases of our branded
tampons grew 17.8%.
U.S. Consumer Products Division--Net sales for the third quarter of 1999
decreased 6% to $32.6 million. Excluding the impact of the divested
Jhirmack business, our consolidated net sales were basically flat in the
third quarter of 1999 compared to the third quarter of 1998.
Net sales of our Sun Care products increased 9% to $5.3
million in the third quarter of 1999. Our dollar market share of the
sun care category increased 2.3 percentage points to 21.1%. The
market category, in dollars, grew 7.8% and consumer purchases of our
products increased 20.9% compared to the same period in 1998. The
category growth and the increase in consumer purchases of our
products were due largely to high consumer demand for the Banana
Boat product, increased consumer awareness of the need for sunscreen
protection, and favorable weather across the country.
Net sales of Household Products decreased 4% to $15.2 million
in the third quarter of 1999. The shortfall was due primarily to a
decrease in the rug & upholstery cleaning category of 2.7% and
strong Woolite shipments in the third quarter of 1998 due to the
launch of Woolite Stain Solutions.
Net sales of Personal Grooming decreased 14% to $12.1 million
in the third quarter of 1999. Excluding the divested Jhirmack line
net sales increased $0.3 million, or 2%, in the third quarter of
1999 compared to the same quarter in 1998.
15
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
International and Other Division--Net sales in the third quarter of 1999
increased 24% to $21.3 million. The increase was due primarily to a 35%
increase in Canadian net sales. Net sales of Canadian Feminine Care
products, Infant Care products, Sun Care products, and Household products
all registered net sales growth of better than 10% compared to the third
quarter of 1998.
Consolidated Gross Profit--Our consolidated gross profit increased 14% to $109.6
million in the third quarter of 1999. Gross profit as a percent of net sales
(gross margins) decreased 1.0 percentage points, to 58.3% in the third quarter
of 1999. This decline was due primarily to lower overall gross margins for
acquired brands, costs associated with new product launches and extra costs
associated with keeping up with an increase in demand for our most popular
products. The dollar increase in gross profit was due primarily to our higher
net sales.
Consolidated Product Contribution--Our consolidated product contribution
increased 11% to $67.5 million in the third quarter of 1999. The increase was
due primarily to our higher net sales. As a percent of net sales, product
contribution decreased 1.6 percentage points to 35.9% in the third quarter of
1999, driven primarily by lower gross margins and higher advertising and
promotional expenses as a percent of net sales.
U.S. Personal Products Division--Product contribution increased 12% to
$54.0 million in the third quarter of 1999. As a percent of net sales,
product contribution decreased 3.4 percentage points, to 40.3% in the
third quarter of 1999. This decline was due primarily to a change in sales
mix to lower gross margin products as a result of the 1999 acquisitions,
the timing of advertising and promotional expenses, and extra costs
associated with new product launches and keeping up with increased
consumer demand.
U.S. Consumer Products--Product contribution decreased 15% to $7.4 million
in the third quarter of 1999. As a percent of net sales, product
contribution decreased 2.5 percentage points to 22.7% due to the timing of
advertising and promotional expenses.
International and Other--Product contribution increased 35% to $7.4
million in the third quarter of 1999. As a percent of net sales, product
contribution increased 2.8 percentage points to 34.8% due primarily to the
timing of advertising and promotional expenses and higher gross margins,
primarily the result of product mix.
Consolidated Operating Earnings--Our consolidated operating earnings increased
8% to $34.4 million in the third quarter of 1999. The increase in operating
earnings resulted from higher consolidated product contribution and lower
overhead expenses as a percent of net sales.
Consolidated Interest Expense--Our consolidated interest expense increased 15%
to $20.6 million in the third quarter of 1999. This resulted from additional
borrowings to finance the acquisitions of the Diaper Genie and Baby Magic
businesses. The impact of the additional debt was offset, in part, by lower
interest rates in the third quarter of 1999 compared to the third quarter of
1998.
Consolidated Income Taxes--Our consolidated income taxes decreased 3% to $5.8
million in the third quarter of 1999. As a percent of pretax earnings, our
effective tax rate decreased 1.0 percentage point to 42.0% of pretax earnings in
the third quarter of 1999. Our effective tax rate decreases as non-deductible
goodwill amortization becomes a smaller portion of operating earnings.
16
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Nine Months Ended September 25, 1999 Compared To
Nine Months Ended September 26, 1998
Consolidated Net Sales--Our consolidated net sales increased 15% to $587.6
million for the nine months ended September 25, 1999. Excluding the impact of
the 1999 acquisitions and the divested Jhirmack business, our consolidated net
sales grew by $34.8 million in the nine months ended September 25, 1999, or 7%,
compared to the same period in 1998.
U.S. Personal Products Division--Net sales for the nine months ended
September 25, 1999 increased 21% to $357.1 million. Excluding the impact
of the 1999 acquisitions, the net sales of the division grew by $20.9
million for the nine months ended September 25, 1999, or 7%, compared to
the same period in 1998.
Net sales of Infant Care products increased 28% to $194.0
million for the nine months ended September 25, 1999. Excluding the
impact of the 1999 acquisitions, our Infant Care net sales increased
by $0.7 million compared to the comparable period in 1998. Our
infant feeding and soothing products were negatively affected by
competitive pressures in cups and to a lesser extent capacity issues
in some of our more popular infant feeding brands. The infant
feeding category grew 6.0% in dollars versus the nine months ended
September 26, 1998, and the retail consumption of our products grew
7.2% during the same period in 1998.
Net sales of Feminine Care products increased 14% to $163.1
million for the nine months ended September 25, 1999. In December
1997, we successfully launched Gentle Glide Odor Absorbing, a
plastic applicator tampon with an all-natural material which absorbs
odors without the use of fragrance or deodorant. In late 1998, we
incorporated the odor-absorbing feature into our cardboard
applicator line, Silk Glide. These introductions, combined with
strong consumer marketing initiatives and the general strength in
our branded tampon business, increased our dollar market share 2.9
percentage points for the nine months ended September 25, 1999 to
29.7% compared to the same period of 1998. The tampon category, in
dollars, grew 3.9% versus the nine months ended September 26, 1998,
and the retail consumption of our products grew 14.7%.
U.S. Consumer Products Division--Net sales for the nine months ended
September 25, 1999 increased 5% to $170.2 million. Excluding the impact of
the divested Jhirmack business, net sales of the division grew by $13.2
million for the nine months ended September 25, 1999, or 9%, compared to
the same period in 1998.
Net sales of Sun Care products increased 12% to $89.4 million
for the nine months ended September 25, 1999. Our dollar market
share increased 1.9 percentage points to 20.8% for the nine months
ended September 25, 1999. The sun care category, in dollars, grew
12.4% and retail consumption of our products increased 23.9%
compared to the same period in 1998. The category growth and the
growth in our consumption were due largely to high consumer demand
for the Banana Boat product, increased consumer awareness of the
need for sunscreen protection, and favorable weather across the
country.
Net sales of Household Products decreased 4% to $42.2 million
for the nine months ended September 25, 1999. The shortfall was due
primarily to a decrease in the rug & upholstery cleaning category of
1.6% and strong Woolite shipments in the second and third quarters
of 1998 due to the launch of Woolite Stain Solutions.
17
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Net sales of Personal Grooming decreased slightly to $38.5
million for the nine months ended September 25, 1999 as a result of
the sale of the Jhirmack business. Personal Grooming net sales
excluding the divested Jhirmack line increased $4.9 million, or 16%,
for the nine months ended September 25, 1999 compared to the same
period in 1998.
International and Other Division--Net sales for the nine months ended
September 25, 1999 increased 6% to $60.3 million. The increase was due
primarily to 15% growth in our Canadian operations and higher net sales
associated with our private label tampon business.
Consolidated Gross Profit--Our consolidated gross profit increased 12% to $340.8
million for the nine months ended September 25, 1999. As a percent of net sales,
gross profit decreased 1.1 percentage points, to 58.0% for the nine months ended
September 25, 1999. The lower gross profit as a percent of net sales was due
primarily to lower overall gross margins for acquired brands, costs associated
with new product launches and costs associated with keeping up with increased
demand for our more popular products. The dollar increase in gross profit was
due primarily to our higher net sales.
Consolidated Product Contribution--Our consolidated product contribution
increased 13% to $211.6 million for the nine months ended September 25, 1999.
The increase was due primarily to our higher net sales. As a percent of net
sales, product contribution decreased to 36.0% for the nine months ended
September 25, 1999 from 36.6% in the same period of 1998. The decrease was
primarily the result of lower gross margins offset, in part, by lower overall
advertising and sales promotion expenses as a percentage of net sales.
U.S. Personal Products Division--Product contribution increased 20% to
$144.7 million for the nine months ended September 25, 1999. As a percent
of net sales, product contribution decreased 0.5 percentage points to
40.5% for the nine months ended September 25, 1999. The increase in
product contribution was due primarily to higher net sales. As a percent
of net sales, product contribution decreased due to a change in sales mix
to lower gross margin products primarily associated with the 1999
acquisitions and extra costs associated with new product launches and
keeping up with increased consumer demand.
U.S. Consumer Products--Product contribution decreased 2% to $54.0 million
for the nine months ended September 25, 1999. As a percent of net sales,
product contribution decreased 2.3 percentage points to 31.7% for the nine
months ended September 25, 1999. This is due primarily to a change in
sales mix to lower gross margin products and higher advertising and
promotional expenses as a percent of net sales.
International and Other--Product contribution increased 4% to $18.0
million for the nine months ended September 25, 1999. As a percent of net
sales, product contribution decreased 0.7 percentage points to 29.9% for
the nine months ended September 25, 1999. This is due primarily to higher
spending as a percent of net sales offset, in part, by improved gross
margins.
Consolidated Operating Earnings--Our consolidated operating earnings increased
12% to $115.9 million for the nine months ended September 25, 1999. The increase
in operating earnings resulted primarily from higher consolidated product
contribution.
Consolidated Interest Expense--Our consolidated interest expense for the nine
months ended September 25, 1999, increased 8% to $58.3 million. This resulted
from additional borrowings to finance the acquisitions of the Diaper Genie and
Baby Magic businesses. The impact of the additional debt was offset, in part, by
lower interest rates in the first nine months of 1999 compared to the same
period in 1998.
18
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Consolidated Income Taxes--Our consolidated income taxes increased 14% to $24.3
million for the nine months ended September 25, 1999. As a percent of pretax
earnings, our effective tax rate decreased 0.8 percentage points to 42.2% of
pretax earnings for the nine months ended September 25, 1999. Our effective tax
rate decreases as non-deductible goodwill amortization becomes a smaller portion
of operating earnings.
Financial Condition and Liquidity
At September 25, 1999, our working capital (current assets net of current
liabilities) decreased to $68.1 million from $78.5 million at December 26, 1998.
The decrease resulted primarily from:
o An increase of $13.2 million in debt payments due within the next 12
months.
o an increase of $20.1 million in accrued expenses, due primarily to
anticipated returns associated with the seasonal nature of our Sun
Care sales, the timing of interest payments and higher accrued
interest on our debt due to additional borrowings to pay for the
1999 acquisitions.
These increases in current liabilities were partially offset by increases in
accounts receivables of $13.0 million due to higher sales and inventory of $8.1
million due primarily to growth associated with the 1999 acquisitions. All other
working capital components increased $1.8 million.
Our product lines, with the exception of Sun Care, generally have not been
seasonal. However, sun care product sales are highly seasonal, with 80 to 90
percent of our sales to retailers occurring from December through June. This
seasonality requires increased inventory from December to June to support the
selling season. We experience higher receivables from March to September due to
extended credit terms on Sun Care sales.
Capital expenditures for equipment and facility improvements were $18.4
million for the nine months ended September 25, 1999. These expenditures were
used primarily to expand capacity, upgrade production equipment and maintain our
facilities. Capital expenditures for 1999 are expected to be approximately $24.0
million.
At September 25, 1999, long-term debt (including current portion but
excluding obligations due to related party) was $977.3 million compared to
$811.8 million at December 26, 1998. The increase resulted from additional
borrowings to buy Diaper Genie and Baby Magic. We made our first payment on the
principle balance of the Term A Loan on September 15, 1999 and have quarterly
principle repayment obligations through the second quarter of the year 2003. At
September 25, 1999, we had $94.2 million of unused credit borrowings under our
Revolving Credit Facility available to us.
Terms of the Revolving Credit Facility, Term A Loan and the Term Loan
require us to meet certain financial tests and also include conditions or
restrictions on:
o new indebtedness and liens,
o major acquisitions or mergers,
o capital expenditures and asset sales, and
o dividends and other distributions.
The 9% senior subordinated notes and the 8 7/8% senior notes also contain
similar restrictions and requirements.
19
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
We believe that we will generate sufficient cash flow from operations for:
o working capital,
o capital expenditures,
o interest payments on all of our debt, and
o scheduled principal payments under the Term Loan, Term A Loan and
the Revolving Credit Facility.
However, we do 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 or the $150 million principal payment due in 2004 on the 8
7/8% senior notes. Accordingly, we will have to either refinance our obligations
or raise equity capital to repay the principal amounts of the notes.
Historically, our cash flows from operations and refinancing activities have
enabled us to meet all of our obligations. However, we can't guarantee you that
our operating results will continue to be sufficient or that future borrowing
facilities will be available for the payment or refinancing of our debt on
economically attractive terms.
During 1999 we acquired two businesses. The Diaper Genie business was
acquired on January 29, 1999 for a total purchase price of approximately $122.0
million. We paid cash of $72.0 million, which we borrowed from our Revolving
Credit Facility and issued to the sellers a $50.0 million 6% convertible note.
The Baby Magic business was acquired on June 30, 1999 for a total purchase price
of $90.0 million in cash, which we obtained by increasing our Term A Loan by
$100.0 million.
We will continue to consider the acquisition of other companies or
businesses that may require us to seek additional debt or equity financing. As
we cannot assure you that such financing will be available to us, our ability to
expand our operations through acquisitions may be restricted. However, we
believe that capital will be available to achieve our acquisition objectives.
Inflation in the United States and Canada has not had a significant effect
on our operations during recent periods.
Change in Estimates
Beginning in 1999, we revised our estimated asset lives used to compute
depreciation on most of our buildings from 30 years to 40 years and on a portion
of our building improvements from 10 and 15 years to 20 years. We also revised
the estimated asset lives of our manufacturing equipment and land improvements.
These revisions were made on a prospective basis to more properly reflect how
long the assets usually last. For the nine months ended September 25, 1999, the
change had the effect of increasing our net earnings by $1.2 million or $.02 per
share on a diluted basis.
Recently Issued Accounting Standards
In June of 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" which is
effective beginning in fiscal year 2001. The Statement requires the recognition
of certain derivative instruments on the balance sheet, with resulting
transition adjustments reported in other comprehensive earnings or net earnings
as the effect of a change in accounting principle, as appropriate. We are
currently evaluating the effect this Statement will have on our financial
position and results from operations.
20
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Year 2000
Historically, certain computer programs were written using two digits
rather than four to define the applicable year. Accordingly, our software may
recognize a date using "00" as 1900 rather than the year 2000, which could
result in computer system failures or miscalculations, commonly referred to as
the Year 2000 ("Y2K") issue. The Y2K issue can arise at any point in our supply,
manufacturing, processing, distribution, and financial chains. Incomplete or
untimely resolution of the Y2K issue by our Company, key suppliers, customers,
and other parties could result in a temporary inability to process transactions
or engage in normal manufacturing or other business activities. Such inabilities
could potentially have a material adverse effect on our results of operations,
financial condition and cash flows.
Our technical staff, with the assistance of outside consultants, is
addressing the Y2K issue. We have inventoried and assessed all date-sensitive
information and transaction processing computer systems and determined that a
portion of our information technology must be modified or replaced. We have
identified the critical software and hardware installations that need to be
replaced or modified and have developed a four-tiered program (the "Y2K
Project") to deal with the Y2K issue. These tiers include:
o network and hardware/software infrastructure,
o internally developed and purchased application software,
o critical manufacturing and other operating systems including those
that use embedded technology such as micro-controllers and
micro-processors, and
o external relationships including customers, suppliers and service
providers.
We believe the entire Y2K project will be completed prior to the year
2000. However, problems may come up which could limit our ability to complete
our systems modifications correctly, on time and/or within our cost estimates.
In addition, we cannot guarantee that our customers, suppliers and service
providers on whom we rely will resolve their Y2K issues accurately, thoroughly
and on time. Failure to complete the Y2K Project by the year 2000 could have a
material adverse effect on our results of operations, financial condition and
cash flows.
At September 25, 1999, we have completed, as planned, necessary
modifications to:
o our primary network and hardware/software infrastructure,
o our core transaction processing and financial systems and
o remediation of our embedded chip technology utilized in
manufacturing and other systems.
In May, we successfully performed our first major off-site integrated test. The
results of the test indicated that our transaction processing and financial
systems were able to operate successfully with a limited set of test data in a
controlled environment with system dates set to 2000. In July, we performed our
second major off-site integrated test with a more robust test scenario and
determined that our tested systems operated successfully. Additional internal
testing of critical and non-critical hardware and software systems has been
conducted and will continue where appropriate throughout the remainder of the
year. Our remediation and testing efforts as related to embedded chip technology
such as micro-controllers and micro-processors utilized in manufacturing or
other operating systems was concluded during the current quarter. Operational
contingency plans are being formulated for each of our manufacturing and
distribution locations. With respect to our significant suppliers, customers and
service providers, we have, to the best of our ability, made readiness
assessments and, where appropriate, are putting contingency plans in place. We
cannot guarantee you that we will be able to predict adequately Y2K problems
experienced by others or our ability to address these potential issues on a
timely basis or to develop adequate contingency plans related to them.
21
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The total cost associated with required modifications of hardware and
software is not expected to be material to our financial position. We anticipate
that our total cost associated with the Y2K Project will be approximately $3.9
million, including $0.6 million spent in 1997, $2.2 million spent in 1998 and
$1.1 million estimated to be spent in 1999. Costs related to addressing the Y2K
issues are either expensed as incurred or capitalized as appropriate. All Y2K
related costs have been and will be funded from operating cash flows.
The failure to properly anticipate and correct a material Y2K problem
could result in an interruption in, or a failure of, certain normal business
activities or operations. Such failures could materially and adversely affect
our results of operations, financial condition and cash flows. Due to the
general uncertainty inherent in the Y2K problem, resulting in part from the
uncertainty of the Y2K readiness of others, we are unable to determine at this
time whether the consequences of Y2K failures will have a material impact on our
results of operations, financial condition or cash flows. The Y2K Project has
significantly reduced our level of uncertainty about the Y2K problem. We believe
that, with the implementation of new business systems and completion of the Y2K
Project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
We believe our efforts to address the Y2K issue will be successful in
avoiding any material adverse effect on our results of operations, financial
condition and cash flows. You and other interested third parties should
recognize that our failure to resolve Y2K issues on a timely basis would, in a
"most reasonably likely worst case scenario," significantly limit our ability to
manufacture and distribute our products. Further, such Y2K failures could limit
our ability to process our daily business transactions for a period of time,
especially if such failure is coupled with third party or infrastructure
failures. Adverse effects on us could include:
o business disruptions,
o increased costs,
o loss of business and other similar risks, and
o litigation.
We believe that the contingency plans developed prior to the year 2000 will
address the most likely risks related to the Y2K problem.
This discussion regarding Y2K Project timing, effectiveness,
implementation and cost is based on our current evaluation using available
information. Factors that might cause material changes include, but are not
limited to, the availability of key Y2K personnel, the readiness of third
parties, and our ability to respond to unforeseen Y2K complications.
22
<PAGE>
PLAYTEX PRODUCTS, INC.
PART II - OTHER INFORMATION (Continued)
Item 1. Legal Proceedings
The following should be read in conjunction with Part 1, Item 3., "Legal
Proceedings" in our Annual Report on Form 10-K for the year ended December 26,
1998.
The United States District Court, District of Delaware, decided in the
Company's favor in the patent dispute with Schering-Plough HealthCare Products,
Inc. regarding "sunscreen with disappearing color indicator." The
Schering-Plough patent was declared invalid, and an appeal is pending. In a
related matter, IPA, an investment partnership which owns patents, recently
brought an action against the Company in Federal Court in Texas alleging that
the Banana Boat colored sunscreen products infringes it's patents. The
allegations are currently under review.
As of the end of September 1999, there were approximately 9 pending toxic
shock syndrome 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:
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
b. Reports on Form 8-K
On July 15, 1999, we filed a Current Report on Form 8-K with the
Securities and Exchange Commission pursuant to Items 2 and 5 of that Form.
Pursuant to Item 2, we filed the Asset Sale Agreement, dated as of May 13, 1999,
concerning our acquisition from the Colgate-Palmolive Company of the Baby Magic
brand of infant-related bath, lotion, shampoo, oil and powder products for the
U.S., Canada and Puerto Rico markets. Pursuant to Item 5, we filed a copy of our
press release regarding the Baby Magic acquisition.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 8, 1999 By: /S/ MICHAEL R. GALLAGHER
---------------- -------------------------------------------
Michael R. Gallagher
Chief Executive Officer
(Principal Executive Officer)
Date: November 8, 1999 By: /S/ MICHAEL F. GOSS
---------------- -------------------------------------------
Michael F. Goss
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
24
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
11 Statement re Computation of Earnings Per Share
27 Financial Data Schedule
25
Exhibit 11
Playtex Products, Inc.
Computation of Earnings Per Share
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- ---------------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic Earnings Per Common Share
- -------------------------------
Net Earnings Available to Common Stockholders ............ $ 8,029 $ 7,923 $33,265 $28,337
======= ======= ======= =======
Weighted Average Common Shares Outstanding ............... 60,514 60,326 60,458 59,196
======= ======= ======= =======
Net Earning Per Common Share ......................... $ 0.13 $ 0.13 $ 0.55 $ 0.48
======= ======= ======= =======
Diluted Earnings Per Common Share
- ---------------------------------
Net Earnings Available to Common Stockholders ............ $ 8,029 $ 7,923 $33,265 $28,337
Adjustment to Net Earnings (1) ........................... -- -- 788 --
------- ------- ------- -------
Adjusted Net Earnings Available to Common Stockholders $ 8,029 $ 7,923 $34,053 $28,337
======= ======= ======= =======
Weighted Average Common Shares Outstanding ............... 60,514 60,326 60,458 59,196
Assumed Dilutive Effect of Stock Options (2) ............. 1,009 902 1,087 921
Assumed Conversion of the Convertible Notes (1) .......... -- -- 1,425 --
------- ------- ------- -------
Weighted Average Common Shares Outstanding - Diluted . 61,523 61,228 62,970 60,117
======= ======= ======= =======
Net Earning Per Common Share - Diluted ............... $ 0.13 $ 0.13 $ 0.54 $ 0.47
======= ======= ======= =======
</TABLE>
(1) Based on the If-Converted Method for Convertible Securities.
(2) Based on the Treasury Stock Method.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
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0
0
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</TABLE>
