================================================================================
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 30, 2000
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 6, 2000 60,947,599 shares of Playtex Products, Inc. common
stock, par value $.01 per share, were outstanding.
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<PAGE>
PLAYTEX PRODUCTS, INC
INDEX
PART I - FINANCIAL INFORMATION
PAGE
-----
Item 1. Condensed Consolidated Financial Statements.................... 3-15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 16-23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 24
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits................................................... 24
(b) Reports on Form 8-K........................................ 24
Item 7A. Quantitative and Qualitative Disclosure about Market Risk...... 24
Signatures..................................................... 25
Exhibit Index.................................................. 26
2
<PAGE>
PLAYTEX PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 25,
2000 1999
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash ............................................................... $ 18,964 $ 7,526
Receivables, less allowance for doubtful accounts .................. 116,298 130,256
Inventories ........................................................ 67,965 85,496
Deferred income taxes .............................................. 12,882 14,937
Other current assets ............................................... 1,849 5,639
----------- -----------
Total current assets ............................................ 217,958 243,854
Net property, plant and equipment ..................................... 120,960 107,193
Intangible assets, net ................................................ 680,685 697,214
Deferred financing costs .............................................. 12,718 15,530
Due from related party ................................................ 80,017 80,017
Other noncurrent assets ............................................... 4,247 4,844
----------- -----------
Total assets .................................................... $ 1,116,585 $ 1,148,652
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 32,003 $ 45,107
Accrued expenses ................................................... 71,567 73,994
Income taxes payable ............................................... 7,254 8,934
Current maturities of long-term debt ............................... 31,906 23,813
----------- -----------
Total current liabilities ....................................... 142,730 151,848
Long-term debt ........................................................ 899,656 964,063
Due to related party .................................................. 78,386 78,386
Other noncurrent liabilities .......................................... 11,710 12,267
Deferred income taxes ................................................. 42,191 36,956
----------- -----------
Total liabilities ............................................... 1,174,673 1,243,520
----------- -----------
Stockholders' equity:
Common stock, $0.01 par value, authorized 100,000,000 shares, issued
60,947,599 shares at September 30, 2000 and
60,562,327 shares at December 25, 1999 ........................... 609 605
Additional paid-in capital ......................................... 523,125 519,811
Retained earnings (deficit) ........................................ (578,995) (612,764)
Foreign currency translation adjustment ............................ (2,827) (2,520)
----------- -----------
Total stockholders' equity ...................................... (58,088) (94,868)
----------- -----------
Total liabilities and stockholders' equity ...................... $ 1,116,585 $ 1,148,652
=========== ===========
</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 30, September 25,
2000 1999
----------- -----------
<S> <C> <C>
Net sales ............................................................. $ 188,143 $ 187,926
Cost of sales ......................................................... 78,797 78,329
----------- -----------
Gross profit ....................................................... 109,346 109,597
Operating expenses:
Advertising and sales promotion .................................... 42,707 42,061
Selling, distribution and research ................................. 23,889 21,036
Administrative ..................................................... 7,104 6,501
Amortization of intangibles ........................................ 5,608 5,593
----------- -----------
Total operating expenses ........................................ 79,308 75,191
Operating earnings ............................................ 30,038 34,406
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 ............... 21,208 20,560
----------- -----------
Earnings before income taxes .................................. 8,830 13,846
Income taxes .......................................................... 4,370 5,817
----------- -----------
Net earnings .................................................. $ 4,460 $ 8,029
=========== ===========
Earnings per share:
Basic .............................................................. $ 0.07 $ 0.13
=========== ===========
Diluted ............................................................ $ 0.07 $ 0.13
=========== ===========
Weighted average shares outstanding:
Basic .............................................................. 60,872 60,514
=========== ===========
Diluted ............................................................ 61,364 61,523
=========== ===========
</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 30, September 25,
2000 1999
----------- -----------
<S> <C> <C>
Net sales ............................................................. $ 641,239 $ 587,573
Cost of sales ......................................................... 270,569 246,767
----------- -----------
Gross profit ....................................................... 370,670 340,806
Operating expenses:
Advertising and sales promotion .................................... 139,420 129,179
Selling, distribution and research ................................. 69,350 60,508
Administrative ..................................................... 21,556 19,768
Amortization of intangibles ........................................ 16,808 15,487
----------- -----------
Total operating expenses ........................................ 247,134 224,942
Operating earnings ............................................ 123,536 115,864
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 ............... 64,474 58,327
----------- -----------
Earnings before income taxes .................................. 59,062 57,537
Income taxes .......................................................... 25,293 24,272
----------- -----------
Net earnings .................................................. $ 33,769 $ 33,265
=========== ===========
Earnings per share:
Basic .............................................................. $ 0.56 $ 0.55
=========== ===========
Diluted ............................................................ $ 0.55 $ 0.54
=========== ===========
Weighted average shares outstanding:
Basic .............................................................. 60,781 60,458
=========== ===========
Diluted ............................................................ 63,092 62,970
=========== ===========
</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
Common Additional Retained Currency
Shares Common Paid-In Earnings Translation
Outstanding Stock Capital (Deficit) Adjustment Total
----------- --------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 25, 1999 ......... 60,562 $ 605 $ 519,811 $(612,764) $ (2,520) $ (94,868)
Net earnings ....................... -- -- -- 33,769 -- 33,769
Foreign currency translation
adjustment ....................... -- -- -- -- (307) (307)
---------
Comprehensive earnings ......... 33,462
Stock issued to employees exercising
stock options .................... 386 4 3,314 -- -- 3,318
--------- --------- --------- --------- --------- ---------
Balance, September 30, 2000 .... 60,948 $ 609 $ 523,125 $(578,995) $ (2,827) $ (58,088)
====== ========= ========= ========= ========= =========
</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 30, September 25,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operations:
Net earnings ....................................................... $ 33,769 $ 33,265
Non-cash items included in earnings:
Amortization of intangibles ...................................... 16,808 15,487
Amortization of deferred financing costs ......................... 2,812 2,487
Depreciation ..................................................... 8,476 7,234
Deferred income taxes ............................................ 5,789 7,357
Other, net ....................................................... 428 497
Net decrease (increase) in working capital accounts,
net of acquisitions .............................................. 19,007 (1,544)
----------- -----------
Net cash flows from operations ................................ 87,089 64,783
Cash flows used for investing activities:
Purchases of property, plant and equipment ......................... (22,376) (18,363)
Purchase of patent rights .......................................... (279) --
Businesses acquired, net ........................................... -- (210,108)
----------- -----------
Net cash flows used for investing activities .................. (22,655) (228,471)
Cash flows (used for) provided by financing activities:
Net (repayment) borrowings under credit facilities ................. (32,500) 19,350
Long-term debt borrowings .......................................... -- 150,000
Long-term debt repayments .......................................... (23,814) (3,813)
Payment of financing costs ......................................... -- (2,481)
Issuance of shares of common stock ................................. 3,318 1,260
----------- -----------
Net cash flows (used for) provided by financing activities .... (52,996) 164,316
Increase in cash ...................................................... 11,438 628
Cash at beginning of period ........................................... 7,526 6,871
----------- -----------
Cash at end of period ................................................. $ 18,964 $ 7,499
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the periods for:
Interest .......................................................... $ 57,086 $ 49,643
Income taxes, net of refunds ...................................... $ 19,688 $ 16,723
</TABLE>
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 periods ended September 30, 2000 are not necessarily
indicative of the results that you may expect for the full year.
Our results for the third quarter of 2000 are for the 13-week period ended
September 30, 2000 and our results for the third quarter of 1999 are for the
13-week period ended September 25, 1999. Our results for the nine month period
ended September 30, 2000 are for a 40-week period, whereas the comparable period
in 1999 is for a 39-week period. Our fiscal year end is on the last Saturday
nearest to December 31 and, as a result, a fifty-third week is added every 6 or
7 years. Our fiscal year ending December 30, 2000 includes the extra week, or 53
weeks.
We presume you have access to the audited financial statements contained
in our Annual Report on Form 10-K for the year ended December 25, 1999. 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
1999 Acquisitions
On January 29, 1999, we acquired the Diaper Genie business, the leading
diaper disposal system in the U.S., for $72.0 million in cash and the issuance
of $50.0 million of Convertible Notes (see Note 5). We borrowed the cash portion
of the purchase price from our revolving credit facility. The 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.
On June 30, 1999, we acquired the Baby Magic brand of infant-related bath,
lotion, shampoo, oil and powder products 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.
The acquisitions of Baby Magic and Diaper Genie were accounted for as
purchases, and our consolidated results of operations included the operating
results of these businesses from the dates of acquisition. In addition, these
acquisitions added $113.7 million to goodwill and $75.1 million to trademarks in
1999.
1998 Acquisition
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 from our Term Loan 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
pacifier business ("Binky") for approximately $1.2 million in cash and $0.5
million in notes, which were later repaid in 1998. The acquisitions of PCH,
Carewell, and Binky were accounted for as purchases.
8
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Acquisitions (continued)
In connection with the 1999 and 1998 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 30, 2000 (unaudited, in
thousands):
Reserved Amount Balance
Amount Spent Remaining
------ ----- ---------
Exit costs................................ $3,653 $2,773 $ 880
Involuntary terminations.................. 3,116 2,745 371
Relocation costs.......................... 135 135 --
------ ------ ------
Total.................................. $6,904 $5,653 $1,251
====== ====== ======
The remaining balance is primarily for building lease commitments and severance
costs. The amount remaining for involuntary terminations at September 30, 2000,
represents severance payments to be made through the first quarter of 2002.
The following pro forma results of operations for the nine months ended
September 25, 1999, assumes the acquisitions of Diaper Genie and Baby Magic had
occurred on December 27, 1998. 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 27, 1998.
Nine Months
Ended
September 25,
(unaudited, in thousands, except per share data) 1999
----------
Net sales...................................................... $ 617,172
Net earnings................................................... $ 35,167
Earnings per share:
Basic....................................................... $ .58
Diluted..................................................... $ .57
Weighted average shares outstanding:
Basic....................................................... 60,458
Diluted..................................................... 64,156
Our results for the three and nine months ended September 30, 2000 include the
operating results of the Diaper Genie and Baby Magic acquisitions.
1999 Divestiture
On May 12, 1999, we sold for cash and future guaranteed minimum royalty
payments, our U.S. and International Jhirmack hair care business. We retained
the Canadian Jhirmack business. No gain or loss resulted from this transaction.
9
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Comprehensive Earnings
Foreign currency translation adjustment is the only reconciling item
between net earnings and comprehensive earnings. For the three and nine months
ended September 30, 2000 and September 25, 1999, there were no material
differences between net earnings and comprehensive earnings. For the three and
nine months ended September 30, 2000 and September 25, 1999, our comprehensive
earnings were (unaudited, in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 25, September 30, September 25,
2000 1999 2000 1999
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net earnings................................ $ 4,460 $ 8,029 $33,769 $ 33,265
Foreign currency translation adjustment..... (234) (34) (307) 266
------- ------- ------- --------
Comprehensive earnings.................... $ 4,226 $ 7,995 $33,462 $ 33,531
======= ======= ======= ========
</TABLE>
4. Balance Sheet Components
<TABLE>
<CAPTION>
September 30, December 25,
The components of certain balance sheet accounts are as follows (in thousands): 2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Receivables ................................................................ $ 118,816 $ 132,548
Less allowance for doubtful accounts ....................................... (2,518) (2,292)
--------- ---------
Net .................................................................... $ 116,298 $ 130,256
========= =========
Inventories:
Raw materials ........................................................... $ 22,581 $ 27,974
Work in process ......................................................... 1,387 532
Finished goods .......................................................... 43,997 56,990
--------- ---------
Total .................................................................. $ 67,965 $ 85,496
========= =========
Net property, plant and equipment:
Land .................................................................... $ 2,376 $ 2,376
Buildings ............................................................... 37,809 37,165
Machinery and equipment ................................................. 175,722 154,848
--------- ---------
215,907 194,389
Less accumulated depreciation ........................................... (94,947) (87,196)
--------- ---------
Net .................................................................... $ 120,960 $ 107,193
========= =========
Accrued expenses:
Advertising and sales promotion ......................................... $ 15,412 $ 29,011
Employee compensation and benefits ...................................... 13,851 13,894
Interest ................................................................ 15,654 11,078
Insurance ............................................................... 3,294 3,189
Other ................................................................... 23,356 16,822
--------- ---------
Total .................................................................. $ 71,567 $ 73,994
========= =========
</TABLE>
10
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following (in thousands): September 30, December 25,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
1997 Credit Agreement:
Term A Loan ........................................................ $ 129,812 $ 151,126
Revolving Credit Facility .......................................... -- 32,500
Term Loan .......................................................... 241,750 244,250
6% Convertible Subordinated Notes due 2004 ............................ 50,000 50,000
8 7/8% Senior Notes due 2004 .......................................... 150,000 150,000
9% Senior Subordinated Notes due 2003 ................................. 360,000 360,000
----------- -----------
931,562 987,876
Less current maturities ............................................ (31,906) (23,813)
----------- -----------
Total long-term debt ............................................. $ 899,656 $ 964,063
=========== ===========
</TABLE>
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 (the "Senior Credit Facilities") of
$170.0 million comprised of:
>> $115.0 million revolving credit facility (the "Revolving
Credit Facility") and
>> $55.0 million term loan facility (the "Term A Loan").
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 draw down on the Revolving Credit Facility and
o $0.5 million by issuing a note for the acquisitions of Carewell and
Binky. This note was repaid in July 1998.
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 draw down on the Revolving Credit Facility and
o $50.0 million by issuing the Convertible Notes for the Diaper Genie
acquisition.
The Term Loan provides for quarterly repayment of principal of $625,000
through June 15, 2003. The final payment of $235.5 million is due on September
15, 2003.
Scheduled principal repayments on the Term A Loan are made quarterly, and
amount to:
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.
11
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Long-Term Debt (continued)
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 30, 2000 our total
indebtedness consisted of $560.0 million in fixed rate debt and $371.6 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%. Effective July 23, 2000, this swap agreement was
cancelled by the other party. Based on our current interest rate exposure, a 1%
increase in interest rates would result in an estimated $3.7 million of
additional interest expense on an annualized basis.
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
30, 2000 and September 25, 1999, the weighted average interest rate on our
floating rate debt was 8.24% and 7.08%, respectively. The weighted average
interest rate on our floating rate debt for the three months ended September 30,
2000 and September 25, 1999 was 7.93% and 6.79%, respectively. We also pay fees
equal to three-eighths of 1% on the unused portion of the Revolving Credit
Facility. At September 30, 2000, we had $113.8 million of unused borrowings
available to us under the Revolving Credit Facility.
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 agreement relating to the Revolving Credit Facility and the Term A Loan
requires us to achieve certain financial coverage ratios. If we fail to do so,
it would result in a covenant default under the agreement. At the end of the
third quarter of fiscal 2000, we were in compliance with these ratio
requirements. However, we are uncertain as to whether we will be able to meet
these ratio requirements at the end of the fourth quarter of fiscal 2000. We are
currently in discussions with our banking group and anticipate amending this
agreement prior to the end of the fourth quarter in order to eliminate the
potential for covenant default. In order to obtain the amendment, we may be
required to pay an amendment fee and to increase the interest rate spread over
LIBOR that we currently pay on the Revolving Credit Facility and Term A Loan.
6. Business Segments
We are organized in three divisions:
Our Personal Products Division includes Infant Care and Feminine Care
products sold in the United States primarily to mass merchandisers, grocery and
drug classes of trade. 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 Magic wipes
o Diaparene infant care products, and
o Diaper Genie diaper disposal system.
12
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Business Segments (continued)
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 Consumer Products Division includes Sun Care, Household Products, and
Personal Grooming products sold in the United States primarily to mass
merchandisers, grocery and drug classes of trade.
Sun Care
o Banana Boat
Household Products
o Playtex Gloves
o Woolite rug and upholstery cleaning products
Personal Grooming
o Binaca breath spray and drops
o Tek toothbrushes
o Better Off depilatories
o Dorothy Gray skin care products
o Ogilvie at-home permanents
o Dentax oral care products
o Tussy deodorant
o Jhirmack hair care products (through May 12, 1999)
Our International and Other Division includes:
o Sales to specialty classes of trade in
the United States
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 consider assets,
amortization, capital expenditures, or interest income and interest expense in
assessing division performance.
The results of our divisions for the three and nine months ended September
30, 2000 and September 25, 1999 are as follows (unaudited, dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
September 30, 2000 September 25, 1999
-------------------- --------------------
Net Product Net Product
Sales Contrib. Sales (1) Contrib.(1)
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Personal Products............................ $126,837 $51,746 $125,764 $49,928
Consumer Products............................ 28,124 2,401 29,711 6,306
International and Other...................... 33,182 12,950 32,451 12,599
Unallocated Charges (2)...................... -- (458) -- (1,297)
-------- ------- -------- -------
Total Consolidated........................ $188,143 66,639 $187,926 67,536
======== ====== ======== ======
Reconciliation to operating earnings:
-------------------------------------
Selling, distribution and research........... 23,889 21,036
Administrative............................... 7,104 6,501
Amortization of intangibles.................. 5,608 5,593
------- -------
Operating earnings........................ $30,038 $34,406
======= =======
</TABLE>
13
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Business Segments (continued)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------
September 30, 2000 September 25, 1999
-------------------- --------------------
Net Product Net Product
Sales Contrib. Sales (1) Contrib.(1)
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Personal Products............................ $371,992 $146,481 $331,626 $130,607
Consumer Products............................ 165,750 48,769 154,151 47,224
International and Other...................... 103,497 40,009 101,796 38,955
Unallocated Charges (2)...................... -- (4,009) -- (5,159)
-------- -------- -------- -------
Total Consolidated........................ $641,239 231,250 $587,573 211,627
======== ======= ======== =======
Reconciliation to operating earnings:
------------------------------------
Selling, distribution and research........... 69,350 60,508
Administrative............................... 21,556 19,768
Amortization of intangibles.................. 16,808 15,487
-------- -------
Operating earnings........................ $123,536 $115,864
======== ========
</TABLE>
-----------
(1) In 2000, our divisional structures were reorganized. The International and
Other Division now includes the U.S specialty classes of trade including:
clubs, convenience stores, telemarketing, e-commerce, military and other
specialty classes of trade. The net sales and product contribution from
the specialty classes of trade were previously reported in the Personal
and Consumer Products divisions. We reclassified our prior year business
segment disclosures to conform to the current year presentation. The net
sales of the specialty classes of trade represented approximately 7% of
consolidated net sales for the three and nine months ended September
25,1999.
(2) Certain unallocated corporate charges such as business license taxes and
product liability insurance are included in consolidated gross margin, but
not included in the evaluation of division performance.
14
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Earnings Per Share
The following table explains how our basic and diluted Earnings Per Share
("EPS") were calculated for the three and nine months ended September 30, 2000
and September 25, 1999 (unaudited, in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 30, September 25, September 30, September 25,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net earnings--as reported ............................................ $ 4,460 $ 8,029 $33,769 $33,265
Adjustment for interest on Convertible Notes ......................... -- -- 946 788
------- ------- ------- -------
Net earnings--as adjusted ......................................... $ 4,460 $ 8,029 $34,715 $34,053
======= ======= ======= =======
Denominator:
Weighted average shares outstanding--as reported ..................... 60,872 60,514 60,781 60,458
Adjustment for dilutive effect of employee stock options ............. 492 1,009 570 1,087
Adjustment for dilutive effect of Convertible Notes .................. -- -- 1,741 1,425
------- ------- ------- -------
Weighted average shares outstanding--as adjusted ..................... 61,364 61,523 63,092 62,970
======= ======= ======= =======
Basic Earnings Per Share ............................................... $ .07 $ .13 $ .56 $ .55
Diluted Earnings Per Share ............................................. $ .07 $ .13 $ .55 $ .54
</TABLE>
Basic EPS excludes all potentially dilutive securities. Basic EPS is
computed by dividing net earnings by the weighted average number of common
shares outstanding for the period. Diluted EPS includes all potentially dilutive
securities. Diluted EPS is computed by dividing net earnings, adjusted by the if
- converted method for convertible securities, by the weighted average number of
common shares outstanding for the period plus the number of additional common
shares that would have been outstanding if the dilutive securities were issued.
In the event the dilutive securities are anti-dilutive (have the affect of
increasing EPS), the impact of the dilutive securities is not included in the
computation.
8. Contingent Liabilities
In our opinion, there are no claims, commitments, guarantees or litigation
pending to which we or any of our 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.
15
<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 condensed financial statements and 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 25, 1999.
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 raw material and manufacturing costs,
o adverse publicity and product liability claims,
o impact of weather conditions, especially on Sun Care,
o our level of debt,
o interest rate fluctuations,
o future cash flows,
o dependence on key employees.
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, Banana Boat, Binaca, Binky, Cool Colorz,
CoolStraw, Diaparene, Diaper Genie, Dentax, Drop-Ins, Gentle Glide, HandSaver,
Most Like Mother, Mr. Bubble, Natural Action, Ogilvie, QuickStraw, Quik Blok,
Safe'N Sure, Silk Glide, SipEase, Slimfits, Tan Express, Tek, Tussy, and Wet
Ones. 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.
Items Affecting Comparability
Our results for the third quarter of 2000 are for the 13-week period ended
September 30, 2000 and our results for the third quarter of 1999 are for the
13-week period ended September 25, 1999. Our results for the nine months ended
September 30, 2000 are for a 40-week period and our results for the nine months
ended September 25, 1999 are for a 39-week period. We do not believe the extra
week in the nine-month period ended September 30, 2000 contributed materially to
our net sales or earnings due to our shipment patterns. All references to market
share and market share data are for comparable 13 and 39-week periods and
represent our percentage of the total dollar volume of products purchased
16
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
by consumers in the applicable category (dollar market share). This information
is provided to us from the ACNielsen Company.
In 2000, our divisional structures were reorganized. The International and
Other Division now include the U.S specialty classes of trade including: clubs,
convenience stores, telemarketing, e-commerce, military and other specialty
classes of trade. The net sales and product contribution from the specialty
classes of trade were previously reported in the Personal and Consumer Products
divisions. We reclassified our prior year business segment disclosures to
conform to the current year presentation. The net sales from the specialty
classes of trade represented approximately 7% of consolidated net sales for the
three and nine month periods ended September 25,1999.
Results of Operations
Three Months Ended September 30, 2000 Compared To
Three Months Ended September 25, 1999
Consolidated Net Sales--Our consolidated net sales were essentially flat with
the third quarter of 1999, increasing $0.2 million to $188.1 million in the
third quarter of 2000.
Personal Products Division--Net sales increased $1.1 million to $126.8
million in the third quarter of 2000.
Net sales of Infant Care products increased $0.7 million to $70.4
million in the third quarter of 2000. Our infant feeding and soothing
business increased its net sales 2% as a result of sales growth in
disposables and reusable hard bottles, offset by, sales declines in
cups and pacifiers. The infant feeding category grew 4.3% in dollars in
the third quarter of 2000 versus the third quarter of 1999, and the
retail consumption of our products decreased 3.3%. Our dollar market
share of the infant feeding category decreased 3.1 percentage points to
39.1% in the third quarter of 2000 versus the same quarter in the prior
year. This was due primarily to competitive pressures in our cup
business and the impact of our voluntary pacifier recall in June of
this year. Partially offsetting this decline were market share gains in
our hard bottle and nipple business as a result of new product entries
in the past twelve months.
Net sales of Feminine Care products increased $0.4 million to
$56.5 million in the third quarter of 2000. Historically, the third
quarter is the largest consumption quarter for Feminine Care. This is
due to the increase in outdoor activities such as swimming and other
leisure activities. We believe our Feminine Care sales, as well as the
feminine care category, were hindered in the third quarter of 2000 by
unfavorable summer weather across much of the country. This weather
pattern reduced outdoor summer activities. Our dollar market share
increased 0.7 percentage points to 31.1% of the tampon category and the
retail consumption of our products grew 3.4% compared to category
growth of 0.6%. This was our thirteenth consecutive quarter of market
share gains and consumption growth in excess of category growth. This
level of growth is attributable to our innovative product development
efforts and strong consumer marketing initiatives. We added two new
tampon forming machines during the third quarter of 2000 and expect a
third machine to come on-line in the fourth quarter of 2000. These new
machines are expected to increase capacity by an estimated 23% on an
annual basis. Also, we expect to add two additional machines in early
2001.
17
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Consumer Products Division--Net sales decreased $1.6 million to $28.1
million in the third quarter of 2000.
Net sales of Sun Care products decreased $3.5 million, or 71%, to
$1.4 million in the third quarter of 2000. We estimate the returns for
Sun Care products based on, amongst other things, historical
experience. Due to the unfavorable weather pattern in 2000, we
increased our estimate for Sun Care returns in the third quarter of
2000. While this impacted third quarter results, retail consumption of
Banana Boat products during the summer season remained strong. Our
dollar market share increased 1.6 percentage points to 22.3% and the
retail consumption of our products increased 9.6% outpacing the
category, which grew 1.5%. The growth in our dollar market share and
consumption was due largely to demand for the Banana Boat product
line, and increased consumer awareness of the need for sunscreen
protection.
Net sales of Household Products increased $1.5 million, or 11%,
to $15.6 million in the third quarter of 2000. Our Household Products
businesses showed strong results aided in part by additional
promotional activity. Our dollar market share of the rug and
upholstery cleaning category increased 0.5 percentage points to 19.7%
of the category and our retail consumption was up 1.7%, despite a 1.0%
decline in the category. The gloves business showed similar results.
Our retail consumption was up 11.5% compared to category growth of
0.7% and our dollar market share increased 3.6 percentage points to
37.2% of the category.
Net sales of Personal Grooming increased $0.4 million to $11.2
million in the third quarter of 2000. Our largest Personal Grooming
brand, Ogilvie, had net sales growth of over 17%, which can be
attributed to new innovative products we introduced, such as Ogilvie
Straightener and 7-Day Curls. Our dollar market share increased 6.8
percentage points to 67.1% of the Home Perms/Straightener category and
our retail consumption increased 9.6% compared to the third quarter of
1999. The Home Perms/Straightener category decreased 1.5% during the
same time period. The sales growth in Ogilvie offset lower sales of
our skin care and oral care brands.
International and Other Division--Net sales increased $0.7 million to
$33.2 million in the third quarter of 2000.
Consolidated Gross Profit--Our consolidated gross profit decreased $0.3 million
to $109.3 million in the third quarter of 2000. As a percent of net sales, gross
profit decreased 0.2 percentage points, to 58.1% in the third quarter of 2000.
The dollar decrease in gross profit and the lower gross margin was due primarily
to the impact of the increased returns estimate for Sun Care products and
product mix.
Consolidated Product Contribution--Our consolidated product contribution
decreased $0.9 million to $66.6 million in the third quarter of 2000. As a
percent of net sales, product contribution decreased 0.5 percentage points to
35.4% in the third quarter of 2000. The decrease in product contribution and
product contribution as a percentage of net sales was due primarily to the
impact of the increased returns estimate for Sun Care products and higher
advertising and sales promotion expenses as a percent of net sales.
Personal Products Division--Product contribution increased $1.8 million to
$51.7 million in the third quarter of 2000. As a percent of net sales,
product contribution increased 1.1 percentage points to 40.8% in the third
quarter of 2000. The increase in product contribution and product
contribution margin was due primarily to higher net sales and lower
advertising and sales promotion expenses.
Consumer Products Division--Product contribution decreased $3.9 million to
$2.4 million in the third quarter of 2000. As a percent of net sales,
product contribution decreased 12.7 percentage points to 8.5% in the third
quarter of 2000. The decrease in product contribution and product
contribution margin was due primarily to the
18
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
impact of the increased returns estimate for Sun Care products and higher
advertising and sales promotion expenses as a percent of net sales.
International and Other Division--Product contribution increased $0.4
million to $13.0 million in the third quarter of 2000. As a percent of net
sales, product contribution increased 0.2 percentage points to 39.0% in
the third quarter of 2000. The increase in product contribution and
product contribution margin was due primarily to higher net sales and
product mix.
Consolidated Operating Earnings--Our consolidated operating earnings decreased
$4.4 million to $30.0 million in the third quarter of 2000. The decrease in
operating earnings was primarily the result of the impact of the increased
returns estimate for Sun Care products and higher advertising and sales
promotion expenses as a percentage of net sales.
Consolidated Interest Expense--Our consolidated interest expense increased $0.6
million to $21.2 million in the third quarter of 2000. The increase was caused
by higher interest rates on our variable rate debt in the third quarter of 2000
compared to the third quarter of 1999. The weighted average interest rates on
our floating rate debt increased to 7.93% in the third quarter of 2000 compared
to 6.79% in the third quarter of 1999, an increase of 1.14 percentage points.
Average debt for the third quarter of 2000 was less than the third quarter of
1999 by approximately $48.1 million, or 5%, due primarily to our scheduled
principal payment obligations and additional debt reduction due to excess cash
flow. The higher rates offset the benefits of lower debt balances.
Consolidated Income Taxes--Our consolidated income taxes decreased $1.4 million
to $4.4 million in the third quarter of 2000. As a percent of pretax earnings,
our effective tax rate increased 7.5 percentage points to 49.5% in the third
quarter of 2000 compared to the third quarter of 1999. We lowered our full year
earnings projections during the third quarter and adjusted our year to date tax
provision to 42.8% of pre tax earnings from 41.7%. The third quarter provision
of 49.5% was high, as we recorded the year-to-date adjustment in the third
quarter.
Nine Months Ended September 30, 2000 Compared To
Nine Months Ended September 25, 1999
Consolidated Net Sales--Our consolidated net sales increased $53.7 million, or
9%, to $641.2 million for the nine months ended September 30, 2000 compared to
the nine months ended September 25, 1999. Excluding the impact of the
acquisitions of Diaper Genie and Baby Magic and the divested portion of our
Jhirmack business, our consolidated net sales grew by $24.4 million, or 5%,
compared to the same period in 1999.
Personal Products Division--Net sales increased $40.4 million, or 12%, to
$372.0 million for the nine months ended September 30, 2000. Excluding the
impact of the acquisitions of Diaper Genie and Baby Magic, the net sales
of the division increased by $11.7 million, or 4%, compared to the same
period in 1999.
Net sales of Infant Care products increased $26.4 million, or
14%, to $210.4 million for the nine months ended September 30, 2000.
Excluding the impact of the acquisitions of Diaper Genie and Baby
Magic, our Infant Care net sales decreased by $2.3 million, or 2%,
compared to the same period of 1999. Our infant feeding and soothing
business increased its net sales 2% as a result of sales growth in
disposables and reusable hard bottles, offsetting sales declines in
cups and pacifiers. The infant feeding category grew 5.9% for the nine
months ended September 30, 2000 versus the comparable period in 1999,
and the retail consumption of our products grew 0.5%. Our dollar market
share of the infant feeding category decreased 2.2 percentage points to
40.1% for the nine months ended September 30, 2000. Our dollar market
share in cups, disposable feeding, and pacifiers each experienced
declines offsetting market share gains in hard bottles and nipples. We
have been experiencing increased competition in our cups business and
in June of this year we voluntarily recalled certain pacifiers. New
competitors in disposable feeding and infant toiletries launched
products that were heavily supported with trade spending and media
campaigns. Our
19
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
dollar market share in infant toiletries declined 2.5 percentage points
to 12.1% for the first nine months in 2000 versus the same period in
1999.
Net sales of Feminine Care products increased $14.0 million, or
9%, to $161.6 million for the nine months ended September 30, 2000. We
experienced dollar market share gains of 1.3 percentage points to 30.9%
of the tampon category. The tampon category, in dollars, grew 1.0%
versus the comparable period of 1999, while the retail consumption of
our products grew 5.4%. This level of growth is attributable to our
innovative product development efforts and strong consumer marketing
initiatives.
Consumer Products Division--Net sales increased $11.6 million, or 8%, to
$165.8 million for the nine months ended September 30, 2000. Excluding the
impact of the divested portion of our Jhirmack business, net sales of the
division grew by $14.0 million, or 9.0%, compared to the same period in
1999.
Net sales of Sun Care products increased $11.7 million, or 14%,
to $93.0 million for the nine months ended September 30, 2000.
Tempering the sales growth in the nine months ended September 30, 2000
was the impact of the increased returns estimate, in the third quarter
of 2000, associated with the unfavorable summer weather conditions.
Our dollar market share increased 1.4 percentage points to 21.9% for
the nine months ended September 30, 2000. The sun care category, in
dollars, grew 2.6% and the retail consumption of our products
increased 9.5% compared to the nine months ended September 25, 1999.
The growth in our dollar market share and consumption was due largely
to demand for the Banana Boat product line, and increased consumer
awareness of the need for sunscreen protection. In addition, our array
of new products for the 2000 season was favorably received by the
trade contributing to our growth.
Net sales of Household Products increased $2.5 million, or 7%, to
$40.5 million for the nine months ended September 30, 2000. The growth
in net sales was evenly spread between our gloves business and
Woolite. In gloves our dollar market share increased 3.9% to 37.2% of
the category and our retail consumption was up 11.6%. These results
were obtained despite flat category growth of only 0.1%. Woolite's
market share declined 0.6 percentage points to 19.1 of the rug and
upholstery category.
Net sales of Personal Grooming decreased $2.6 million, or 8%, to
$32.3 million for the nine months ended September 30, 2000. Personal
Grooming net sales excluding the divested U.S. Jhirmack line decreased
$0.3 million, or 1%, compared to the nine months ended September 25,
1999. Our largest Personal Grooming brand, Ogilvie, had net sales
growth of 6%, retail consumption growth of 16.9%, and dollar market
share increases of 9.9 percentage points to 65.0% of the Home
Perms/Straightener category. The sales growth in Ogilvie, offset to
some extent, lower sales of our skin care and oral care brands.
International and Other Division--Net sales increased $1.7 million, or 2%,
to $103.5 million for the nine months ended September 30, 2000. Excluding
the impact of the acquisitions of Diaper Genie and Baby Magic, net sales
of the division decreased $1.3 million, or 1%, compared to the nine months
ended September 25, 1999.
Consolidated Gross Profit--Our consolidated gross profit increased $29.9
million, or 9%, to $370.7 million for the nine months ended September 30, 2000.
As a percent of net sales, gross profit decreased 0.2 percentage points, to
57.8% for the nine months ended September 30, 2000. The dollar increase in gross
profit was due primarily to our higher net sales and the lower gross margin was
due primarily to product mix.
Consolidated Product Contribution--Our consolidated product contribution
increased $19.6 million, or 9%, to $231.3 million for the nine months ended
September 30, 2000. The increase was due primarily to our higher net sales. As a
percent of net sales, product contribution increased 0.1 percentage points to
36.1% for the nine months ended September 30, 2000. The increase in product
contribution as a percent of net sales was primarily the result of lower overall
advertising and sales promotion expenses as a percentage of net sales,
offsetting slightly lower gross margins.
20
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Personal Products Division--Product contribution increased $15.9 million,
or 12%, to $146.5 million for the nine months ended September 30, 2000. As
a percent of net sales, product contribution was flat at 39.4% compared to
the nine months ended September 25, 1999. The increase in product
contribution was due primarily to higher net sales.
Consumer Products Division--Product contribution increased $1.5 million,
or 3%, to $48.8 million for the nine months ended September 30, 2000. As a
percent of net sales, product contribution decreased 1.2 percentage points
to 29.4% for the nine months ended September 30, 2000. The increase in
product contribution was due primarily to higher net sales and the lower
product contribution margin was due primarily to the impact of the
increased return estimate for Sun Care products.
International and Other Division--Product contribution increased $1.1
million, or 3%, to $40.0 million for the nine months ended September 30,
2000. As a percent of net sales, product contribution increased 0.4
percentage points to 38.7% for the nine months ended September 30, 2000.
The increase in product contribution was due primarily to higher net sales
and the higher product contribution margin was due primarily to product
mix.
Consolidated Operating Earnings--Our consolidated operating earnings increased
$7.7 million, or 7%, to $123.5 million for the nine months ended September 30,
2000. The increase in operating earnings was the result of our higher net sales.
Consolidated Interest Expense--Our consolidated interest expense increased $6.1
million, or 11%, to $64.5 million for the nine months ended September 30, 2000.
The increase in interest expense was due to higher debt balances as a result of
the 1999 acquisitions and higher interest rates on our variable rate debt. The
weighted average interest rates on our floating rate debt increased to 7.64% for
the nine months ended September 30, 2000 compared to 6.64% for the comparable
period in 1999, an increase of one full percentage point. Average debt for the
nine months ended September 30, 2000, exceeded the comparable 1999 period by
approximately $35.5 million, or 4%, due primarily to our purchases of the Diaper
Genie business and the Baby Magic business.
Consolidated Income Taxes--Our consolidated income taxes increased $1.0 million,
or 4%, to $25.3 million for the nine months ended September 30, 2000. As a
percent of pretax earnings, our effective tax rate increased 0.6 percentage
points to 42.8% for the nine months ended September 30, 2000. Our effective tax
rate increases as non-deductible goodwill amortization becomes a larger portion
of expected full year operating earnings.
Financial Condition and Liquidity
At September 30, 2000, our working capital (current assets net of current
liabilities) decreased $16.8 million to $75.2 million.
o Total current assets decreased $25.9 million to $218.0 million at
September 30, 2000 compared to December 25, 1999. We reduced our
inventories by $17.5 million due primarily to reduced inventory of
Sun Care products as a result of concluding the Sun Care selling
season. Accounts receivables declined $14.0 million due primarily to
lower net sales in the third quarter of 2000 compared to the fourth
quarter of 1999. All other current assets increased by $5.6 million.
o Total current liabilities decreased $9.1 million at September 30,
2000 compared to December 25, 1999. This occurred primarily as a
result of a decrease of $13.1 million in accounts payables due
primarily to our payment for our Sun Care inventory build in the
fourth quarter of 1999. Offsetting this decrease, in part, was an
increase in current portion of long-term debt of $8.1 million. All
other current liabilities decreased $4.1 million.
21
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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 February to September due to
extended credit terms on our Sun Care sales. In accordance with industry
practice, we also allow our customers to return unsold sun care product at the
end of the sun care season. We reserve amounts on our balance sheet as we sell
our Sun Care products based upon an estimated return level. The level of returns
may fluctuate from our estimates due to several factors including weather
conditions, customer inventory levels, and competitive conditions.
Capital expenditures for equipment and facility improvements were $22.4
million for the nine months ended September 30, 2000. These expenditures were
used primarily to expand capacity in key product areas, upgrade production
equipment and maintain our facilities. Capital expenditures for 2000 are
expected to be approximately $25.0 million.
At September 30, 2000, long-term debt (including current portion but
excluding obligations due to related party) was $931.6 million compared to
$987.9 million at December 25, 1999. The decrease of $56.3 million relates to
(a) Revolving Credit Facility repayments of $32.5 million, (b) scheduled
principal repayments on our Term Loan and Term A Loan of $14.5 million and (c)
additional principal repayments on our Term Loan and Term A Loan of $9.3
million. At September 30, 2000, we had $113.7 million available to borrow under
our Revolving Credit Facility. The amount of money we are able to borrow from
our Revolving Credit Facility reduces over time, with the first reduction of
$5.0 million occurring on December 15, 2000.
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 agreement relating to the Revolving Credit Facility and the Term A Loan
requires us to achieve certain financial coverage ratios. If we fail to do so,
it would result in a covenant default under the agreement. At the end of the
third quarter of fiscal 2000, we were in compliance with these ratio
requirements. However, we are uncertain as to whether we will be able to meet
these ratio requirements at the end of the fourth quarter of fiscal 2000. We are
currently in discussions with our banking group and anticipate amending this
agreement prior to the end of the fourth quarter in order to eliminate the
potential for covenant default. In order to obtain the amendment, we may be
required to pay an amendment fee and to increase the interest rate spread over
LIBOR that we currently pay on the Revolving Credit Facility and Term A Loan.
The 9% Senior Subordinated Notes due December 15, 2003 (the "9% Notes") and the
8 7/8% Senior Notes due July 15, 2004 (the "8 7/8% Senior Notes") also contain
similar restrictions on new indebtedness, acquisitions, capital expenditures and
dividends.
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 A Loan
and the Revolving Credit Facility.
However, we do not expect to generate sufficient cash flow from operations to
make the final principal payment due in 2003 on the Term Loan and the 9% Notes,
which collectively total $595.5 million, or the $150.0 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 these obligations. Historically, our cash flows from operations and
refinancing activities have enabled us to meet all of our obligations. However,
we can not guarantee that our operating results will continue to be
22
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
sufficient or that future-borrowing facilities will be available for the payment
or refinancing of our debt on economically attractive terms.
Since the beginning of 1998, we have made a number of acquisitions
including PCH, Carewell, Binky, Diaper Genie and Baby Magic. We financed these
transactions by borrowing additional money on our Term Loan and Term A Loan,
utilizing available borrowings under our Revolving Credit Facility and we issued
a Convertible Note and shares of our Common Stock. In total, we borrowed $332.4
million, issued a $0.5 million note that was later repaid and issued 9,257,345
shares of our Common Stock (see Note 2 and Note 5 of Notes to Condensed
Consolidated Financial Statements). 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.
We intend to use more of our available cash flow to reduce our level of
debt. We have quarterly principal repayment obligations due on both the Term A
Loan and the Term Loan through the second and third quarters of the year 2003.
Our fixed principal debt repayment obligations are (excluding balances
outstanding under the Revolving Credit Facility and due to related party):
o $0.0 million in the fourth quarter of 2000,
o $45.1 million in 2001,
o $58.7 million in 2002,
o $627.8 million in 2003, and
o $200.0 million in 2004.
We have no debt obligations due after June 15, 2004. In addition, as a result of
our intention to reduce debt and improve certain key leverage ratios, we may pay
more on our debt balances over the next few years than what is contractually
mandated. For the quarter ended September 30, 2000 we paid an additional $9.3
million on our term loans.
Inflation in the United States and Canada has not had a significant effect on
our operations during recent periods.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" which, as amended, is effective for us 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. At September 30, 2000, we are not a party
to any derivative instrument and we are currently reviewing our contractual
obligations to determine whether we have any embedded derivatives.
In May 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on Issue No. 00-14, "Accounting for Certain
Sales Incentives", which is effective for us in the fourth quarter of 2000. This
issue addresses the recognition, measurement, and income statement
classification for certain sales incentives, including: discounts, coupons,
rebates, and free products or services, offered voluntarily to customers. We are
currently evaluating the effect this issue will have on our financial
statements. We will restate our net sales and advertising and promotion
expenses. This restatement will reduce both our net sales and advertising and
promotion expenses by equal and offsetting amounts. This issue will not have any
impact on our reported operating earnings, net income, or earnings per share. It
will, however, lower our reported gross margins and advertising and sales
promotion expenses as a percent of net sales, while increasing our operating
earnings margin.
23
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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 our Annual Report on Form 10-K for the year ended December 25,
1999.
As of the end of October 2000, there were approximately 8 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:
(27) Financial Data Schedule
b. Reports on Form 8-K
None
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
We periodically use financial instruments to manage the impact of interest
rate changes on our variable rate debt. At September 30, 2000 our total
indebtedness consisted of $560.0 million in fixed rate debt and $371.6 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%. Effective July 23, 2000, this swap agreement was
cancelled by the other party. Based on our current interest rate exposure, a 1%
increase in interest rates would result in an estimated $3.7 million of
additional interest expense on an annualized basis.
24
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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 14, 2000 By: /S/ MICHAEL R. GALLAGHER
------------------ -------------------------
Michael R. Gallagher
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2000 By: /S/ GLENN A. FORBES
----------------- --------------------------
Glenn A. Forbes
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
25
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INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
26
