================================================================================
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 July 1, 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 August 7, 2000 60,802,465 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 - 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 4. Submission of Matters to a Vote of Security Holders ........... 24
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits .................................................. 24
(b) Reports on Form 8-K ....................................... 25
Signatures .................................................... 26
Exhibit Index ................................................. 27
2
<PAGE>
PLAYTEX PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
July 1, December 25,
2000 1999
----------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash ............................................................... $ 7,246 $ 7,526
Receivables, less allowance for doubtful accounts .................. 156,246 130,256
Inventories ........................................................ 68,768 85,496
Deferred income taxes .............................................. 13,236 14,937
Other current assets ............................................... 995 5,639
----------- -----------
Total current assets ........................................... 246,491 243,854
Net property, plant and equipment ....................................... 116,659 107,193
Intangible assets, net .................................................. 686,293 697,214
Deferred financing costs ................................................ 13,655 15,530
Due from related party .................................................. 80,017 80,017
Other noncurrent assets ................................................. 4,717 4,844
----------- -----------
Total assets ................................................... $ 1,147,832 $ 1,148,652
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 29,780 $ 45,107
Accrued expenses ................................................... 73,883 73,994
Income taxes payable ............................................... 8,217 8,934
Current maturities of long-term debt ............................... 37,375 23,813
----------- -----------
Total current liabilities ...................................... 149,255 151,848
Long-term debt .......................................................... 928,925 964,063
Due to related party .................................................... 78,386 78,386
Other noncurrent liabilities ............................................ 11,786 12,267
Deferred income taxes ................................................... 43,208 36,956
----------- -----------
Total liabilities .............................................. 1,211,560 1,243,520
----------- -----------
Stockholders' equity:
Common stock, $0.01 par value, authorized 100,000,000 shares,
issued 60,792,798 shares at July 1, 2000 and
60,562,327 shares at December 25, 1999 ........................... 608 605
Additional paid-in capital ......................................... 521,712 519,811
Retained earnings (deficit) ........................................ (583,455) (612,764)
Foreign currency translation adjustment ............................ (2,593) (2,520)
----------- -----------
Total stockholders' equity ..................................... (63,728) (94,868)
----------- -----------
Total liabilities and stockholders' equity ..................... $ 1,147,832 $ 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
---------------------
July 1, June 26,
2000 1999
-------- --------
<S> <C> <C>
Net sales .................................................................. $229,589 $209,195
Cost of sales .............................................................. 97,967 87,531
-------- --------
Gross profit ........................................................... 131,622 121,664
Operating expenses:
Advertising and sales promotion ........................................ 51,019 49,836
Selling, distribution and research ..................................... 22,768 20,658
Administrative ......................................................... 6,961 7,043
Amortization of intangibles ............................................ 5,608 5,048
-------- --------
Total operating expenses ........................................... 86,356 82,585
Operating earnings .............................................. 45,266 39,079
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 ................... 21,224 18,929
-------- --------
Earnings before income taxes .................................... 24,042 20,150
Income taxes ............................................................... 10,002 8,485
-------- --------
Net earnings .................................................... $ 14,040 $ 11,665
======== ========
Earnings per share:
Basic .................................................................. $ 0.23 $ 0.19
======== ========
Diluted ................................................................ $ 0.23 $ 0.19
======== ========
Weighted average shares outstanding:
Basic .................................................................. 60,786 60,448
======== ========
Diluted ................................................................ 63,904 64,184
======== ========
</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>
Six Months Ended
---------------------
July 1, June 26,
2000 1999
-------- --------
<S> <C> <C>
Net sales .................................................... $453,096 $399,647
Cost of sales ................................................ 191,772 168,438
-------- --------
Gross profit ............................................. 261,324 231,209
Operating expenses:
Advertising and sales promotion .......................... 96,713 87,118
Selling, distribution and research ....................... 45,461 39,472
Administrative ........................................... 14,452 13,267
Amortization of intangibles .............................. 11,200 9,894
-------- --------
Total operating expenses ............................. 167,826 149,751
Operating earnings ................................ 93,498 81,458
Interest expense including related party interest expense
of $6,075 for both periods presented, net of related party
interest income of $6,001 for both periods presented ..... 43,266 37,767
-------- --------
Earnings before income taxes ...................... 50,232 43,691
Income taxes ................................................. 20,923 18,455
-------- --------
Net earnings ...................................... $ 29,309 $ 25,236
======== ========
Earnings per share:
Basic .................................................... $ 0.48 $ 0.42
======== ========
Diluted .................................................. $ 0.47 $ 0.41
======== ========
Weighted average shares outstanding:
Basic .................................................... 60,735 60,431
======== ========
Diluted .................................................. 63,955 63,695
======== ========
</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 ....................... -- -- -- 29,309 -- 29,309
Foreign currency translation
adjustment ...................... -- -- -- -- (73) (73)
---------
Comprehensive earnings ....... 29,236
Stock issued to employees exercising
stock options ................... 231 3 1,901 -- -- 1,904
------ --------- --------- --------- --------- ---------
Balance, July 1, 2000 ........ 60,793 $ 608 $ 521,712 $(583,455) $ (2,593) $ (63,728)
====== ========= ========= ========= ========= =========
</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>
Six Months Ended
------------------------
July 1, June 26,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operations:
Net earnings .................................................... $ 29,309 $ 25,236
Non-cash items included in earnings:
Amortization of intangibles .................................. 11,200 9,894
Amortization of deferred financing costs ..................... 1,875 1,566
Depreciation ................................................. 5,522 4,651
Deferred income taxes ........................................ 6,453 7,532
Other, net ................................................... 74 1,311
Net increase in working capital accounts, net of acquisitions (19,758) (28,570)
--------- ---------
Net cash flows from operations ........................... 34,675 21,620
Cash flows used for investing activities:
Purchases of property, plant and equipment ...................... (15,004) (13,903)
Purchase of patent rights ....................................... (279) --
Businesses acquired, net ........................................ -- (120,849)
--------- ---------
Net cash flows used for investing activities ............. (15,283) (134,752)
Cash flows (used for) provided by financing activities:
Net (repayment) borrowings under credit facilities .............. (16,450) 65,000
Long-term debt borrowings ....................................... -- 50,000
Long-term debt repayments ....................................... (5,126) (1,250)
Issuance of shares of common stock .............................. 1,904 568
--------- ---------
Net cash flows (used for) provided by financing activities (19,672) 114,318
(Decrease) increase in cash ......................................... (280) 1,186
Cash at beginning of period ......................................... 7,526 6,871
--------- ---------
Cash at end of period ............................................... $ 7,246 $ 8,057
========= =========
Supplemental disclosures of cash flow information
Cash paid during the periods for:
Interest ...................................................... $ 40,742 $ 34,394
Income taxes, net of refunds .................................. $ 13,691 $ 12,856
</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 six month periods ended July 1, 2000 are not necessarily
indicative of the results that you may expect for the full year.
Our results for the second quarter of 2000 are for the 13-week period
ended July 1, 2000 and our results for the second quarter of 1999 are for the
13-week period ended June 26, 1999. Our results for the six month period ended
July 1, 2000 are for a 27-week period, whereas the comparable period in 1999 is
for a 26-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 July 1, 2000 (unaudited, in thousands):
Reserved Amount Balance
Amount Spent Remaining
-------- ------- ---------
Exit costs ........................... $ 3,653 $ 2,682 $ 971
Involuntary terminations ............. 3,116 2,682 434
Relocation costs ..................... 135 135 --
-------- ------- ---------
Total ........................... $ 6,904 $ 5,499 $ 1,405
======== ======= =========
The remaining balance is primarily for building lease commitments and severance
costs. The amount remaining for involuntary terminations at July 1, 2000,
represents severance payments to be made through the first quarter of 2002.
The following pro forma results of operations for the six months ended
June 26, 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.
Six Months
Ended
June 26,
(unaudited, in thousands, except per share data) 1999
----------
Net sales .................................................. $ 429,246
Net earnings ............................................... $ 27,138
Earnings per share:
Basic ................................................. $ .45
Diluted ............................................... $ .43
Weighted average shares outstanding:
Basic ................................................. 60,431
Diluted ............................................... 65,151
Our results for the three and six months ended July 1, 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 adjustments is the only reconciling item
between net earnings and comprehensive earnings. For the three and six months
ended July 1, 2000 and June 26, 1999, there were no material differences between
net earnings and comprehensive earnings. For the three and six months ended July
1, 2000 and June 26, 1999, our comprehensive earnings were (unaudited, in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings .......................... $ 14,040 $ 11,665 $ 29,309 $ 25,236
Foreign currency translation adjustment (87) 252 (73) 300
-------- -------- -------- --------
Comprehensive earnings ............ $ 13,953 $ 11,917 $ 29,236 $ 25,536
======== ======== ======== ========
</TABLE>
4. Balance Sheet Components
<TABLE>
<CAPTION>
July 1, December 25,
The components of certain balance sheet accounts are as follows (in thousands): 2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Receivables.................................................................................... $ 158,723 $ 132,548
Less allowance for doubtful accounts........................................................... (2,477) (2,292)
--------- ---------
Net...................................................................................... $ 156,246 $ 130,256
========= =========
Inventories:
Raw materials.............................................................................. $ 22,132 $ 27,974
Work in process............................................................................ 1,456 532
Finished goods............................................................................. 45,180 56,990
--------- ---------
Total.................................................................................... $ 68,768 $ 85,496
========= =========
Net property, plant and equipment:
Land....................................................................................... $ 2,376 $ 2,376
Buildings.................................................................................. 37,551 37,165
Machinery and equipment.................................................................... 168,979 154,848
--------- ---------
208,906 194,389
Less accumulated depreciation.............................................................. (92,247) (87,196)
--------- ---------
Net...................................................................................... $ 116,659 $ 107,193
========= =========
Accrued expenses:
Advertising and sales promotion............................................................ $ 22,681 $ 29,011
Employee compensation and benefits......................................................... 10,366 13,894
Interest................................................................................... 11,727 11,078
Insurance.................................................................................. 3,227 3,189
Other...................................................................................... 25,882 16,822
--------- ---------
Total.................................................................................... $ 73,883 $ 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): July 1, December 25,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
1997 Credit Agreement:
Term A Loan......................................................... $ 147,250 $ 151,126
Revolving Credit Facility........................................... 16,050 32,500
Term Loan........................................................... 243,000 244,250
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
----------- -----------
966,300 987,876
Less current maturities............................................. (37,375) (23,813)
----------- -----------
Total long-term debt............................................. $ 928,925 $ 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 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
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 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 July 1, 2000 our total indebtedness
consisted of $560.0 million in fixed rate debt and $406.3 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%. Effective July 23, 2000, this swap agreement was cancelled. Based on our
current interest rate exposure, a 1% increase in interest rates would result in
an estimated $4.1 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 July 1,
2000 and June 26, 1999, the weighted average interest rate on our floating rate
debt was 7.88% and 6.49%, respectively. The weighted average interest rate on
our floating rate debt for the quarters ended July 1, 2000 and June 26, 1999 was
7.64% and 6.46%, respectively. We also pay fees equal to three-eighths of 1% on
the unused portion of the Revolving Credit Facility. At July 1, 2000, we had
$97.7 million of unused borrowings available to us under the Revolving Credit
Facility.
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 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 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
o BioSun
Household Products
o Playtex Gloves
o Woolite rug and upholstery cleaning products
12
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Business Segments (continued)
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 sales to:
o 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 six months ended July 1,
2000 and June 26, 1999 are as follows (unaudited, dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
July 1, 2000 June 26, 1999
--------------------- ---------------------
Net Product Net Product
Sales Contrib. Sales(1) Contrib.(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Personal Products ................... $123,857 $ 44,049 $109,888 $ 39,320
Consumer Products ................... 69,273 24,502 61,143 18,202
International and Other ............. 36,459 14,245 38,164 16,213
Unallocated Charges (2) ............. -- (2,193) -- (1,907)
-------- ------ -------- ------
Total Consolidated .............. $229,589 80,603 $209,195 71,828
======== ========
Reconciliation to operating earnings:
Selling, distribution and research .. 22,768 20,658
Administrative ...................... 6,961 7,043
Amortization of intangibles ......... 5,608 5,048
-------- --------
Operating earnings .............. $ 45,266 $ 39,079
======== ========
</TABLE>
13
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Business Segments (continued)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------------------
July 1, 2000 June 26, 1999
------------------------ ------------------------
Net Product Net Product
Sales Contrib. Sales(1) Contrib.(1)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Personal Products ................... $ 245,155 $ 94,735 $ 205,862 $ 80,679
Consumer Products ................... 137,626 46,368 124,440 40,918
International and Other ............. 70,315 27,059 69,345 26,356
Unallocated Charges (2) ............. -- (3,551) -- (3,862)
--------- --------- --------- ---------
Total Consolidated .............. $ 453,096 164,611 $ 399,647 144,091
========= =========
Reconciliation to operating earnings:
Selling, distribution and research .. 45,461 39,472
Administrative ...................... 14,452 13,267
Amortization of intangibles ......... 11,200 9,894
--------- ---------
Operating earnings .............. $ 93,498 $ 81,458
========= =========
</TABLE>
-----------
(1) In 2000, our divisional structures were reorganized. The International and
Other Division now include the U.S specialty classes of trade that
includes: 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 sales.
(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 the division's 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 six months ended July 1, 2000 and June
26, 1999 (unaudited, in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- ---------------------
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
------- -------- ------- --------
<S> <C> <C> <C> <C>
Numerator:
Net earnings--as reported .......................................... $14,040 $11,665 $29,309 $25,236
Adjustment for interest on Convertible Notes ....................... 473 473 946 788
------- ------- ------- -------
Net earnings--as adjusted ..................................... $14,513 $12,138 $30,255 $26,024
======= ======= ======= =======
Denominator:
Weighted average shares outstanding--as reported ................... 60,786 60,448 60,735 60,431
Adjustment for dilutive effect of employee stock options ........... 507 1,125 609 1,126
Adjustment for dilutive effect of Convertible Notes ................ 2,611 2,611 2,611 2,138
------- ------- ------- -------
Weighted average shares outstanding--as adjusted ................... 63,904 64,184 63,955 63,695
======= ======= ======= =======
Basic Earnings Per Share .................................................. $ .23 $ .19 $ .48 $ .42
Diluted Earnings Per Share ................................................ $ .23 $ .19 $ .47 $ .41
</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 materials and manufacturing costs,
o impact of weather conditions on Sun Care,
o adverse publicity and product liability claims,
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, BioSun, Chubs, Cool
Colorz, CoolStraw, Diaparene, Diaper Genie, Dentax, Dorothy Gray, 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 second quarter of 2000 are for the 13-week period
ended July 1, 2000 and our results for the second quarter of 1999 are for the
13-week period ended June 26, 1999. Our results for the six months ended July 1,
2000 are for a 27-week period and our results for the six months ended June 26,
1999 are for a 26-week period. We do not believe the extra week in the six-month
period ended July 1, 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 26-week periods and represent our percentage of
the total dollar volume of products purchased by consumers in the applicable
category (dollar market share). This information is provided to us from the
ACNielsen Company.
16
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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.
Results of Operations
Three Months Ended July 1, 2000 Compared To
Three Months Ended June 26, 1999
Consolidated Net Sales--Our consolidated net sales increased 10% to $229.6
million in the second quarter of 2000 compared to the second quarter of 1999.
Excluding the impact of the acquisition of Baby Magic and the divested portion
of our Jhirmack business, our consolidated net sales grew by $9.1 million, or
4%, compared to the second quarter of 1999.
Personal Products Division--Net sales increased 13% to $123.9 million in
the second quarter of 2000. Excluding the impact of the acquisition of
Baby Magic, the net sales of the division increased by $2.9 million, or
3%, compared to the second quarter of 1999.
Net sales of Infant Care products increased 19% to $71.1
million in the second quarter of 2000. Excluding the impact of the
acquisition of Baby Magic, our Infant Care net sales were in line
with the second quarter of 1999. Our dollar market share of the
infant feeding category decreased 1.5 percentage points to 40.6% in
the second quarter of 2000 versus the same quarter in the prior
year. Our dollar market share in cups, disposable feeding, and
pacifiers each experienced declines offsetting market share gains in
hard bottles and nipples. The market share declines were due
primarily to competitive activity. The infant feeding category grew
6.9% in dollars in the second quarter of 2000 versus the second
quarter of 1999, and the retail consumption of our products grew
2.5%. Our dollar market share in infant toiletries decreased 2.3
percentage points to 11.9% in the second quarter of 2000 versus the
same quarter in 1999. New competitors in disposable feeding and
infant toiletries launched products that were heavily supported with
trade spending and media campaigns. We feel the level of spending
behind these new products is most likely unsustainable and we expect
to regain market share once their spending levels decline.
Net sales of Feminine Care products increased 6% to $52.8
million in the second quarter of 2000. Our dollar market share
increased 1.3 percentage points to 31.1% of the tampon category. The
tampon category, in dollars, grew 1.7% versus the second quarter of
1999, and the retail consumption of our products grew 6.4%. This was
our twelfth 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. The growth of our
Feminine Care business has created the need for additional
manufacturing capacity. We anticipate adding three new machines
during 2000. This will increase capacity by an estimated 23% on an
annual basis. Also, we expect to add two additional machines in
2001.
Consumer Products Division--Net sales increased 14% to $69.3 million in
the second quarter of 2000. Excluding the impact of the divested portion
of our Jhirmack business, net sales of the division grew by $8.8 million,
or 15%, compared to the second quarter of 1999.
17
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Net sales of Sun Care products increased 28% to $45.7 million
in the second quarter of 2000. Our dollar market share increased 1.6
percentage points to 22.5% in the second quarter of 2000. The sun
care category, in dollars, grew 1.2% while the retail consumption of
our products increased 8.9% compared to the second quarter of 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 were $12.6 million in the
second quarter of 2000 which were in line with the second quarter of
1999. The gloves category decreased 0.8%, on a dollar basis, but our
retail consumption was up 13.3%, resulting in an increase in our
dollar market share of 4.7% to 37.6% of the category. The increase
in gloves sales offset somewhat lower results in Woolite. The rug
and upholstery cleaning category decreased 1.1% in dollar volume and
our market share declined 1.3%.
Net sales of Personal Grooming decreased 14% to $10.9 million
in the second quarter of 2000. Personal Grooming net sales excluding
the divested U.S. Jhirmack line decreased $1.2 million, or 10%,
compared to the second quarter of 1999. Our two largest Personal
Grooming brands, Ogilvie and Binaca, experienced modest sales
declines while increasing their respective market shares. The
decline in Ogilvie's net sales is due primarily to a strong second
quarter in 1999 associated with the relaunch of the brand's
packaging and the introduction of the new Straightener product.
Ogilvie's retail consumption in dollars for the second quarter of
2000 increased 23% versus the same period in 1999 while the category
grew 2%. During 2000 Binaca became the market leader in the breath
drops and spray category. In the second quarter of 2000, its dollar
market share increased 6.9 percentage points to 47.2% over the
comparable period in 1999, while the category declined 5%.
International and Other Division--Net sales decreased 4% to $36.5 million
in the second quarter of 2000. Excluding the impact of the acquisition of
Baby Magic, net sales of the division decreased 7% compared to the second
quarter of 1999.
Consolidated Gross Profit--Our consolidated gross profit increased 8% to $131.6
million in the second quarter of 2000. As a percent of net sales, gross profit
decreased 0.9 percentage points, to 57.3% in the second quarter of 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 12% to $80.6 million in the second quarter of 2000. The increase was
due primarily to our higher net sales. As a percent of net sales, product
contribution increased 0.8 percentage points to 35.1% in the second quarter of
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 the lower gross margins.
Personal Products Division--Product contribution increased 12% to $44.0
million in the second quarter of 2000. As a percent of net sales, product
contribution decreased 0.1 percentage points to 35.6% in the second
quarter of 2000. The increase in product contribution was due primarily to
higher net sales and the lower product contribution margin was primarily
due to product mix.
Consumer Products Division--Product contribution increased 35% to $24.5
million in the second quarter of 2000. As a percent of net sales, product
contribution increased 5.6 percentage points to 35.4% in the second
quarter of 2000. The increase in product contribution was due primarily to
higher net sales and the higher product
18
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
contribution margin was due to product mix and lower advertising and sales
promotion expenses as a percentage of net sales.
International and Other Division--Product contribution decreased 12% to
$14.2 million in the second quarter of 2000. As a percent of net sales,
product contribution decreased 3.4 percentage points to 39.1% in the
second quarter of 2000. The decrease in product contribution was due
primarily to lower net sales. The lower product contribution margin was
due to product mix and higher advertising and sales promotion expenses as
a percentage of net sales.
Consolidated Operating Earnings--Our consolidated operating earnings increased
16% to $45.3 million in the second quarter of 2000. The increase in operating
earnings was the result of our higher net sales and lower advertising and sales
promotion expenses as a percentage of net sales.
Consolidated Interest Expense--Our consolidated interest expense increased 12%
to $21.2 million in the second quarter of 2000. Average debt for the second
quarter of 2000 exceeded the second quarter of 1999 by approximately $52.0
million, or 6%, due primarily to our purchase of the Baby Magic business. In
addition to the higher average debt outstanding, interest expense was impacted
by higher average interest rates in the second quarter of 2000 compared to the
same period in 1999.
Consolidated Income Taxes--Our consolidated income taxes increased 18% to $10.0
million in the second quarter of 2000. As a percent of pretax earnings, our
effective tax rate decreased 0.5 percentage points to 41.6% in the second
quarter of 2000. Our effective tax rate decreases as non-deductible goodwill
amortization becomes a smaller portion of operating earnings.
Six Months Ended July 1, 2000 Compared To
Six Months Ended June 26, 1999
Consolidated Net Sales--Our consolidated net sales increased 13% to $453.1
million for the six months ended July 1, 2000 compared to the six months ended
June 26, 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 $25.4 million, or 7%, compared to the same period in 1999.
Personal Products Division--Net sales increased 19% to $245.2 million for
the six months ended July 1, 2000. Excluding the impact of the
acquisitions of Diaper Genie and Baby Magic, the net sales of the division
increased by $11.9 million, or 6%, compared to the same period in 1999.
Net sales of Infant Care products increased 23% to $140.0
million for the six months ended July 1, 2000. Excluding the impact
of the acquisitions of Diaper Genie and Baby Magic, our Infant Care
net sales decreased by $1.7 million, or 2%, compared to the
comparable period of 1999. Our dollar market share of the infant
feeding category decreased 1.8 percentage points to 40.6% for the
six months ended July 1, 2000. Our dollar market share in cups,
disposable feeding, and pacifiers each experienced declines
offsetting market share gains in hard bottles and nipples. The
market share declines were due primarily to competitive activity.
The infant feeding category grew 6.7% for the six months ended July
1, 2000 versus the comparable period in 1999, and the retail
consumption of our products grew 2.2%. New competitors in disposable
feeding and infant toiletries launched products that were heavily
supported with trade spending and media campaigns. As a result, our
dollar market share declined 2.6 percentage points to 12.1% for the
first six months in 2000 versus the same period in 1999. We have
initiated counter-measures to combat the competition and regain
market share.
19
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Net sales of Feminine Care products increased 15% to $105.1
million for the six months ended July 1, 2000. We experienced dollar
market share gains of 1.5 percentage points to 30.7% of the tampon
category. The tampon category, in dollars, grew 1.1% versus the
comparable period of 1999, while the retail consumption of our
products grew 6.3%. This level of growth is attributable to our
innovative product development efforts and strong consumer marketing
initiatives
Consumer Products Division--Net sales increased 11% to $137.6 million for
the six months ended July 1, 2000. Excluding the impact of the divested
portion of our Jhirmack business, net sales of the division grew by $15.5
million, or 13%, compared to the same period in 1999.
Net sales of Sun Care products increased 20% to $91.5 million
for the six months ended July 1, 2000. Our dollar market share
increased 1.4 percentage points to 21.7% for the six months ended
July 1, 2000. The sun care category, in dollars, grew 2.6% and the
retail consumption of our products increased 9.7% compared to the
six months ended June 26, 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 4% to $24.9 million
for the six months ended July 1, 2000. The increase was due to
strength in the gloves business. The gloves category decreased 0.2%,
on a dollar basis, but our retail consumption was up 11.7%. This
increased our dollar market share by 3.9% to 37.1% of the category.
The strong gloves business offset modest sales declines in Woolite.
Net sales of Personal Grooming decreased 13% to $21.2 million
for the six months ended July 1, 2000. Personal Grooming net sales
excluding the divested U.S. Jhirmack line decreased $0.7 million, or
3%, compared to the six months ended June 26, 1999. The sales
decline is primarily attributable to shortfalls in our oral care
businesses. Our two largest Personal Grooming brands, Ogilvie and
Binaca, increased their respective market shares during the six
months ended July 1, 2000. The dollar market share for Ogilvie
increased 18.7 percentage points to72.7% for the six months ended
July 1, 2000 and the dollar market share for Binaca rose 6.8
percentage points to 46.4% for the six months ended July 1, 2000. In
2000 Binaca became the market leader in its breath sprays and drops
category.
International and Other Division--Net sales increased 1% to $70.3 million
for the six months ended July 1, 2000. Excluding the impact of the
acquisitions of Diaper Genie and Baby Magic, net sales of the division
decreased 3% compared to the six months ended June 26, 1999.
Consolidated Gross Profit--Our consolidated gross profit increased 13% to $261.3
million for the six months ended July 1, 2000. As a percent of net sales, gross
profit decreased 0.2 percentage points, to 57.7% for the six months ended July
1, 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 14% to $164.6 million for the six months ended July 1, 2000. The
increase was due primarily to our higher net sales. As a percent of net sales,
product contribution increased 0.2 percentage points to 36.3% for the six months
ended July 1, 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.
Personal Products Division--Product contribution increased 17% to $94.7
million for the six months ended July 1, 2000. As a percent of net sales,
product contribution decreased 0.6 percentage points to 38.6% for the six
20
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
months ended July 1, 2000. The increase in product contribution was due
primarily to higher net sales and the lower product contribution margin
was due primarily to product mix.
Consumer Products Division--Product contribution increased 13% to $46.4
million for the six months ended July 1, 2000. As a percent of net sales,
product contribution increased 0.8 percentage points to 33.7% for the six
months ended July 1, 2000. The increase in product contribution was due
primarily to higher net sales and the higher product contribution margin
was due to lower advertising and sales promotion expenses as a percentage
of net sales.
International and Other Division--Product contribution increased 3% to
$27.1 million for the six months ended July 1, 2000. As a percent of net
sales, product contribution increased 0.5 percentage points to 38.5% for
the six months ended July 1, 2000. The increase in product contribution
was due primarily to higher net sales and the higher product contribution
margin was due primarily to lower advertising and sales promotion expenses
as a percentage of net sales.
Consolidated Operating Earnings--Our consolidated operating earnings increased
15% to $93.5 million for the six months ended July 1, 2000. The increase in
operating earnings was the result of our higher net sales and lower advertising
and sales promotion expenses as a percentage of net sales.
Consolidated Interest Expense--Our consolidated interest expense increased 15%
to $43.3 million for the six months ended July 1, 2000. Average debt for the six
months ended July 1, 2000, exceeded the comparable 1999 period by approximately
$89.4 million, or 10%, due primarily to our purchases of the Diaper Genie
business and the Baby Magic business, both acquired in 1999. The impact of the
additional debt was further compounded by higher average interest rates for the
six months ended July 1, 2000 compared to the same period in 1999.
Consolidated Income Taxes--Our consolidated income taxes increased 13% to $20.9
for the six months ended July 1, 2000. As a percent of pretax earnings, our
effective tax rate decreased 0.5 percentage points to 41.7 for the six months
ended July 1, 2000. Our effective tax rate decreases as non-deductible goodwill
amortization becomes a smaller portion of operating earnings.
Financial Condition and Liquidity
At July 1, 2000, our working capital (current assets net of current
liabilities) increased $5.2 million to $97.2 million. The increase in working
capital resulted from higher total current assets and lower total current
liabilities.
o Total current assets increased $2.6 million at July 1, 2000 compared
to December 25, 1999. This occurred as a result of an increase of
$26.0 million in receivables, primarily as a result of higher net
sales compared to the fourth quarter of 1999 and the impact of
extended credit terms on our Sun Care sales. The seasonal growth in
receivables was offset primarily by a reduction in inventories of
$16.7 million. All other current assets decreased $6.7 million.
o Total current liabilities decreased $2.6 million at July 1, 2000
compared to December 25, 1999. This occurred primarily as a result
of a decrease of $15.3 million in accounts payables due to our
payment for our Sun Care inventory build. Current maturities of
long-term debt increased $13.6 million at July 1, 2000 compared to
December 25, 1999 as a result of principal repayment obligations on
our Term A Loan (see Note 5 of Notes to Condensed Consolidated
Financial Statements). All other current liabilities decreased $0.9
million.
21
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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 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 $15.0
million for the six months ended July 1, 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
between $23.0 million and $25.0 million.
At July 1, 2000, long-term debt (including current portion but excluding
obligations due to related party) was $966.3 million compared to $987.9 million
at December 25, 1999. The decrease of $21.6 million relates to Revolving Credit
Facility repayments of $16.5 million and scheduled principal repayments on our
Term Loan and Term A Loan. At July 1, 2000, we had $97.7 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 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 and requirements.
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't guarantee 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.
Since the beginning of 1998 we 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
22
<PAGE>
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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. One of our objectives is to reduce our ratio of debt to earnings before
interest, taxes, depreciation and amortization (EBITDA) to below 4.0X by the end
of 2001. In 1999, this ratio was 5.3X. 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 $23.8 million in 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.
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. We are currently evaluating the effect
this Statement will have on our financial position and results from operations.
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 anticipate that we will need to restate our net sales and
advertising and promotion expenses and that this restatement will reduce both
our net sales and advertising and promotion expenses by equal and offsetting
amounts. We do not believe this Issue will have any impact on our reported
operating earnings, net income, or earnings per share.
Year 2000
Historically, certain computer programs were written using two digits
rather than four to define the applicable year. As a result, there was concern
that certain software might recognize a date using "00" as 1900 rather than the
year 2000, which may have resulted in computer system failures or
miscalculations. This potential problem was commonly referred to as the Year
2000 ("Y2K") issue. We have not experienced any significant problems associated
with potential Y2K issues. Our efforts to prepare for Y2K cost us approximately
$3.9 million. We will continue to monitor our systems for Y2K issues throughout
the year 2000.
23
<PAGE>
PLAYTEX PRODUCTS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The following should be read in conjunction with Part 1, Item 3., "Legal
Proceedings" in our Annual Report on Form 10-K for the year ended December 25,
1999.
As of the end of July 2000, there were approximately 8 pending toxic shock
syndrome claims relating to Playtex tampons, although additional claims may be
made in the future.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on May 16, 2000, the following
actions were taken:
Eleven Nominees were elected as Directors to hold office until the Annual
Meeting of Stockholders in 2001 and until their successors are duly authorized
and qualified.
Name Votes For Votes Withheld
-------------------- --------- --------------
Robert B. Haas 51,656,919 54,293
Michael R. Gallagher 51,664,532 46,680
Glenn A. Forbes 51,665,497 45,715
Richard C. Blum 51,659,034 51,378
Michael R. Eisenson 51,663,447 47,765
Timothy O. Fisher 51,663,902 47,230
C. Ann Merrifield 51,661,015 50,197
Jeffrey W. Ubben 51,654,345 56,867
Wyche H. Walton 51,654,145 57,067
Douglas D. Wheat 51,652,093 59,117
Kenneth F. Yontz 51,662,547 48,665
The selection of the firm of KPMG LLP was ratified as our independent
auditors for fiscal 2000.
Votes For Votes Against Votes Abstain
---------- ------------- -------------
51,638,558 17,050 55,604
The amendment to the Management Incentive Plan for Key Employees was
approved.
Votes For Votes Against Votes Abstain
---------- ------------- -------------
51,206,311 373,469 51,452
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
(27) Financial Data Schedule
24
<PAGE>
PLAYTEX PRODUCTS, INC.
PART II - OTHER INFORMATION (Continued)
Item 6. Exhibits and Reports on Form 8-K (continued)
b. Reports on Form 8-K
On May 24, 2000, we filed a Current Report on Form 8-K with
the Securities and Exchange Commission pursuant to Item 5 of that
Form. Pursuant to Item 5, we announced that we would not proceed
with a previously announced exchange offer with the holders of our
common stock.
25
<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: August 15, 2000 By: /S/ MICHAEL R. GALLAGHER
--------------------------------------------
Michael R. Gallagher
Chief Executive Officer
(Principal Executive Officer)
Date: August 15, 2000 By: /S/ GLENN A. FORBES
--------------------------------------------
Glenn A. Forbes
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
26
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
27
