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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
FOR THE QUARTER ENDED SEPTEMBER 29, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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, 2001 61,041,199 shares of Playtex Products, Inc. common
stock, par value $.01 per share, were outstanding.
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PLAYTEX PRODUCTS, INC
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements..................... 3 - 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 17 - 28
Item 3. Quantitative and Qualitative Disclosure about Market Risk....... 29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................... 30
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits.................................................... 30
(b) Reports on Form 8-K......................................... 30
Signatures...................................................... 31
2
PLAYTEX PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
SEPTEMBER 29, DECEMBER 30,
2001 2000
------------- ------------
ASSETS (Unaudited)
Current assets:
Cash ............................................................... $ 33,271 $ 10,282
Receivables, less allowance for doubtful accounts .................. 28,866 130,970
Retained interest in receivables ................................... 34,137 --
Inventories ........................................................ 72,853 85,326
Deferred income taxes .............................................. 13,254 13,321
Other current assets ............................................... 4,873 5,416
----------- -----------
Total current assets ........................................... 187,254 245,315
Net property, plant and equipment ....................................... 124,095 118,155
Intangible assets, net .................................................. 659,218 675,263
Deferred financing costs ................................................ 18,520 12,334
Due from related party .................................................. 80,017 80,017
Other noncurrent assets ................................................. 9,370 8,300
----------- -----------
Total assets ................................................... $ 1,078,474 $ 1,139,384
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 28,009 $ 51,535
Accrued expenses ................................................... 67,699 69,800
Income taxes payable ............................................... 6,498 4,622
Current maturities of long-term debt ............................... 700 45,125
----------- -----------
Total current liabilities ...................................... 102,906 171,082
Long-term debt .......................................................... 880,600 886,438
Due to related party .................................................... 78,386 78,386
Other noncurrent liabilities ............................................ 13,525 12,814
Deferred income taxes ................................................... 50,929 46,727
----------- -----------
Total liabilities .............................................. 1,126,346 1,195,447
----------- -----------
Stockholders' equity:
Common stock, $0.01 par value, authorized 100,000,000 shares, issued
61,041,199 shares at September 29, 2001 and 60,970,899 shares at
December 30, 2000 ................................................ 610 609
Additional paid-in capital ......................................... 524,318 523,706
Retained earnings (deficit) ........................................ (569,227) (577,220)
Foreign currency translation adjustment ............................ (3,573) (3,158)
----------- -----------
Total stockholders' equity ..................................... (47,872) (56,063)
----------- -----------
Total liabilities and stockholders' equity ..................... $ 1,078,474 $ 1,139,384
=========== ===========
See the accompanying notes to condensed consolidated financial statements.
3
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands, except per share data)
THREE MONTHS ENDED
-----------------------------
SEPTEMBER 29, SEPTEMBER 30,
2001 2000
------------- -------------
Net sales .................................................................. $187,590 $188,143
Cost of sales .............................................................. 80,009 78,797
-------- --------
Gross profit ........................................................... 107,581 109,346
Operating expenses:
Advertising and sales promotion ........................................ 46,421 42,707
Selling, distribution and research ..................................... 24,057 23,889
Administrative ......................................................... 7,889 7,104
Amortization of intangibles ............................................ 5,515 5,608
-------- --------
Total operating expenses ........................................... 83,882 79,308
Operating earnings .............................................. 23,699 30,038
Interest expense including related party interest expense of $3,037 for both
periods presented, net of related party interest income of $3,001 for
both periods presented ................................................. 17,870 21,208
Other expense .............................................................. 663 --
-------- --------
Earnings before income taxes .................................... 5,166 8,830
Income taxes ............................................................... 2,810 4,370
-------- --------
Net earnings .................................................... $ 2,356 $ 4,460
-------- --------
Earnings per share:
Basic .................................................................. $ 0.04 $ 0.07
======== ========
Diluted ................................................................ $ 0.04 $ 0.07
======== ========
Weighted average shares outstanding:
Basic .................................................................. 61,024 60,872
======== ========
Diluted ................................................................ 61,189 61,364
======== ========
See the accompanying notes to condensed consolidated financial statements.
4
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands except per share data)
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 29, SEPTEMBER 30,
2001 2000
------------- -------------
Net sales .................................................................. $ 632,467 $641,239
Cost of sales .............................................................. 268,369 270,569
--------- --------
Gross profit ........................................................... 364,098 370,670
Operating expenses:
Advertising and sales promotion ........................................ 144,309 139,420
Selling, distribution and research ..................................... 70,674 69,350
Administrative ......................................................... 23,226 21,556
Amortization of intangibles ............................................ 16,545 16,808
--------- --------
Total operating expenses ........................................... 254,754 247,134
Operating earnings .............................................. 109,344 123,536
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 ................................................. 59,125 64,474
Other expense .............................................................. 1,740 --
--------- --------
Earnings before income taxes .................................... 48,479 59,062
Income taxes ............................................................... 21,150 25,293
--------- --------
Earnings before extraordinary loss .............................. 27,329 33,769
--------- --------
Extraordinary loss on early extinguishment of debt,
net of $12,829 tax benefit ............................................. (19,336) --
--------- --------
Net earnings .................................................... $ 7,993 $ 33,769
========= ========
Earnings per share before extraordinary loss:
Basic .................................................................. $ 0.45 $ 0.56
========= ========
Diluted ................................................................ $ 0.45 $ 0.55
========= ========
Earnings per share:
Basic .................................................................. $ 0.13 $ 0.56
========= ========
Diluted ................................................................ $ 0.14 $ 0.55
========= ========
Weighted average shares outstanding:
Basic .................................................................. 60,995 60,781
========= ========
Diluted ................................................................ 62,854 63,092
========= ========
See the accompanying notes to condensed consolidated financial statements.
5
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND ACCUMULATED OTHER COMPREHENSIVE EARNINGS
(Unaudited, in thousands)
ACCUMULATED
COMMON ADDITIONAL RETAINED OTHER
SHARES COMMON PAID-IN EARNINGS COMPREHENSIVE
OUTSTANDING STOCK CAPITAL (DEFICIT) EARNINGS TOTAL
----------- ------ ---------- --------- ------------- ---------
Balance, December 30, 2000 ......... 60,971 $609 $523,706 $(577,220) $(3,158) $(56,063)
Net earnings ....................... -- -- -- 7,993 -- 7,993
Foreign currency translation
adjustment ...................... -- -- -- -- (415) (415)
--------
Comprehensive earnings ....... 7,578
Stock issued to employees exercising
stock options ................... 70 1 612 -- -- 613
------ ---- -------- --------- ------- --------
Balance, September 29, 2001 .. 61,041 $610 $524,318 $(569,227) $(3,573) $(47,872)
====== ==== ======== ========= ======= ========
See the accompanying notes to condensed consolidated financial statements.
6
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 29, SEPTEMBER 30,
2001 2000
------------- -------------
Cash flows from operations:
Net earnings ........................................................... $ 7,993 $ 33,769
Adjustments to reconcile net earnings to net cash flows from operations:
Extraordinary loss, net of tax benefits ............................. 19,336 --
Amortization of intangibles ......................................... 16,545 16,808
Amortization of deferred financing costs ............................ 2,334 2,812
Depreciation ........................................................ 9,647 8,476
Deferred income taxes ............................................... 7,459 5,789
Other, net .......................................................... (219) 428
Net decrease in working capital accounts (including the net effect of
accounts receivable sales of $54,000 in 2001) ........................ 66,582 19,007
--------- --------
Net cash flows from operations .................................. 129,677 87,089
Cash flows used for investing activities:
Purchases of property, plant and equipment ............................. (15,861) (22,376)
Intangible assets acquired, net ........................................ (500) (279)
--------- --------
Net cash flows used for investing activities .................... (16,361) (22,655)
Cash flows provided by (used for) financing activities:
Net borrowings under credit facilities ................................. -- (32,500)
Long-term debt borrowings .............................................. 850,000 --
Long-term debt repayments .............................................. (900,263) (23,814)
Payment of financing costs ............................................. (19,500) --
Payment of debt extinguishment fees and related expenses ............... (21,177) --
Issuance of shares of common stock ..................................... 613 3,318
--------- --------
Net cash flows used for financing activities .................... (90,327) (52,996)
Increase in cash ........................................................... 22,989 11,438
Cash at beginning of period ................................................ 10,282 7,526
--------- --------
Cash at end of period ...................................................... $ 33,271 $ 18,964
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the periods for:
Interest ............................................................. $ 51,665 $ 57,086
Income taxes, net of refunds ......................................... $ (267) $ 19,688
See the accompanying notes to condensed consolidated financial statements.
7
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 29, 2001 are not necessarily
indicative of the results that you may expect for the full year.
Our results for the third quarter of 2001 are for the 13-week period ended
September 29, 2001 and our results for the third quarter of 2000 are for the
13-week period ended September 30, 2000. Our results for the nine month period
ended September 29, 2001 are for a 39-week period, whereas the comparable period
in 2000 is for a 40-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 included 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 30, 2000. 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 Investor
Relations department at (203) 341-4000 or view it on-line at the SEC's web site
WWW.SEC.GOV.
2. COMPREHENSIVE EARNINGS
For the three and nine months ended September 29, 2001 and September 30,
2000 foreign currency translation adjustment was the only reconciling item
between net earnings and comprehensive earnings. Our comprehensive earnings were
(unaudited, in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ -----------------------------
SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net earnings .......................... $ 2,356 $ 4,460 $ 7,993 $ 33,769
Foreign currency translation adjustment (55) (234) (415) (307)
------- ------- ------- --------
Comprehensive earnings ............ $ 2,301 $ 4,226 $ 7,578 $ 33,462
======= ======= ======= ========
3. BALANCE SHEET COMPONENTS
The components of certain balance sheet accounts are as follows (in
thousands):
SEPTEMBER 29, DECEMBER 30,
2001 2000
------------- ------------
(Unaudited)
Cash ................................. $21,670 $10,282
Cash--lock box (1) ................... 11,601 --
------- -------
Net ............................ $33,271 $10,282
======= =======
----------
(1) Cash held in lock box pending weekly settlement procedure for Receivables
Facility (see Note 5).
8
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BALANCE SHEET COMPONENTS (CONTINUED)
The components of certain balance sheet accounts are as follows (in
thousands):
SEPTEMBER 29, DECEMBER 30,
2001 2000
------------- ------------
(Unaudited)
Receivables .............................. $ 29,800 $ 133,207
Less allowance for doubtful accounts ..... (934) (2,237)
--------- ---------
Net ................................ $ 28,866 $ 130,970
========= =========
Inventories:
Raw materials ........................ $ 21,674 $ 25,140
Work in process ...................... 1,552 1,747
Finished goods ....................... 49,627 58,439
--------- ---------
Total .............................. $ 72,853 $ 85,326
========= =========
Net property, plant and equipment:
Land ................................. $ 2,376 $ 2,376
Buildings ............................ 40,684 38,601
Machinery and equipment .............. 184,772 173,226
--------- ---------
227,832 214,203
Less accumulated depreciation ........ (103,737) (96,048)
--------- ---------
Net ................................ $ 124,095 $ 118,155
========= =========
Accrued expenses:
Advertising and sales promotion ...... $ 14,363 $ 23,519
Employee compensation and benefits ... 9,895 13,912
Interest ............................. 16,359 11,233
Insurance ............................ 3,099 3,200
Other ................................ 23,983 17,936
--------- ---------
Total .............................. $ 67,699 $ 69,800
========= =========
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
SEPTEMBER 29, DECEMBER 30,
2001 2000
------------- ------------
(Unaudited)
Variable rate indebtedness:
Term A Loan - 2007 ........................... $ 82,000 $ --
Term B Loan - 2009 ........................... 399,300 --
Term A Loan .................................. -- 129,813
Revolving Credit Facility .................... -- --
Term Loan .................................... -- 241,750
Fixed rate indebtedness:
9 3/8% Senior Subordinated Notes due 2011 .... 350,000 --
6% Convertible Subordinated Notes due 2004 ... 50,000 50,000
8 7/8% Senior Notes due 2004 ................. -- 150,000
9% Senior Subordinated Notes due 2003 ........ -- 360,000
--------- ---------
881,300 931,563
Less current maturities ...................... (700) (45,125)
--------- ---------
Total long-term debt ...................... $ 880,600 $ 886,438
========= =========
9
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
On May 22, 2001, we completed a refinancing of our senior indebtedness
(the "Refinancing Transaction"). In addition, a wholly-owned consolidated newly
formed special purpose bankruptcy remote subsidiary of ours, Playtex A/R LLC,
entered into a receivables purchase agreement (the "Receivables Facility") (see
Note 5) with a third party. The total amount available to us under the
Receivables Facility is up to $100.0 million, depending primarily on the amount
of receivables generated by us, the rate of collection on those receivables, and
other characteristics of the receivables pool which affects their eligibility.
The net proceeds from the Refinancing Transaction and the Receivables Facility
were used to pay-off all outstanding balances under our previous credit
agreement. In addition, we extinguished our 9% Senior Subordinated Notes due
2003 (the "9% Notes"), and our 8 7/8% Senior Notes due 2004 (the "8 7/8%
Notes"). The Refinancing Transaction included:
o The issuance of $350.0 million principal amount of 9 3/8% Senior
Subordinated Notes due June 1, 2011 (the "9 3/8% Notes").
o A new senior secured credit facility (the "Senior Secured Credit
Facility") consisting of:
=> a new six-year $100.0 million term A loan facility (the "Term
A Loan - 2007"),
=> a new eight-year $400.0 million term B loan facility (the
"Term B Loan - 2009"), and
=> a new six-year $125.0 million revolving credit facility (the
"Revolving Credit Facility").
We pay interest on the 9 3/8% Notes semi-annually on June 1 and December 1
of each year, beginning on December 1, 2001. At any time prior to June 1, 2004,
we may redeem up to 35% of the principal amount of the 9 3/8% Notes with the
proceeds of one or more equity offerings at a redemption price of 109.375% of
the principal amount, plus accrued and unpaid interest to the redemption date.
We do not have the option to redeem the 9 3/8% Notes from June 1, 2004 through
May 31, 2006. At our option, we may redeem the notes on or after June 1, 2006 at
the redemption prices (expressed as a percentage of principal amount) listed
below plus accrued and unpaid interest to the redemption date.
Year Percentage
---- ----------
2006............................................... 104.688
2007............................................... 103.125
2008............................................... 101.563
2009 and thereafter................................ 100.000
The Term A Loan - 2007 matures on May 31, 2007. Scheduled principal
repayments are made semi-annually and amount to: $3.0 million in fiscal 2001,
$9.0 million in fiscal 2002, $12.0 million in fiscal 2003, $17.0 million in
fiscal 2004, $23.0 million in fiscal 2005, $24.0 million in fiscal 2006 and
$12.0 million in fiscal 2007. During the third quarter of 2001, we prepaid $18.0
million of scheduled principal payments on the Term A Loan - 2007. Our next
scheduled principal payment on the Term A Loan - 2007 is the November 30, 2003
payment.
The Term B Loan - 2009 matures on May 31, 2009. Scheduled principal
repayments are made semi-annually and amount to: $0.7 million in fiscal 2001,
$1.4 million per year in fiscal years 2002 through 2007, $195.8 million in
fiscal 2008 and $195.1 million in fiscal 2009. During the third quarter of 2001,
we prepaid $0.7 million of scheduled principal payments on the Term B Loan -
2009. Our next scheduled principal payment on the Term B Loan - 2009 is the May
31, 2002 payment.
Loans made under the Revolving Credit Facility will mature on May 22,
2007. At September 29, 2001, we had $123.3 million of unused borrowings
available to us under the Revolving Credit Facility.
10
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
The rates of interest we pay under the Senior Secured Credit Facility vary
over time depending on short-term interest rates and the credit rating assigned
to the Senior Secured Credit Facility. We also pay fees on our Revolving Credit
Facility commitments, which vary depending on our credit rating.
The Convertible Notes are convertible into approximately 2.6 million
shares of our common stock. The conversion price is approximately $19.15 per
common share. The Convertible Notes mature on January 31, 2004 and are callable
by us after January 29, 2002. Interest on the notes is paid semi-annually on
each January 31 and July 31.
We periodically use financial instruments, such as derivatives, to manage
the impact of interest rate changes on our variable rate debt. In connection
with the Refinancing Transaction, our interest rate swap agreements related to
our prior credit agreement were terminated. At September 29, 2001, we were not a
party to any financial instruments and our total indebtedness consisted of
$400.0 million in fixed rate debt and $481.3 million in variable rate debt.
Based on our interest rate exposure at September 29, 2001, a 1% increase in
interest rates would result in an estimated $4.8 million of additional interest
expense on an annualized basis. The rates of interest we pay on our variable
rate debt are, at our option, a function of various alternative short term
borrowing rates. At September 29, 2001 and September 30, 2000, the weighted
average interest rate on our variable rate debt, was 6.22% and 8.24%,
respectively. The weighted average interest rate on our variable rate debt for
the quarters ended September 29, 2001 and September 30, 2000 was 6.62% and
7.93%, respectively.
5. RECEIVABLES FACILITY
As previously mentioned, as part of the Refinancing Transaction on May 22,
2001, we entered into the Receivables Facility. Under the Receivables Facility,
we sell, on a continuous basis to Playtex A/R LLC; a newly formed wholly-owned
bankruptcy remote special purpose company, all eligible trade accounts
receivable. Playtex A/R LLC sells to a third-party commercial paper conduit (the
"Conduit") an undivided fractional ownership interest in these trade accounts
receivable. The Conduit issues short-term commercial paper to finance the
purchase of the undivided fractional interest in the receivables. The total
funding available to us on a revolving basis under the Receivables Facility is
up to $100.0 million, depending primarily on: the amount of receivables
generated by us and sold to Playtex A/R LLC, the rate of collection on those
receivables, and other characteristics of the receivables pool which affects
their eligibility. Our Retained Interest in Receivables represents primarily our
subordinated fractional undivided interest in receivables sold to Playtex A/R
LLC and the net unamortized deferred financing costs incurred by Playtex A/R
LLC. We have agreed to continue servicing the sold receivables at market rates;
accordingly, no servicing asset or liability has been recorded.
At September 29, 2001, Playtex A/R LLC had approximately $91.8 million of
receivables, of which approximately $54.0 million of undivided fractional
interest therein was sold to the Conduit. Since May 22, 2001, we sold in
aggregate approximately $383.9 million of accounts receivable to Playtex A/R
LLC. In return, we've received from Playtex A/R LLC approximately $349.8 million
of cash. We sell receivables at a discount, which is included in Other Expenses
in the Consolidated Statements of Operations. This discount, which was $0.7
million in the third quarter of 2001 and $1.7 million since May 22, 2001,
reflects the estimated fees required by the Conduit to purchase a fractional
undivided interest in the receivables. The fees are based on the payment
characteristics of the receivables, most notably their average life, interest
rates in the commercial paper market and historical credit losses. Also included
in Other Expenses is the impact of the amortization of $1.0 million of deferred
financing costs incurred by Playtex A/R LLC to establish the Receivables
Facility.
11
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RECEIVABLES FACILITY (CONTINUED)
We account for the sale of accounts receivable to Playtex A/R LLC and
related transactions with the Conduit in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." At the time the
receivables are sold, the balances are removed from our balance sheet. Playtex
A/R LLC pays fees on the value of the undivided interest of the receivables sold
to the conduit equal to the 30 day LIBOR rate, which is reset weekly. In
addition, Playtex A/R LLC pays 0.25% per annum fee on the utilized portion of
the Receivables Facility and a 0.45% per annum liquidity fee on the entire
committed amount of the Receivables Facility. Because of the short-term nature,
generally less than 60 days, of our trade accounts receivable sold to Playtex
A/R LLC and the historically low credit risk associated with these receivables,
the carrying value of our Retained Interest in Receivables approximates the fair
value.
Commitments under the Receivables Facility have terms of 364 days, which
may be renewed annually at the option of the Conduit for up to three years upon
satisfaction of certain conditions. The Receivable Facility may be terminated
prior to its term in the event of:
o nonpayment of principal, fees or other amounts when due,
o violation of covenants,
o failure of any representation or warranty to be true in all material
respects when made,
o bankruptcy events,
o material judgments,
o defaults under the Receivables Facility, and
o a servicing default.
6. EXTRAORDINARY LOSS
We recorded an extraordinary loss during our second quarter ended June
30, 2001 of $19.3 million, net of income tax benefits of $12.8 million, as a
result of the Refinancing Transaction (see Note 4). The extraordinary loss was
the result of:
o call premiums payable upon the extinguishment of the 9% Notes and
the 8 7/8% Notes,
o write-off of unamortized deferred financing costs from early
extinguishment of debt,
o fees paid upon the termination of two interest rate swap agreements
related to our prior credit facility, and
o duplicate net interest expense between extinguishment and redemption
of the 8 7/8% Notes and the 9% Notes.
12
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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 DIAPER GENIE diaper disposal system
o BABY MAGIC infant toiletries
o MR. BUBBLE children's bubble bath
o BABY MAGIC/CHUBS baby wipes, and
o BINKY pacifiers.
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. In addition, the Feminine Care product category
includes a personal cleansing wipe for use in feminine hygiene. This product was
introduced in the first quarter of 2001.
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 OGILVIE at-home permanents
o TUSSY deodorant
o DENTAX oral care products
o TEK toothbrushes
o BETTER OFF depilatories, and
o DOROTHY GRAY skin care products
Our INTERNATIONAL/CORPORATE SALES DIVISION includes:
o Sales to specialty classes of trade in the United States including:
warehouse clubs, military, convenience stores, specialty stores, and
telemarketing
o export sales
o sales in Puerto Rico
o results from our Canadian and Australian subsidiaries
o sales of private label tampons
The International/Corporate Sales Division sells the same products as are
available to our U.S. customers.
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.
13
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The results of our divisions for the three and nine months ended
September 29, 2001 and September 30, 2000 are as follows (dollars in thousands):
THREE MONTHS ENDED
-----------------------------------------------
SEPTEMBER 29, 2001 SEPTEMBER 30, 2000
--------------------- ---------------------
NET PRODUCT NET PRODUCT
SALES CONTRIB. SALES CONTRIB.
-------- --------- -------- ---------
Personal Products ................... $121,826 $ 46,634 $126,837 $ 51,746
Consumer Products ................... 30,789 2,102 28,124 2,401
International/Corporate Sales ....... 34,975 14,150 33,182 12,950
Unallocated Charges (1) ............. -- (1,726) -- (458)
-------- --------- -------- ---------
Total Consolidated .............. $187,590 61,160 $188,143 66,639
======== ========
RECONCILIATION TO OPERATING EARNINGS:
Selling, distribution and research .. 24,057 23,889
Administrative ...................... 7,889 7,104
Amortization of intangibles ......... 5,515 5,608
--------- ---------
Operating earnings .............. $ 23,699 $ 30,038
========= =========
NINE MONTHS ENDED
-----------------------------------------------
SEPTEMBER 29, 2001 SEPTEMBER 30, 2000
--------------------- ---------------------
NET PRODUCT NET PRODUCT
SALES CONTRIB. SALES CONTRIB.
-------- --------- -------- ---------
Personal Products ................... $357,284 $ 134,692 $371,992 $ 146,481
Consumer Products ................... 163,840 46,931 165,750 48,769
International/Corporate Sales ....... 111,343 43,840 103,497 40,009
Unallocated Charges (1) ............. -- (5,674) -- (4,009)
-------- --------- -------- ---------
Total Consolidated .............. $632,467 219,789 $641,239 231,250
======== ========
RECONCILIATION TO OPERATING EARNINGS:
Selling, distribution and research .. 70,674 69,350
Administrative ...................... 23,226 21,556
Amortization of intangibles ......... 16,545 16,808
--------- ---------
Operating earnings .............. $ 109,344 $ 123,536
========= =========
-----------
(1) Certain unallocated corporate charges such as business license taxes,
pension expense and product liability insurance are included in
consolidated gross margin, but not included in the evaluation of division
performance.
14
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. 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 29, 2001
and September 30, 2000 (unaudited, in thousands, except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Numerator--net earnings before extraordinary loss:
Net earnings (before extraordinary loss)--as reported .. $ 2,356 $ 4,460 $ 27,329 $33,769
Adjustment for interest on Convertible Notes ........... -- -- 946 946
------- ------- -------- -------
Net earnings before extraordinary loss--as adjusted $ 2,356 $ 4,460 $ 28,275 $34,715
======= ======= ======== =======
Numerator--net earnings:
Net earnings (loss)--as reported ....................... $ 2,356 $ 4,460 $ 7,993 $33,769
Adjustment for interest on Convertible Notes ........... -- -- 946 946
------- ------- -------- -------
Net earnings--as adjusted .......................... $ 2,356 $ 4,460 $ 8,939 $34,715
======= ======= ======== =======
Denominator:
Weighted average shares outstanding--as reported ....... 61,024 60,872 60,995 60,781
Adjustment for dilutive effect of employee stock options 165 492 118 570
Adjustment for dilutive effect of Convertible Notes .... -- -- 1,741 1,741
------- ------- -------- -------
Weighted average shares outstanding--as adjusted ... 61,189 61,364 62,854 63,092
======= ======= ======== =======
Earnings per share--before extraordinary loss:
Basic .................................................. $ 0.04 $ 0.07 $ 0.45 $ 0.56
Diluted ................................................ $ 0.04 $ 0.07 $ 0.45 $ 0.55
Loss per share--impact of extraordinary loss (1):
Basic .................................................. $ -- $ -- $ (0.32) $ --
Diluted ................................................ $ -- $ -- $ (0.31) $ --
Earnings (loss) per share:
Basic .................................................. $ 0.04 $ 0.07 $ 0.13 $ 0.56
Diluted ................................................ $ 0.04 $ 0.07 $ 0.14 $ 0.55
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 on earnings before
extraordinary loss (have the affect of increasing EPS), the impact of the
dilutive securities is not included in the computation.
-----------
(1) During the second quarter of 2001, we incurred an extraordinary loss of
$19.3 million, net of tax benefits (see Note 6).
15
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. 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.
16
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 30, 2000.
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 may 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 the Risk Factors that are listed in
Item I. of our Annual Report on Form 10-K for the year ended December 30, 2000,
and:
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 product sales
and returns,
o our level of debt,
o interest rate fluctuations,
o future cash flows,
o dependence on key employees, and
o highly competitive nature of the consumer products business.
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: ACTIVE SPORT, BABY MAGIC, BANANA BOAT, BINACA, BINKY,
BLASTERS, BIG SIPSTER, CHUBS, COOL COLORZ, COMFORTFLOW, COOLSTRAW, DENTAX,
DIAPER GENIE, DROP-INS, FAST BLAST, FUNKY FRUIT, GENTLE GLIDE, GET ON THE BOAT,
HANDSAVER, LIPPOPS, MOST LIKE MOTHER, MR. BUBBLE, NATURAL ACTION, OGILVIE,
PRECISELY RIGHT, PRECISION FLO, QUICKSTRAW, QUIK BLOK, SAFE'N SURE, SILK GLIDE,
SIPEASE, SLIMFITS, TUB MATE, TEK, TUSSY, VENTAIRE, WET ONES and WHISPER WAVE. 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.
17
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
ITEMS AFFECTING COMPARABILITY
Our results for the third quarter of 2001 are for the 13-week period ended
September 29, 2001 and our results for the third quarter of 2000 are for the
13-week period ended September 30, 2000. Our results for the nine month period
ended September 29, 2001 are for a 39-week period, whereas the comparable period
in 2000 is for a 40-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 ended December 30, 2000 included the extra week, or 53
weeks.
All references to market share and market share data are for comparable 13
and 39 week periods and represent our percentage of the total U.S. dollar volume
of products purchased by consumers in the applicable category (dollar market
share, or retail consumption). This information is provided to us from the
ACNielsen Company and is subject to revisions. The market share data provided in
this Quarterly Report on Form 10-Q does not include consumption data from
Wal-Mart Stores, Inc., as they ceased to provide this information to third
parties. All prior period market share data has been revised to reflect the
elimination of data from Wal-Mart Stores, Inc. There were no meaningful changes
in market share trends or comparatives, when compared to prior market dollar
share data provided by ACNielsen Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 29, 2001 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 2000
CONSOLIDATED NET SALES--Our consolidated net sales decreased $0.6 million to
$187.6 million in the third quarter of 2001. Our comparative third quarter
results were negatively impacted by: a difficult economic environment and
competitive issues, primarily in Infant Care.
PERSONAL PRODUCTS DIVISION--Net sales decreased $5.0 million, or 4%, to
$121.8 million in the third quarter of 2001.
Net sales of INFANT CARE products decreased $6.2 million, or
9%, to $64.1 million in the third quarter of 2001. The sales decline
was primarily the result of continued competitive activity,
primarily in our Cups and Infant Toiletries businesses. We believe
our Infant Care businesses will remain highly competitive in the
future. As a result, we will continue to aggressively defend our
market share positions through product innovation and targeted
advertising and promotional activity.
In INFANT FEEDING, our dollar market share decreased 2.6
percentage points in the third quarter of 2001, to 38.0%, from
40.6% in the third quarter of 2000. The dollar market share
decline was primarily the result of increased competitive
activity in our Cups business.
In CUPS, our dollar market share decreased 6.5
percentage points in the third quarter of 2001, to 52.4%,
from 58.9% in the third quarter of 2000. The cups
category, based on total dollar volume of cups purchased
by consumers, decreased 3.4% in the third quarter of 2001
and our retail consumption decreased 14.1%. The cups
category has become increasingly competitive with an
influx of additional lower-priced product offerings. Our
dollar market share and consumption shortfalls were due
primarily to market share gains by competitors as a result
of their lower-priced products and increases in their
price promotional activities. We believe the category will
remain competitive and sensitive to pricing. As a result,
we will support the brand with strategic promotional
activities as well as continue to innovate to bring new
products to the category. We will be introducing a new Cup
to the market in the first quarter of 2002, the PLAYTEX
Insulator. The PLAYTEX Insulator is our next generation
spill-proof cup product that will keep contents cooler and
fresher longer than our traditional spill-proof cups.
18
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
In DISPOSABLE FEEDING, our dollar market share
increased 2.8 percentage points in the third quarter of
2001, to 85.5%, from 82.7% in the third quarter of 2000.
Retail consumption in the category decreased 8.7% in the
third quarter of 2001 and our consumption decreased 5.6%.
We believe retail consumption in the category is soft
primarily due to growth in the reusable hard bottle
segment. The reusable hard bottle segment has benefited
from innovation and the result of the economic
environment, as reusable hard bottles are less costly to
use than disposable feeding systems.
In REUSABLE HARD BOTTLES, our dollar market share
increased 1.2 percentage points in the third quarter of
2001, to 16.6%, from 15.4% in the third quarter of 2000.
Retail consumption of our reusable bottles increased 9.5%
while the category increased 2.1%. This success was the
result of our introduction of two new innovative hard
bottles, VENTAIRE and PRECISION FLO.
In DIAPER PAILS (pails and liner refills), our dollar
market share increased 0.3 percentage points in the third
quarter of 2001, to 92.4%, from 92.1% in the third quarter of
2000. Retail consumption in the category increased 5.7% and
our consumption increased 6.1%.
In PRE-MOISTENED TOWELETTES (hands and face category),
our dollar market share decreased 11.8 percentage points in
the third quarter of 2001, to 61.9%, from 73.7% in the third
quarter of 2000. Retail consumption of our WET ONES brand
increased 14.2% in the third quarter of 2001 while the
category grew 36.1%. There has been a steady influx of new
competitors to the category and they are making significant
investments in advertising and promotion to generate trial of
their products. This is negatively impacting our market share
levels but favorably impacting our consumption levels as more
consumers enter the hands and face category. We believe the
influx of new consumers to the category has been beneficial to
us given the increased consumption of our product, even
though, it has negatively impacted our market share. In the
first quarter of 2002, we expect to ship a new product for use
in the bathroom, WET ONES Flushables. This product will extend
our pre-moistened towelettes into a new category.
In INFANT TOILETRIES, our dollar market share decreased
3.4 percentage points in the third quarter of 2001, to 8.1%,
from 11.5% in the third quarter of 2000. Retail consumption of
our BABY MAGIC brand decreased 24.5% while the category grew
6.8%. The infant toiletries category has become increasingly
competitive, as a result of two additional competitors to the
category offering a full spectrum of infant toiletries, since
the beginning of the year 2000. We have a number of new BABY
MAGIC products that we are expecting to ship late in the
fourth quarter of 2001, including a foaming hair and body wash
and foaming shampoo. Also, we are revising our packaging
graphics and product-dispensing applications in order to
enhance consumer awareness and improve ease of use.
In BABY WIPES, our dollar market share decreased 1.0
percentage point in the third quarter of 2001, to 2.0%, from
3.0% in the third quarter of 2000. Retail consumption of our
baby wipes decreased 26.5% while the category grew 8.5%. The
baby wipes category remains very competitive.
Net sales of FEMININE CARE products increased $1.2 million, or
2%, to $57.7 million in the third quarter of 2001. Our share of the
U.S. tampon category declined 0.6 percentage points in the third
quarter of 2001, to 29.8%, from 30.4% in the third quarter of 2000.
Our retail consumption grew 0.6%, in dollars, while the category
grew 2.8%. The tampon category experienced an increase in price
promotional activity in the plastic applicator segment and some
private label impact in the cardboard applicator segment, beginning
early in 2001. We believe the category is not impacted materially by
price promotional activity over time due to the consumer loyalty
historically found in this category.
19
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
CONSUMER PRODUCTS DIVISION--Net sales increased $2.7 million, or 9%, to
$30.8 million in the third quarter of 2001.
Net sales of SUN CARE products increased $3.6 million to $5.0
million in the third quarter of 2001, from $1.4 million in the third
quarter of 2000. Our dollar market share of the sun care category
increased 0.5 percentage points in the third quarter of 2001, to
22.5%, from 22.0% in the third quarter of 2000. Retail consumption
of our Sun Care products increased 16.8%, in dollars, while the
category grew 13.7%. The sun care business is highly seasonal and
the third quarter is typically the slowest quarterly period.
Net sales of HOUSEHOLD PRODUCTS decreased $0.4 million, or 2%,
to $15.2 million in the third quarter of 2001. The decrease was due
to new competitive activity in our Gloves business. In Gloves, our
dollar market share decreased 3.2 percentage points in the third
quarter of 2001, to 32.3%, from 35.5% in the third quarter of 2000.
Retail consumption, in dollars, of our gloves products decreased
8.9%, while the category grew 0.2%. This decrease was due to
competitive activities. Our dollar market share of the rug and
upholstery cleaning category, increased 1.3 percentage points to
21.5%, from 20.2% in the third quarter of 2000. Retail consumption
of our WOOLITE products increased 5.8%, in dollars, while the
category decreased 0.7%. The increase in market share and
consumption was due, in part, to the introduction of WOOLITE Spot &
Stain Wipes in the first quarter of 2001. In the fourth quarter of
2001, we will introduce a new intensified aerosol spray carpet stain
remover product, WOOLITE Instant Power Shot.
Net sales of PERSONAL GROOMING products decreased $0.6
million, or 5%, to $10.6 million in the third quarter of 2001. Our
two largest Personal Grooming brands OGILVIE and BINACA each
experienced growth in market share despite weakness in their
categories. OGILVIE increased its dollar market share to 70.3% of
the home perms/straighteners category, which was a gain of 3.6
percentage points compared to the third quarter of 2000. Retail
consumption of our OGILVIE products decreased 3.4%, while the
category declined 8.3%. BINACA increased its dollar market share to
48.1% of the breath freshener (spray and drops) category, which was
a gain of 3.4 percentage points compared to the third quarter of
2000. Retail consumption of our BINACA products declined 3.3%, while
the category declined 10.1%. Net sales of our other non-core
Personal Grooming products (toothbrushes and skin care brands) had
disappointing quarterly performance with sales declines of 29% and
4%, respectively.
INTERNATIONAL/CORPORATE SALES DIVISION--Net sales increased $1.8 million,
or 5%, to $35.0 million in the third quarter of 2001. The increase was due
primarily to higher net sales in our specialty classes of trade and in
Puerto Rico. Net sales in the specialty classes of trade increased 18% in
the third quarter of 2001 compared to the same period in 2000. Net sales
of tampons and our infant cup products accounted for most of the growth.
CONSOLIDATED GROSS PROFIT--Our consolidated gross profit decreased $1.8 million,
or 2%, to $107.6 million in the third quarter of 2001. As a percent of net
sales, gross profit decreased 0.8 percentage points, to 57.3%. The decrease in
gross profit and gross profit as a percent of net sales was due primarily to
lower net sales and product mix.
CONSOLIDATED PRODUCT CONTRIBUTION--Our consolidated product contribution
decreased $5.5 million, or 8%, to $61.2 million in the third quarter of 2001.
The decrease was due to our lower net sales and gross profit, as noted above,
and our continued investment in advertising and promotions to support our brands
for the long term. Advertising and promotional expenditures increased $3.7
million to 24.7% of net sales versus 22.7% in the third quarter of 2000. Product
contribution, as a percent of net sales, was 32.6% for the third quarter of 2001
compared to 35.4% for the comparable periods.
20
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
PERSONAL PRODUCTS DIVISION--Product contribution decreased $5.1 million,
or 10%, to $46.6 million in the third quarter of 2001. As a percent of net
sales, product contribution decreased 2.5 percentage points to 38.3%. The
decrease was due to lower net sales, lower gross profit and higher
advertising and promotional spending.
CONSUMER PRODUCTS DIVISION--Product contribution decreased $0.3 million,
or 12%, to $2.1 million in the third quarter of 2001. As a percent of net
sales, product contribution decreased 1.7 percentage points to 6.8%. The
decreases were primarily the result of higher advertising and promotional
spending. Product contribution as a percent of net sales is typically
lower in the third quarter due to the low level of Sun Care sales in this
time period.
INTERNATIONAL/CORPORATE SALES DIVISION--Product contribution increased
$1.2 million, or 9%, to $14.2 million in the third quarter of 2001. As a
percent of net sales, product contribution increased 1.4 percentage points
to 40.5%. The increase in product contribution was due primarily to higher
net sales and the higher product contribution margin was due to the mix of
products sold.
CONSOLIDATED OPERATING EARNINGS--Our consolidated operating earnings decreased
$6.3 million, or 21%, to $23.7 million in the third quarter of 2001. The
decrease in operating earnings was the result of lower consolidated product
contribution as discussed, and higher selling, distribution, research and
administrative expenses reflecting normal inflationary increases.
CONSOLIDATED INTEREST EXPENSE, NET--Our consolidated interest expense, net
decreased $3.3 million, or 16%, to $17.9 million in the third quarter of 2001.
Our short-term interest rates and average debt balances decreased in the third
quarter of 2001 compared to the third quarter of 2000. Our weighted average
interest rates on our variable rate debt decreased 131 basis points, to 6.62%,
from 7.93% in the third quarter of 2000 and our average debt levels were lower
by $4.8 million.
CONSOLIDATED OTHER EXPENSE--Our consolidated other expense was $0.7 million in
the third quarter of 2001. During the second quarter of 2001, we entered into a
receivables purchase agreement with a third party as part of the Refinancing
Transaction (see Note 5). The amount charged to other expense represents the
discount offered to the third party on the sale of receivables and the
amortization of deferred financing costs associated with the receivables
purchase agreement.
CONSOLIDATED INCOME TAXES--Our consolidated income taxes decreased $1.6 million,
or 36%, to $2.8 million in the third quarter of 2001. As a percent of pre-tax
earnings, our effective tax rate of 54.4% increased 4.9 percentage points
compared to the third quarter of 2000. We adjusted our estimated full-year
effective tax rate in the third quarter of 2001, to 43.6% of pre-tax earnings
from our estimate of 42.3% at the end of the second quarter of 2001. Our
effective tax rate increases, as the portion of goodwill amortization that is
non-deductible for tax purposes becomes a larger portion of expected full year
operating earnings.
NINE MONTHS ENDED SEPTEMBER 29, 2001 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 2000
CONSOLIDATED NET SALES--Our consolidated net sales decreased $8.8 million, or
1%, to $632.5 million for the nine months ended September 29, 2001. Our
comparative nine months results were negatively impacted by: a difficult
economic and competitive environment and the impact of the extra week in the
nine months ended September 30, 2000.
PERSONAL PRODUCTS DIVISION--Net sales decreased $14.7 million, or 4%, to $357.3
million for the nine months ended September 29, 2001.
Net sales of INFANT CARE products decreased $13.6 million, or
6%, to $196.8 million for the nine months ended September 29, 2001.
The sales decline was primarily the result of continued competitive
21
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
activity, primarily in our Cups and Infant Toiletries businesses. We
believe our Infant Care businesses will remain highly competitive in
the near future.
In INFANT FEEDING, our dollar market share decreased 2.7
percentage points for the nine months ended September 29,
2001, to 38.9%, from 41.6% for the nine months ended September
30, 2000. The dollar market share decline was the result of
increased competitive activity in our Cups business and, to a
lesser extent, consumption shortfalls in disposable feeding
and our recall of two pacifier products in May 2000.
In CUPS, our dollar market share decreased 6.3
percentage points for the nine months ended September
29, 2001, to 53.6%, from 59.9% for the nine months ended
September 30, 2000. The cups category, based on total
dollar volume of cups purchased by consumers, increased
1.8% for the nine months ended September 29, 2001 and
our retail consumption decreased 8.9%. The cups category
has become increasingly competitive with an influx of
lower-priced product offerings. Our dollar market share
and consumption shortfalls were due primarily to market
share gains by these lower-priced products, in part,
driven by price promotional activities by competitors.
We believe the category will remain competitive and
sensitive to pricing. As a result, we will support the
brand with strategic promotional activities as well as
continue to innovate to bring new products to the
category. We will be introducing a new Cup to the market
in the first quarter of 2002, the PLAYTEX Insulator. The
PLAYTEX Insulator is our next generation spill-proof cup
product that will keep contents cooler and fresher
longer than our traditional spill-proof cups.
In DISPOSABLE FEEDING, our dollar market share
increased 2.3 percentage points for the nine months
ended September 29, 2001, to 84.6%, from 82.3% for the
nine months ended September 30, 2000. Retail consumption
in the category decreased 5.7% for the nine months ended
September 29, 2001 and our consumption decreased 3.0%.
Our market share position improved as consumers returned
to our franchise after some initial trial of a heavily
promoted new competitive product offering. We believe
the decline in retail consumption is attributable to
growth, led by us, in the reusable hard bottle segment
and the result of the economic environment, as reusable
hard bottles are less costly to use than disposable
feeding systems.
In REUSABLE HARD BOTTLES, our dollar market share
increased 2.3 percentage points for the nine months
ended September 29, 2001, to 17.0%, from 14.7% for the
nine months ended September 30, 2000. Retail consumption
of our reusable bottles increased 20.4% while the
category grew 4.2%. This success was the result of our
introduction of two new innovative hard bottles,
VENTAIRE and PRECISION FLO.
In DIAPER PAILS (pails and liner refills), our dollar
market share decreased 0.5 percentage points for the nine
months ended September 29, 2001, to 93.0%, from 93.5% for the
nine months ended September 30, 2000. Retail consumption in
the category increased 6.8% and our consumption increased
6.3%.
In PRE-MOISTENED TOWELETTES (hands and face category),
our dollar market share decreased 11.6 percentage points for
the nine months ended September 29, 2001, to 60.1%, from 71.7%
for the nine months ended September 30, 2000. Retail
consumption of our WET ONES brand increased 12.6% for the nine
months ended September 29, 2001 while the category grew 34.4%.
There has been a steady influx of new competitors to the
category and they are making significant investments in
advertising and promotion to generate trial of their products.
This is negatively impacting our market share levels but
favorably impacting our consumption levels as more consumers
enter the hands and face category. We believe the influx of
new consumers to the category will be beneficial to us, even
though, it is negatively impacting our
22
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
market share. In the first quarter of 2002, we expect to ship
a new product for use in the bathroom, WET ONES Flushables.
This product will extend our pre-moistened towelettes into a
new category.
In INFANT TOILETRIES, our dollar market share decreased
2.3 percentage points for the nine months ended September 29,
2001, to 8.9%, from 11.2% for the nine months ended September
30, 2000. Retail consumption of our BABY MAGIC brand decreased
15.2% while the category grew 6.7%. Increased competitive
activity has been the driving factor on this market share
decline. As mentioned previously, we have a number of new BABY
MAGIC products that we are expecting to ship late in the
fourth quarter of 2001, including a foaming hair and body wash
and foaming shampoo. Also, we are revising our packaging
graphics and product-dispensing applications in order to
enhance consumer awareness and improve ease of use.
In BABY WIPES, our dollar market share decreased 0.5
percentage points for the nine months ended September 29,
2001, to 2.6%, from 3.1% for the nine months ended September
29, 2000. Retail consumption of our baby wipes decreased 6.9%
while the category grew 9.1%. The baby wipes category remains
very competitive.
Net sales of FEMININE CARE products decreased $1.1 million, or
1%, to $160.5 million for the nine months ended September 29, 2001.
Our share of the U.S. tampon category declined 0.4 percentage points
for the nine months ended September 29, 2001, to 29.9%, from 30.3%
for the nine months ended September 30, 2000. Our retail consumption
grew 1.4%, in dollars, while the category grew 2.7%. The tampon
category experienced an increase in price promotional activity in
the plastic applicator segment and some private label activity in
the cardboard applicator segment beginning early in 2001, which
negatively impacted our results. We believe the category is not
impacted materially, in the long-term, by price promotional activity
due to the consumer loyalty historically found in this category.
CONSUMER PRODUCTS DIVISION--Net sales decreased $1.9 million, or 1%, to
$163.8 million for the nine months ended September 29, 2001.
Net sales of SUN CARE products decreased $2.8 million, or 3%,
to $90.1 million for the nine months ended September 29, 2001. Our
dollar market share of the sun care category was unchanged at 21.5%
for both of the comparable periods. Retail consumption of our Sun
Care products increased 8.6%, in dollars, while the category grew
8.7%. The sun care season got off to a slow start with an
unfavorable weather pattern in early May through the Memorial Day
holiday. We believe this led retailers to cut back on early seasonal
reorders, which typically occur during that time. In addition, the
majority of the consumption growth early in the season occurred in
sunless and indoor tanning products. We do not have any indoor
tanning product offerings and while we do have sunless products,
they have not been an area of focus for our business. The sun care
season improved after Memorial Day in the "In Sun/After Sun"
segment, which excludes sunless and indoor tanning. This segment of
the sun care category grew 4.9% for the 2001 season while our retail
consumption grew 10.3% compared to the 2000 sun care season. Our
dollar market share of the "In Sun/After Sun" segment was 24.1% for
the 2001 season versus 22.9% in 2000. We have a large array of new
products for the 2002 season including an indoor tanning product and
VITASKIN Advanced Sun Protection, a line that combines the benefits
of sun protection with a quality skin care product designed for
everyday use.
Net sales of HOUSEHOLD PRODUCTS increased $1.4 million, or 4%,
to $41.9 million for the nine months ended September 29, 2001. The
increase was due to our WOOLITE business, which grew its dollar
market share to 20.7% of the rug and upholstery cleaning category,
an increase of 1.2 percentage points compared to the nine months
ended September 30, 2000. Retail consumption of our WOOLITE products
increased 2.4%, while the category decreased 3.8%. We introduced a
new product--WOOLITE Spot & Stain Wipes, late in the
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PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
first quarter of 2001, which aided our market share and consumption
growth. In Gloves, our dollar market share decreased 2.8 percentage
points for the nine months ended September 29, 2001, to 33.4%, from
36.2% for the nine months ended September 30, 2000. Retail
consumption of our gloves products decreased 6.1%, while the
category grew 1.4%. The decreases in market share and consumption
was due to competitive activities.
Net sales of PERSONAL GROOMING products decreased $0.5
million, or 2%, to $31.8 million for the nine months ended September
29, 2001. Our two largest Personal Grooming brands OGILVIE and
BINACA each experienced growth in market share. OGILVIE increased
its dollar market share to 70.3% of the home perms/straighteners
category, which was a gain of 5.4 percentage points compared to the
nine months ended September 30, 2000. Retail consumption of our
OGILVIE products increased 2.6%, in dollars, surpassing the
category, which declined 5.3%. BINACA increased its dollar market
share to 47.4% of the breath freshener (spray and drops) category,
which was a gain of 2.3 percentage points compared to the nine
months ended September 30, 2000. Retail consumption of our BINACA
products decreased 4.1%, while the category declined 8.7%. For our
non-core businesses, net sales of our toothbrushes declined 26% for
the nine months ended September 29, 2001 compared to the comparable
period in 2000 and our skin care brands net sales were essentially
flat.
INTERNATIONAL/CORPORATE SALES DIVISION--Net sales increased $7.8 million,
or 8%, to $111.3 million for the nine months ended September 29, 2001. The
increase was due primarily to higher net sales in our specialty classes of
trade. Net sales in the specialty classes of trade increased 13% for the
nine months ended September 29, 2001 compared to the same period in 2000.
Net sales of our feminine care and infant cup products accounted for most
of the growth.
CONSOLIDATED GROSS PROFIT--Our consolidated gross profit decreased $6.6 million,
or 2%, to $364.1 million for the nine months ended September 29, 2001. As a
percent of net sales, gross profit decreased 0.2 percentage points, to 57.6%.
The decrease in gross profit and gross profit as a percent of net sales was due
primarily to lower net sales and product mix.
CONSOLIDATED PRODUCT CONTRIBUTION--Our consolidated product contribution
decreased $11.5 million, or 5%, to $219.8 million for the nine months ended
September 29, 2001. As a percent of net sales, product contribution decreased
1.3 percentage points to 34.8%. The decreases were due to our lower net sales
and gross profit, as noted above, and increased expenditures for advertising and
promotions. Advertising and promotional expenditures increased $4.9 million, to
22.8% of net sales versus 21.7% for the nine months ended September 30, 2000.
The increased advertising and promotional expenditures as a percent of net sales
were primarily behind our Infant Care, Sun Care and Household Products
businesses.
PERSONAL PRODUCTS DIVISION--Product contribution decreased $11.8 million,
or 8%, to $134.7 million for the nine months ended September 29, 2001. As
a percent of net sales, product contribution decreased 1.7 percentage
points to 37.7%. The decreases were due to our lower net sales, which were
driven by competitive pressures in Infant Care and higher advertising and
promotional expenditures as a percent of net sales in support of the
Infant Care business.
CONSUMER PRODUCTS DIVISION--Product contribution decreased $1.8 million,
or 4%, to $46.9 million for the nine months ended September 29, 2001. As a
percent of net sales, product contribution decreased 0.8 percentage points
to 28.6%. The declines were the result of lower net sales as noted above
and higher advertising and promotional expenditures.
INTERNATIONAL/CORPORATE SALES DIVISION--Product contribution increased
$3.8 million, or 10%, to $43.8 million for the nine months ended September
29, 2001. As a percent of net sales, product contribution increased
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PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
0.7 percentage points to 39.4%. The increase in product contribution was
due primarily to higher net sales and the increase in product contribution
margin was due to product mix.
CONSOLIDATED OPERATING EARNINGS--Our consolidated operating earnings decreased
$14.2 million, or 11%, to $109.3 million for the nine months ended September 29,
2001. The decrease in operating earnings was the result of lower consolidated
product contribution as discussed, and higher selling, distribution, research
and administrative expenses reflecting normal inflationary increases.
CONSOLIDATED INTEREST EXPENSE, NET--Our consolidated interest expense, net
decreased $5.3 million, or 8%, to $59.1 million for the nine months ended
September 29, 2001, due to, lower average debt balances compared to the same
period in the prior year and lower average interest rates on our variable rate
debt. We reduced our average level of debt by $24.0 million compared to our
average debt levels for the nine months ended September 30, 2000. In addition,
our weighted average interest rates on our variable rate debt decreased 40 basis
points, to 7.24%, from 7.64% for the nine months ended September 30, 2000.
CONSOLIDATED OTHER EXPENSE--As part of the Refinancing Transaction and
subsequent sale of receivables, we incurred consolidated other expense of $1.7
million (see Note 5).
CONSOLIDATED INCOME TAXES--Our consolidated income taxes decreased $4.1 million,
or 16%, to $21.2 million for the nine months ended September 29, 2001. As a
percent of pre-tax earnings, our effective tax rate increased 0.8 percentage
points to 43.6% of pre-tax earnings. Our effective tax rate increases, as the
portion of goodwill amortization that is non-deductible for tax purposes becomes
a larger portion of operating earnings.
FINANCIAL CONDITION AND LIQUIDITY
On May 22, 2001, we completed a refinancing of our senior indebtedness. We
issued $350.0 million principal amount of 9 3/8% Notes, entered into a new
senior secured credit facility consisting of a new six-year $100.0 million term
A loan facility, a new eight-year $400.0 million term B loan facility, and a new
six-year $125.0 million revolving credit facility. In addition, we entered into
a Receivables Facility through a newly formed special purpose bankruptcy remote
subsidiary, Playtex A/R LLC. The net proceeds from the Refinancing Transaction
and the Receivables Facility were used to pay-off all outstanding balances under
our prior credit agreement. In addition, we extinguished our 9% Notes and our 8
7/8% Notes. In the second quarter of 2001, we recorded an extraordinary loss of
$19.3 million net of income tax benefits, as a result of the Refinancing
Transaction. The extraordinary loss included cash provisions for call premiums
on the 9% Notes and 8 7/8% Notes, termination fees for two interest rate swap
agreements related to our prior credit facility, and net interest expense during
the period between extinguishment and redemption of the 9% Notes and 8 7/8%
Notes. The extraordinary loss also contained a non-cash provision for the
write-off of unamortized deferred financing costs related to the 9% Notes, 8
7/8% Notes and prior credit agreement.
At September 29, 2001, our working capital (current assets net of current
liabilities) increased $10.1 million to $84.3 million compared to $74.2 million
at December 30, 2000.
o Total current assets decreased $58.1 million at September 29, 2001
compared to December 30, 2000. The decrease was primarily the result
of the sale of accounts receivables via the Receivables Facility and
reduced inventory balances due to the seasonal nature of our Sun
Care business. Our receivables decreased $102.1 million, primarily
as a result of the sale of receivables to Playtex A/R LLC in
conjunction with our Receivables Facility. At September 29, 2001, we
had a subordinated retained interest in receivables, held by Playtex
A/R LLC of $34.1 million as part of the Receivables Facility, which
amount is reflected as retained interest in receivables in our
consolidated financial statements. Inventories decreased $12.5
million at September 29, 2001 due to the seasonality of Sun Care
inventory balances.
25
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
o Total current liabilities decreased $68.2 million at September 29,
2001 compared to December 30, 2000. The decrease was primarily the
result of reductions in our current maturities of long-term debt. We
reduced our current maturities of long-term debt by $44.4 million at
September 29, 2001 compared to December 30, 2000 as a result of the
Refinancing Transaction and prepayment of certain debt balances
under the Senior Secured Credit Facility. In addition, we reduced
accounts payable by $23.5 million due primarily to our payment for
our Sun Care inventory build.
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 a portion of 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 and
offset revenue 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 $15.9
million for the nine months ended September 29, 2001. These expenditures were
used primarily to expand capacity in key product areas, upgrade production
equipment and maintain our facilities. Capital expenditures for 2001 are
expected to be comparable to 2000 levels.
At June 30, 2001, long-term debt (including current portion but excluding
obligations due to related party) was $881.3 million compared to $931.6 million
at December 30, 2000. On May 22, 2001, we completed a refinancing of our senior
indebtedness, which extended our principal debt repayment obligations. During
the third quarter of 2001, we prepaid $18.0 million of scheduled principal
payments on the Term A Loan - 2007 and $0.7 million of scheduled principal
payments on the Term B Loan - 2009. Our fixed principal debt repayment
obligations at September 29, 2001 are (excluding balances outstanding under the
Revolving Credit Facility and due to related party):
o $1.4 million in 2002,
o $7.4 million in 2003,
o $68.4 million in 2004,
o $24.4 million in 2005,
o $25.4 million in 2006, and
o $754.3 million thereafter.
We intend to fund our operating cash, capital expenditures and debt
service requirements through cash flow generated from operations, proceeds from
the Receivables Facility, and borrowings under the Revolving Credit Facility
through fiscal 2007. However, we do not expect to generate sufficient cash flow
from operations to make the scheduled principle payments on the Term B loan due
in fiscal 2008 and 2009, which collectively total $390.9 million. In addition,
we do not expect to generate sufficient cash flow from operations to make the
$350.0 million scheduled principle payment on the 9 3/8% Notes due in fiscal
2011. Accordingly, we will have to either refinance our obligations, sell assets
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 sufficient or that future borrowing
facilities will be available for the payment or refinancing of our debt on
economically attractive terms.
The Revolving Credit Facility provides for borrowings of up to $125.0
million and matures on May 22, 2007. At September 29, 2001, we had $123.3
million available to borrow under the Revolving Credit Facility. The total
funding available to us on a revolving basis under the Receivables Facility is
up to $100.0 million, depending primarily on the amount of receivables
generated, the rate of collection on those receivables, and other
characteristics of the receivables pool which affects their eligibility. At
September 29, 2001, the undivided fractional interest sold by Playtex A/R LLC to
a third party commercial paper conduit was $54.0 million.
26
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Terms of the new Senior Secured Credit Facility 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 terms of the 9 3/8% Notes contain similar restrictions.
Since the beginning of 1998, we have made a number of acquisitions and
financed them by borrowing additional money, issuing a Convertible Note and
shares of our Common Stock. We will continue to consider acquisitions 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.
Inflation in the United States and Canada has not had a significant effect
on our operations during recent periods.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") reached a consensus on Issue No. 00-14,
"Accounting for Certain Sales Incentives". In April of 2001, the EITF of the
FASB reached a consensus on Issue No. 00-25, "Vendor Income Statement
Characterization of Consideration from a Vendor to a Retailer." Both of these
Issues will become effective for us in the first quarter of 2002. These issues
address the recognition, measurement, and income statement classification for
certain advertising, promotional and cooperative spending activities. These
issues will require restatement of our net sales and certain advertising and
promotion expenses. These restatements will reduce both our net sales and
advertising and promotion expenses by equal and offsetting amounts. This will
not have any impact on our reported operating earnings, net income, or earnings
per share. They 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. We are currently evaluating the requirements of these
Issues and have not determined the magnitude of these restatements.
In July 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No.141 applies to all business combinations with a
closing date after June 30, 2001. This statement eliminates the
pooling-of-interests method of accounting and further clarifies the criteria for
recognition of intangible assets separately from goodwill.
SFAS No. 142 eliminates the amortization for goodwill and other
indefinite-lived intangible assets, such as trademarks, and initiates an annual
review for impairment for these items. Identifiable intangible assets, like
patents, with a determinable useful life will continue to be amortized. We will
adopt SFAS No. 142 effective December 30, 2001, the start of our fiscal year
2002. Upon adoption, we will cease the amortization of our remaining net
goodwill balance and trademarks that are determined to have indefinite lives. We
will perform impairment tests on our indefinite-lived intangible assets based on
a fair value concept within the prescribed time lines of SFAS No. 142. Although
we are still reviewing the provisions of these Statements, it is our preliminary
assessment that our amortization expense will be significantly reduced in 2002.
As of September 29, 2001, we had net unamortized goodwill of $498.4 million
and net unamortized trademarks and patents of $160.8 million. For the nine-month
periods ended September 29, 2001 and September 30, 2000 we had goodwill
amortization expense of $12.6 million and trademark and patent amortization
expense of $3.9 million.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes both SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
27
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Long-Lived Assets to Be Disposed Of" and the accounting and reporting provisions
of APB Opinion No. 30, "Reporting the Results of Operations--Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", for the disposal of a segment
of a business (as previously defined in that Opinion). SFAS No. 144 retains the
fundamental provisions in SFAS No. 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets to be disposed of
by sale, while also resolving significant implementation issues associated with
SFAS No. 121. We will adopt the provisions of SFAS No. 144 during the quarter
ending March 30, 2002. We are currently evaluating this new Statement and have
not determined whether it's provisions will have any impact on our financial
statements.
28
PLAYTEX PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We periodically use financial instruments, such as derivatives, to manage
the impact of interest rate changes on our variable rate debt and its effect on
our earnings and cash flows. Our policies prohibit the use of derivative
instruments for the sole purpose of trading for profit on price fluctuations or
to enter into contracts, which intentionally increase our underlying interest
rate exposure. At September 29, 2001, we were not a party to any financial
instruments and our total indebtedness consisted of $400.0 million in fixed rate
debt and $481.3 million in variable rate debt. Based on our interest rate
exposure at September 29, 2001, a 1% increase in interest rates would result in
an estimated $4.8 million of additional interest expense on an annualized basis.
29
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 30,
2000.
As of the end of October 2001, there were approximately 9 pending toxic
shock syndrome claims relating to Playtex tampons, although additional claims
may be made in the future.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
None
b. Reports on Form 8-K:
None
30
PLAYTEX PRODUCTS INC.
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 12, 2001 BY: /S/ MICHAEL R. GALLAGHER
-----------------------------
Michael R. Gallagher
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
DATE: November 12, 2001 BY: /S/ GLENN A. FORBES
-----------------------------
Glenn A. Forbes
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
31