Edgewell Personal Care Co (EPC) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome the quarter 4 2004 Playtex Products Incorporated Earnings Conference Call. My name is Raisha, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question and answer session toward the end of this conference. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Ms. Laura Kiernan, Director of Investor Relations. Please proceed, ma'am.

Thank you. Good morning, everyone. Thank you for joining us today. With me are Neil DeFeo, our President and CEO and Kris Kelly, EVP and CFO. I would like to remind everyone of the cautionary language about forward-looking statements made in our press release. The same language applies to any comments made by management during today's call. We encourage you to read the company's SEC filings in last evening's press release which discuss in full factors that could cause actual result to differ from those made in any forward-looking statements. A replay of this call will be available beginning this afternoon and will run through the end of the day on Tuesday, February 15th. The replay dial in is 888-286-8010 and the pass code is 85598483. To access the web replay of the call, please go to our Investor Relations website at Playtexproductsinc.com. Now I will hand it over to Neil.

Good morning everybody, and thank you, Laura. Today I'll provide a summary of the results that have been reported in the press release last night. I'll talk about the progress we've made over the last several months on the initial initiatives we outlined on our last call. I'll explain in more depth and take questions on the restructuring we just announced. Kris will talk about the numbers in detail. We'll take some questions and answers and then I'll wrap up. So, to begin, let me provide some opening comments about the business. Overall, we had a good 4th quarter and full year. Sales for the year were up for the first time in four years. Here are some of the key highlights. Excluding sales of Woolite which we divested in November, net sales were up about 1 percent in the quarter and 5 percent for the year. Due to growth in all of our three core categories. Playtex continues to be an important competitor in these categories and we have either the number one or number two share positions in these categories. Let's take a look at each category in some detail. First, infant care. Infant care sales were up slightly for the quarter and 2 percent for the year. Primarily due to continued strong performance in disposable and reusable infant feeding products. As consumers responded well to our just like breast-feeding positioning and superior product performance versus competition.

Growth in bottle-feeding was partially offset by lower spillproof cup sales due to competitive activity and changing category dynamics. Infant care category sales also benefited in the quarter and year from strong performance in wet ones hand and face wipes. Due to continued growth in display and front of store activity. Diaper Genie sales were slightly lower due to a shift in timing of sales from the 4th quarter of this year to the 1st quarter of 2005. In spite of the difficulties we faced in cups, with a 33 percent share of the combined market, we still maintain the number one position in all three feeding categories of disposable bottles, reusable bottles and spillproof cups. We also remain the number one product in diaper disposal with nearly a 92 percent share and in hand and face wipes with over a 70 percent share. So, for the infant feeding category, good growth, we've got work to do on cups. Let's move to feminine care. Feminine care sales were up 3 percent for the quarter and 6 percent for the year. Due to shipments of our new cardboard tampon, Beyond, and solid consumption of Gentle Glide plastic tampons. We've taken steps to improve Beyond's results in 2005. I'll give you a little bit more on that in a moment. Beyond is critical to the expansion of our feminine care portfolio because it is the preferred product in the cardboard category. Cardboard products still make up about a third of the entire tampon business. Our tampon shares remain stable at about 25 percent where they have tracked for the past five months.

We maintained the number one position in the premium plastic tampon segment and a stronger number -- strong number two overall. Now, let's talk about sun care. Sun care sales were up $1.8 million or 17 percent for the quarter benefiting from early shipments of our new sunless product called summer color. For the year, sun care was up 14 percent due to higher consumption of sun protection products especially at Wal-Mart, shipping closer to consumption and this is a shift in timing between the last quarter of 2003 and 2004 and early 2005 season sales as I mentioned above of our sunless products. We also saw good growth internationally, especially in Australia, the U.K. and Mexico. Also in sun care, we maintain a strong number two position with a 21 share overall in 2004 and we're approaching the number one market share position on a units basis. Excluding sales for Woolite, household and personal care sales were down 13 percent for the quarter and down 10 percent for the year reflecting continued difficulty category trends on gloves, Binaca and Ogleby.

As a result of the higher sales in our core categories and lower production costs, operating earnings from our core businesses were up for the quarter. Kris will go into detail of this analysis later of our margins. Now, I would like to update you on the progress we made against our 2005 initial objectives and talk about the restructuring. As discussed in our last conference call, I had four primary objectives for my first few months on the job. We have been busy. We've essentially completed the strategic plan which I told you we were working on and we'll be presenting this to you all in early April. We have strengthened the marketing plans on our feminine care products with updated advertising on Beyond. Beyond is the preferred cardboard product and we're now saying this in our advertising. We've also brought new packaging and as you'll hear in just a moment, we've actually lowered the price on Beyond 17 percent on average. To be more competitive with other cardboard categories. We have also strengthened our plans on Gentle Glide. We've launched a new 36 count multipack in 2005 which is just now going to the stores. We've taken action with our cups business to help regain market share. More details will come out in the next several months because these actions are not yet public but we've launched a number of new initiatives. We've also have several new infant care products coming on in the 1st quarter of 2005.

We launched a new insulated cups and designer holders for our disposal of businesses. We are doing well at retail and we have more new products coming towards the end of the year. We launched our new embrace breast pump, an exclusive with Babies-R-Us. This is our first foray into appliances and so far we've seen very positive results. I would like to read you something that came over the wire this morning about a consumer's reaction to our new breast pump. This is from a busy mom who is a reviewer online. She writes, "I am a working mother of three. The pump I used with my other children was bulky, big, loud and difficult to clean. This pump is much smaller, quiet, the cups come apart for easy cleaning, great design, both functional and comfortable, and comes in a great carrying case with everything you need. Even a car adapter. Playtex took the time to release the product but it shows in design, comfort and function. You just can't beat it." Obviously we have great hopes for our new breast pump line. With the launch of pumps we have further solidified our breast-feeding positioning in conjunction with our natural latch nipple and one stop breast milk storage kit which we launched in 2004. This is a new category for us. So, we expect it will take some time to grow into a major business.

But we're very optimistic. We launched a new pacifier in January of 2005 branded Ortho Pro which was designed by dentists to minimize the pressure placed on teeth while soothing. With its premium positioning and superior products benefit, we hope to grow our share in this small but important category. Results are early but positive. Finally sun care. In sun care, we began to ship a number of new products in early 2005 including summer color sunless tanner, faces, sunless bronzer with an SPF 15 and banana boat sensitive skin which is as mild as water. Selling to the trade has been very strong. So we've had a lot of new product activities. Now, I would like to talk about the realignment that we announced earlier in the week. We have maintained the momentum from our first restructuring which began in 2004 as we announced the second stage on Tuesday. This business realignment is really a continuation and acceleration of the efforts begun by the previous management team. Cost focus will continue to be one of our strategic objectives going forward. To develop the realignment plan, we painstakingly went through all of our operations to determine the appropriate actions. We have made some very difficult but necessary choices and decisions. The plan was designed to help improve our focus on the company's core categories. Reduce organizational complexity. And obtain a more competitive cost structure.

Once fully implemented, these initiatives are expected to enable the company to be more consumer focused, implement its growth strategies more quickly and bring the new products that we need to the market. Charges related to the realignment are expected to total between $17 and $19 million by the end of 2005. Of these, 10.3 have already been charged to the 4th quarter of 2004. In addition, to the $12 to $14 million of annualized savings from operational restructuring which began in 2003, we expect savings associated with this new realignment to generate an additional $12 to $14 million in savings in 2005 and fully annualize savings in 2006 of between $22 and $24 million. So, if you add the $12 to $14 million from the 2003 for restructuring to this, we'll be seeing between $24 and -- $28 million I guess, or $38 million. I'm getting the numbers wrong. Between $34 and $38 million. In total savings on an annualized basis. These should be seen in the company by 2006. Net savings in 2005 related to these new realignment plans are expected to be between $4 and $8 million.

We expect to use the cash savings from the plan to further pay down debt and reinvest in our core businesses. Their alignment will impact all of the company's locations and functions and will include personnel reductions, facility consolidations, outsourcing, accelerated depreciation of certain assets. Some of the specific realignment initiatives include the following. Consolidation of our U.S. and international division structure in favor of a product category structure. Realignment of the sales and marketing organizations and related functions. Rationalization of manufacturing, warehouse and office facilities including the outsourcing of gloves production to Malaysia to be more cost competitive and the reduction in our corporate headquarters office space. As a result, there will be a reduction of more than 300 positions by the end of 2005 or approximately 20 percent of our work force.

The reduction will be obtained through a combination of attrition, voluntary early retirement and layoffs. Depending upon an employee's job classification, severance, outplacement services and other related benefits will be available to eligible associates. Many of these initiatives are already underway and others will be initiated shortly. Finally in 2005, we intend to meaningfully pay down our debt depending upon bond premium levels and availability. Both our plans to pay down debt and to reduce our cost structure are part of the company's new strategy. We will share more of the strategy again at our April meeting. With this overview, I would like to now turn the meeting over to Kris Kelley who will provide you details. Kris?

Thanks, Neil. I would like to cover some financial highlights from the 4th quarter 2004. We realized there are many items in our results that make comparability difficult but we have attempted to break out the major items in the tables attached to the release. Please refer to these tables for the charges and gains to note for use in your modeling. Just to explain them briefly, the charges and gains in the 4th quarter results increased net earnings by $0.61 per share and included a gain on the sale of Woolite of 56.5 million or $0.87 per share. The net earnings impact of this transaction was high because we were able to utilize 17.8 million of a capitalized loss carry forward not previously recognized. As previously mentioned, restructuring expenses from our new realignment plan were $10.3 million or $0.10 per share. And asset impairment charges were $16.4 million or $0.16 per share for the Baby Magic and Binaca trademarks due to the impact of increased competition and reduced brand focus respectively. It is important to note that the divestiture of Woolite on November 2nd affected the comparability of 4th quarter and full year results. We have broken out Woolite sales on the press release to assist you with your modeling. Also as Neil mentioned, we began amortizing costs related to the prior CEOs noncompete contract during the 4th quarter. Annual amortization of this intangibles asset $1.5 million and will occur over the next five years. As you will recall, we stated in our October call that we forecasted earnings for the 4th quarter to be at the low end of the previously-announced $0.02 to $0.05 guidance.

Obviously this forecast did not include the impact of the lost profits from the Woolite sale. The duplicate executive costs and the incremental intangible amortization expenses related to the noncompete contract which were the major factors for the break even results for the quarter. Now, some comments on our full year financial results. Gross margins improved 82 basis points in 2004 as a result of higher sales and lower manufacturing costs as a result of the process improvements from past restructuring action taken. This was slightly below our 100 basis point goal primarily due to a less favorable sales versus expectations and increased raw material costs in the 4th quarter. We achieved the expected savings of approximately 6 million in a year from the restructuring plan announced under the prior management team. A portion of these savings helped to reduce SG&A as a percentage of sales which is down to 35.7 percent of sales excluding charges and gains for the year versus 36.2 percent of sales excluding charges in 2003. The impact of these improvements were somewhat reduced by the combination of higher compensation related to expenses including the duplicate executive costs for the CEO/CFO transition and higher bonus expenses. As well as incremental professional fees related to the required Sarbanes-Oxley implementation process. While we showed some improvements in 2004, our business realignment plan should help to significantly reduce SG&A as a percentage of sales going forward.

And get more in line with our consumer peers. Operating earnings excluding charges were $104.5 million in 2004 versus $92.8 million in 2003. An increase of 12.6 percent due primarily to the impact of the higher net sales and higher gross margins. Net interest expense including accounts receivable facility financing costs which are included in other expenses were 69.9 million in 2004 versus 57 million in 2003. Interest expense increased as a result of the February debt refinancing. Working capital trends are positive as we continue to make progress against our goals. DSOs are down six days to 63 days. Days of inventory are down five days to 91 days year-to-year. And are down even further on an average basis. During the year, we achieved our goal of reducing average inventories by 9 million. We did this to a manufacturing and logistics manufacturing improvements as well as a significant focus on earlier and more rapid processing of sun care returns and shipping closer to consumption. We have built up a 138 million cash balance which we intend to use over 100 million of toward debt repayments during 2005 again depending upon bond premium levels and availability of bonds in the open market. Cash will also be used to fund working capital and restructuring payments and reinvest in the business as appropriate. Net debt at the end of the quarter was 662 million.

Availability under the credit agreement at the end of the quarter was 70.2 million as reduced only by 4.5 million by letters of credit. Capital expenditures spending in the quarter was 4.6 million for a total of 14 million for the year. Now, I would like to provide with you some further comments on our guidance for 2005. Given my and Neil's newness to the company and as we flow through this transitional year, we want to provide with you a range of guidance to help you with your models but underscore the amount of variables that could impact results. For the full year 2005, excluding sales of Woolite in 2004, we expect sales to be up low single digits versus prior year. On a reported basis though, sales should be flat to slightly down for the year. Quarterly sales increases will vary due to the timing of our brand building initiatives. We're on track with our prior restructuring savings. Begun in 2003-2004 and anticipate to realize the additional annual savings of 6 to 8 million in 2005. However, gross margins should track about flat to 2004 levels as these cost savings are anticipated to be fully offset by higher raw material costs. The new realignment savings will primarily flow through SG&A with some flowing through cost of sales from the glove cost improvements in the back half of the year. Operating earnings excluding the additional realignment charges to be taken in 2005 are expected to range between 105 and 115 million, depending upon the level and timing of brand promotions and the realization of the realignment savings from the new realignment plan.

Interest expense in net earnings will vary depending upon the timing of bond repurchases and range of operating income. Capital expenditures in 2005 are expected to be in line with 2004 spending of about 14 million. Cash payments related to the realignment are expected to be about 15 to 16 million and will occur throughout the remainder of 2005 and into the 1st half of 2006. Depreciation should be slightly above 2004 levels and amortization expense will increase about a million dollars in 2005 related to the noncompete intangible asset amortization I previously mentioned. Again working capital improvements will continue in 2005. Operator, will you please begin the Q&A.

Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touch tone telephone. If your question has been answered or you wish to withdraw your question, please press star followed by 2. We ask that you limit your question to two questions per person. If you have additional questions, please feel free to requeue by pressing star one again. And your first question comes from the line of George Shalub of Deutsche Banc. Please proceed.

Good morning.

Good morning. Excuse me, Kris, just to follow up on some of the numbers you gave for '05, do you expect to pay much in cash taxes?

Cash taxes, no. They'll be similarly in line with this year. I mean we will pay -- our cash taxes again will be lower than our statutory rate or our book taxes.

Right. Kris, you mentioned the duplicative executive compensation in the 4th quarter. Can you quantify this -- obviously this has gone off a one-time situation here that's no longer the case. How much of that was in the SG&A number please?

In general, depending on which way you look at it, it is roughly somewhere between $1 and $2 million.

Ok. And that's the number that you think -- if we take out of the SG&A will give us a better run rate SG&A expectation for the quarter?

Correct.

Ok. And looking at the EBITDA comps, you give us on the sales line, the breakdown of the Woolite contribution for both quarters and obviously that's uneven because you sold Woolite on November 2nd. Can you give us the comparables at the EBITDA line excluding Woolite for both periods?

No, we don't like to give out the earnings numbers for our individual brands so we're not going to break that out for you.

Ok. Can you directionally say, Kris, if the EBITDA would have been up, flat or down had it not been for the existence of the Woolite volume?

As I mentioned before, yes, one of the reasons why we came in at a break even was because we did not have the Woolite volume in there. It would have been up.

Right. On the feminine care side, Neil, you mentioned the reduced pricing 17 percent. Are you at all worried that that could basically -- maybe put a margin squeeze on some of the fiscal '05 gross margin because of the price decline or you're offsetting this with cost reductions despite some of your costs going up.

I'm not worried about the affect on margins and we do plan to offset this expected to be cost neutral because we ran a test market actually on a lower pricing. And we expect to be able to in total, have this to be a positive benefit for the company. We took the price decline because quite candidly, this product competes in the cardboard subsegment and we needed to be more cost competitive with our main competitor, Tampax original. We're a preferred product. So, consumer users -- our research says they like us better. And that raises the question why would we ask the consumers to pay substantially more for us than our competitors and so that's why we took the pricing action.

Your next question comes from the line of Kathleen Reed of Stanford Financial. Please proceed.

Good morning.

Good morning.

I understand you can't give or you're not going to provide earnings guidance based on the variability of when you pay off debt and lower interest expense, but just on an operating income numbers you gave out, they're a little bit lower than where the consensus is right now. I would suspect most of that is just increased spending. You announced a lot of new products that are in 1st quarter. Can you give us some of how the earnings progression or the operating income progression would go through the year, just based on the timing of new product launches or just your spending patterns.

We're not going to give quarterly guidance at this time. So, we're just going to give the year guidance.

I guess then if -- with your other new product launches, are the bulk of them, can you say if they're 1st quarter, 3rd quarter or mainly all going to be in the 1st quarter or evenly spread out throughout the year?

They're more evenly spread out. But basically more toward the back half I guess in general.

More new products in the back half.

Mm-hmm. That's right.

Ok, great. Specifically on your infant care segment, I know cups now have just been weak for three quarters. Can you give us more details on what you're doing to improve your cup division because it sounds like your bottle business is doing so well and you have new products in breast-feeding.

I think you gotta step back and ask yourself -- we ask ourselves what the problem is. And the problem on cups is basically we as a company, fail to bring enough news and excitement to that category and some of our products became a little bit old on the shelf I think is the way I call it. We're addressing all of the aspects of this business. All of the aspects of this business. Whether that's the products that we offer -- going to be bringing exciting new products to the marketplace. Obviously I'm not going to tell you what those are before they hit the market but literally, all of the elements of the marketing plan are being addressed. I think you'll see over time as these come in, hopefully a substantial improvement of our cups business.

Ok. Then finally, when did your price cut on Beyond go through or when is that effective?

January 31st, first of February.

Thank you.

And your next question comes from the line of Ann Guillen of Lehman Brothers. Please proceed.

Thanks. Just a question in general about the announcement or the cost savings opportunities. Can you just talk through first what the composition of charges looks like? It feels like from the work we did in reading between the lines that it is kind of a third gross margin, 2/3 SG&A targeted.

It is a little bit more heavier to the SG&A than that split.

Ok. And then in terms of the reinvestment of some of the savings, typically we see probably about 2/3 reinvestment for programs like this. Among your peers. Is that a reasonable expectation?

We don't think of it that way candidly. We approach it a different way. And we approach it first of all we want to get our cost down as much as we can. By, if you will, right sizing and streamlining our operations. We also look at what we spend in marketing based on what we think we'll pay out and pay off. So, they're kind of independent decisions.

Ok. With the first ones being more important than what drops down.

Yes, that's right.

I read you. Then, Neil, just with that -- with the announcements toward the product and realignment of sales, have you made any changes to personnel heading up either of those functions?

Yes in both counts.

Can we have the details?

We've announced that we have brought in a new head of global sales, Perry Beaden and he will have responsibility for all of the company sales activities worldwide which will include Canada, international and the United States. We've appointed Paul Kenney as Vice President to U.S. sales. We've announced that we have a job search out for a Senior Vice President of Marketing. A position to be filled in the near term.

Great. Then on the product side?

I'm not sure I understand the question, Ann.

You're realigning from geographic to product. Who runs the product groups?

No change right now in who's running the product groups.

Ok. Terrific. Let me turn over to the next call.

Thanks.

Your next question comes from the line of Reid Kim of Banc of America Securities. Please proceed.

Good morning. Just wondering what you spent on advertising in the quarter and compared to prior year.

We don't give out advertising and promotions expenses in particular but in general, the quarter was up versus the prior year less than a million dollars and in the total year, I think it was up a little over $2 million in total.

Okay. Just as you go forward with your review of the business, any kind of changes on that front in spending or placement or otherwise?

We expect to continue to invest in advertising and marketing and those investments will be higher than in the previous year.

Ok, thanks.

Your next question comes from the line of Reza Lhab [ph] of Lehman Brothers. Please proceed.

Good morning.

Can you touch on the sales drivers by segments? You mentioned low single digit sales growth. I mean can you touch on the sales growth by segment and what would drive that?

Sure. In feminine care, as I mentioned, we have a fully new plan we're implementing on Beyond. We have lowered the price, we have new much more competitive advertising and we'll be doing some other things in that brand that aren't yet public. On Gentle Glide, the other part of our feminine care business, we've launched a new 36 count multipack, two SKUs of that. We have new marketing programs under development. And about to be into the market on that brand. That's all I want to announce at this time. On infant care, we have a number of new products that have already been launched and we have a number of scheduled to be launched later in the year. Similar on sun care, I went through some of the products that we have launched already in sun care. Since that is a seasonal business. Those are essentially all of the new products that will be launched this year.

Will they all be growing at low single digits about the same rate or some would be growing faster than others?

Some of the categories would be growing faster than others. We would expect sun care for example to grow faster because both the category is growing faster and we have momentum. I think last year we grew 14 percent in the business. I'm not going to project the exact percentage of growth next year. I would expect it to be faster than for example our feminine care business.

I see. And then just a housekeeping item. Is fiscal '05 a 52-week year or 53-week year?

Fiscal '05 is going to be a 53-week year. As you know, the company every four or five or five or six years, I believe it is, has to switch over and so there will be 53 weeks in 2005. And that additional week will occur in the 1st quarter.

Once again, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch tone telephone. Please keep in mind that we do ask that you limit your questions to two per person and if you do have additional questions, please feel free to requeue by pressing star, one again. Your next question comes from the line of Alexis Gold of CIBC World Markets. Please proceed.

Hi, good morning.

Good morning.

Just wanted to get a sense for what -- what portion of savings have you actually realized from the initiatives that you actually commenced in 2003 at this point?

This year, the total initiatives is from that were to be in the 1$2 to $14 million range and this year's goal which we achieved was about $6 million.

Next year we should see an additional --

And additional 6 to 8 million. Yes.

Okay, great. And then you mention savings from outsourcing. Obviously we've seen success from some of your competitors from these initiatives. What kind of ratio are you targeting, I think you're at 50/50 right now.

We don't have any specific target in mind as we look at the products and whether we manufacture them or we outsource them. We do that on a case-by-case basis.

Ok. Can you talk a little bit about just morale, given the -- given the magnitude of the head count reductions you've announced.

Yeah, I mean these have been very painful changes. t is kind of a bitter pill to swallow when you have to reduce your staffing by 300 people over time and announce the kind of restructuring we have. So, you can expect that this has been hard for the company. Having said that, I think the people here really do understand what we're trying to do and why we're doing it. They understand the new organizational structure. I've had many people tell me that they think it makes sense. It is a hard pill. Things like, for example, closing down the production of our gloves at our Dover plant. It is a hard thing to do but we have to do it to be cost competitive. So, I would say the morale is good as certainly as good as you would expect it. I think people feel that they've been treated fairly. And that's part of our philosophy as a company to do so.

Great. One more question just on the new breast pump that you talked about. How long is the exclusive with Babies-R-Us. Can you give us a sense of what the initial investment was on the product?

No.

You can't tell us how long the exclusive is either?

No. I would rather not get into that level of specifics. We worked with Babies-R-Us to develop this product and we'll just see -- we'll see what happens.

Your next question comes from the line of Joe Norton of Banc of America Securities. Please proceed.

Thanks, good morning.

Good morning.

Couple of quick ones for you. I was wondering if you could give us a number or just directionally how operating cash flow was in the quarter. And then if -- given any ranges for just sort of how we should think about total free cash flow for '05 given all the various moving parts we've got here.

Obviously I think in 2004's operating cash flow will be up versus 2003. And then from a lot of the actions that we're taking and I anticipate that 2005 will be slightly below that level as things more normalize. But still, it would be -- comparable to the cash flows as we have historically done. This company depending on -- has been a very good cash operations cash flow company and will continue to be.

Ok. Great. Thanks. And then just -- final point to clarify on the -- on that amortization line. Is that -- you're saying that the jump from the 200 some odd thousand to now 600 is the noncompete and that's for the 600,000 is sort of what we're going to see going forward.

Well, actually the -- yeah, the 600,000 is kind of the annualized number which will come out to about --

That's the quarterly number.

The quarterly number. Right. That will annualize out to about $2.5 million, $2.4 million over the annualized amortization.

Ok. It is -- it just seems odd that that wouldn't be just part of the one-time. Is that sort of an accounting thing that you're not allowed to just make that part of the one-time charge?

It was put on the books in -- when the contract was done in the 3rd quarter and so as intangible asset and it will be -- it gets paid out on a cash basis over time over three years and -- but it will be amortized over the five years as an intangible asset since there's some -- there is obviously some reason to have a noncompete agreement and this is value there for the company. From an accounting standpoint, you have to value the contract and put it up as an intangible.

But you know, I guess we've left it up to you guys if you want to back it out as a one-time cost, you can.

You can. But again, the amortization increased amortization will be there over the next five years. So, you can handle it in your modeling either way.

Your next question comes from the line of Colleen Major of Goldman Sachs. Please proceed.

I'm wondering if you could comment a little bit on the competitive environment in sun care and if you've seen any type of response to the price decreases.

Have not seen any response to the price decrease on Beyond. I think the competitiveness of the market remains unchanged. Our friends at Procter & Gamble, Kimberly Clark, continue to do a good job with their products and we're trying to do a good job with ours.

Ok. And then just with regard to rising raw material costs, are there any steps you can take to offset some of those increases?

We're taking quite a few steps to offset some of those increases. We negotiate annual contracts. Obviously when we see the price increases coming up, we look for alternate source of supply. We look to simplify our business processes, we look to outsource. Some of the restructuring that you've seen is an effort to take some of the cost out of our system to address, yes, so we take a lot of steps. We're determined to keep our cost as low as we possibly can.

Ok. Thank you.

You bet.

And your next question comes from the line of Connie Maneaty of Prudential Equity Group. Please proceed.

It is actually Darryl on now for Connie. When Beyond was launched, it was reasonably, if I remember correctly, positioned to perhaps take some share from the pad category. As well as the position between the disposable and the premium segments. And your comments today suggest to me that you're now just focusing on the cardboard segment. Is that a fair assumption?

I don't know that your first statement about where we were originally launched is correct. But what we are focusing on today is that Beyond is a cardboard product. It is a better cardboard product or preferred cardboard product and we are focusing on the cardboard segment of the market with that product.

Ok.

Darryl, we were never going after the plastic market with that product. Or pad market.

I know it is difficult to break out but have you seen much cannibalization on Gentle Glide? From Beyond?

Not very much. There's some of course. But not very much, no. Very low in the absolute.

Ok. Then finally, just on sun care, I know you said sales are going to be up next year. Is the Q4 sell in that happened this year, is that going to pull away from Q1 sales next year?

No.

The broader question is -- when I look at last -- 2004's quarterly flow, is that going to be similar?

If the question you're asking is did we bring product -- bring sales forward from 2005 into 2004, no. We shipped the product to consumption as ordered by the trade and we're trying to ship our product as closely as we can to the needs of our customers.

Ok. Thank you.

You bet.

And your next question comes from the line of Justin Marr of Lord Abbott. Please proceed.

Good morning, guys. Just a couple of questions. Kris, on the charges and/or savings, the 12 to 14 million identified in the press release earlier in the week and then you guys talked about 6 to 8 today. Is the delta just raw material cost increase? Between the 6 to 8 that you mentioned today you expect versus the 12 to 14.

The 12 to 14 -- those are the savings anticipated for 2005. The additional charges, the total charges will be 17 to 19. We took approximately 11 million in the 4th quarter so we have additional charges of 6 to 8 so those charges will -- if you're looking at our as reported profits will reduce the savings to a net number.

Also the 2003 restructuring savings that are flowing through '05 will be fully offset by raw materials price increases.

Ok. Which I understand that part. You're saying that the 6 to 8 you guys identified today is net of the charges in '05.

Yes, the additional charges we need to take in '05. Yes.

All right. And just -- Neil, following up on the morale question. Just given the timing that you guys came to the business in the 4th quarter, you're obviously trying to do what you could to get the strategic plan together. But just thinking about kind of perpetual charges that have gone on the last few years, first as the prior management team had done it and now you that guys are obviously justifiable reasons, but do you feel confident in saying at least as far as you can tell this is kind of the end of it. Such that people can look out to '06 and say all right, everything will be behind us and we'll be able to move ahead.

I think so. But one thing is constant which is change. I think we've done in the set of restructuring announcements that we've made, what we think is the right thing to do for the long-term business. If we thought there was more to do, we would have done it. On the other hand, I'm not appreciant enough to know that other things won't happen in the future to change the outcome. I think it is safe to say that I would prefer not to have a sequence or every year of new restructuring charges and I don't expect there to be something but I can't tell for sure.

And your next question comes from the line of Lori Sherwin of Goldman Sachs. Please proceed.

Another follow-up on the price cut on Beyond. Can you give us a sense of the new price differential with Tampax and what it was before? What I'm trying see if Beyond is still priced at a slight premium to Tampax or if it's now a parody or even below, and also if you're cutting promotions or coupons in addition to the cut.

We're not cutting any promotions or coupons. We're continuing to market the business as before. In rough numbers, the price decline depends upon what segment of the trade you're talking about. Which segment of the retail industry you're talking about and how they choose to price their products. But, for example, let's take Wal-Mart. Wal-Mart pricing before the change would have been in the $3.50 range. $3.49 depending upon the day or store. It is now down to $2.99.

And I guess how does that compare with Tampax?

It is about $2.88 to $2.96.

So you're still at a slight premium.

Very slight premium.

Okay. Great. And are there any other categories or segments where you think you need to cut prices to be competitive or separately, any opportunities to raise prices of categories?

We're looking at this constantly and I would not announce to you before I announce to the trade what our plans were. But we certainly are always looking at this.

Ok. Fair enough. Thank you.

You bet.

And your next question comes from the line of Jack Salzman of Kingpoint Partners. Please proceed. Mr. Salzman, your line is open. Please check your mute feature on your phone.

Hello. I wonder if you guys could give us a little bit more granularity on debt repurchase. So, what are -- what are you guys looking for in terms of minimum -- in terms of repurchase of debt and I know you've indicated depending on the premiums but can you give us just sort of a guidance as to what you're looking for in terms of paying -- paying a premium when you buy back this debt?

For obvious reasons, I don't want to get into the details of our repurchase program. And what we think is the right premium or too high a premium. But in general, obviously we will look at the premiums and obviously the availability and look at whether we're better off using our -- the cash for other purposes either in the long-term or the short-term. And it might -- so we look at it from an overall sensible standpoint. We might end up having to hold the cash longer than anticipated. Until the premiums were to come down. Or we might use the cash to reinvest in the business, et cetera. But we look at it as -- on a day to day thing.

Ok.

Your next question comes from the line of Jesse Haim of Dejonda Securities. Please proceed.

Good morning. Just looking back to the infant care segment. Just wondering what caused the shift in the timing of the sales and what the Diaper Genie actually represents in terms of sales as a proportionate sales of the infant care division.

We don't break out the individual brand pieces of the categories. But your first part of your question, the shift -- the shift really was just a timing of year end orders that come from some of our major customers. It is something that switched from December to the January period. Nothing specific.

We fill our orders as they come. We try not to move them around by quarter or year.

Ok. And I guess your realignment or your strategy involve any potential divestments at some point?

We have no plans at the current time to divest any of our businesses.

Thank you.

You bet.

And your next question is a follow-up from the line of George Shalub of Deutsche Bank. Please proceed.

A specific question on the bond buyback and the cash that you have. Obviously you have plenty of cash on the balance sheet. You've mentioned you're only going to use over $100 million to take out the bonds so you don't have any bank debt. The 90-day holding period expired from the sale of the Woolite business so now, bond buybacks will probably have to happen via open market purchases so my question is this. Do you intend on doing this as early as possible in the year to take advantage of lower interest expense throughout the year or are you going to wait and pick your spots because the bonds may not necessarily weaken here. Given your performance and obviously what you are describing as a positive future.

Yeah, again, George, we'll have to weigh the pros and cons of the premium price versus the interest differential and other uses of the cash. But we're obviously going to do what's best for our shareholders as far as the usage of that cash we have on the books today.

So, I mean you can't make a statement right now, Kris, whether you intend to do this in the early part of the year or can I still wait a little bit?

Like I said before, we're making day to day decisions.

But George, if you have some bonds at 95 to sell us, we'll be glad by buy them.

That's a good one. Thank you.

Next question is from Justin Buseau [ph] of Gates Capital Management. Please proceed.

I just wanted to make sure I've got the restructuring figured out. Is it right that the 2003 restructuring was going to generate 12 to 14 million in savings. But those will all be realized in '05 but those will be offset by raw material prices?

Original restructuring $12 to $14 million. We achieve some of those savings in 2004. They should all in total, versus a base period, if you will of of 2002 probably. Be in place by 2005 and the net effect of those in 2005 versus 2004 will be about 6 million plus. Right. That will offset anticipated raw material savings.

Ok. And then the most recent restructuring initiative will have 22 to 24 million run rate savings by '06.

The owing year.

We expect how much of that in '05?

12 to 14 not including the incremental charges we'll have to take.

Which would be 6 to 8.

Which will be 6 to 8 to get to the total of 17 to 19.

Ok. And how much of that additional profit that will fall to the bottom line do you expect to reinvest into the business?

Time will tell.

Ok. Very good. Thank you.

You also have a follow-up from the line of Ann Guillen of Lehman Brothers. Please proceed.

Neil, I just wondered if you thought had the excess capacity that's becoming available. Particularly as gloves goes to outsourcing and any further outsourcing.

I'm not sure there is really excess capacity becoming available. I mean we're shutting down our gloves operations at Dover so there's essentially no capacity there. We'll have some floor space available in the factory. And we have some uses for that space. Already in terms of other things we can do there. But I don't think extra capacity is really becoming available.

Ok. Kris, I just wondered if you could comment a little bit on the receivable balances this quarter. Or at the year end. I wondered if they were a little bit higher on a run rate basis because of some of the advanced sales of sun care.

The year end receivable balance was probably a little bit on the high side because of some of that. They're obviously lower because we don't have any Woolite receivables. So, it is kind of a mixed bag. But again, the receivable days that we are at, I still think we can shoot at improving those days going forward.

Ok. And still willing to improve inventory days, too?

Definitely.

With all of the new product initiatives this year?

Definitely.

Great. Thank you.

And your next question comes from the line of Aban Botean [ph] from ABJ Capital. Please proceed.

Abraham Bronstein. And Mr. Bronstein, your line is open.

Hi. I wonder if you would be willing to comment on what you think the Procter & Gamble Gillette merger might do to your competitive positioning in the stores? Do you believe it will affect your ability to retain shelf space? Would you have to increase promotional expenses in any way or does your brand strength protect your space adequately and without any special adjustments?

It is really -- I don't frankly think that it's going to have much effect on us certainly not in the near term at all. Long-term, your guess is as good as mine. I think Procter & Gamble and Gillette are going to be busy integrating one into the other. P&G manages its business on a category or brand basis by brand and so I think they'll continue business as usual in the categories we compete in.

Thank you very much.

You bet.

Your next question comes from the line of Tom Malatawa [ph] of Wachovia Securities. Please proceed.

Thanks. Just two real quick questions. One is just to get a better understanding of the interest differential as it relates to the bond issue. Can you give us some insight into what the $138 million is invested in?

The $138 million obviously some of it is -- is not -- is not invested in anything long-term. It is just normal day to day cash or cash up in Canada or et cetera. But the remaining excess cash per se is just invested in short term overnight type investments. Nothing long-term or risk.

Ok. And can you give us a feel for how much of that is what you would consider to be operating cash or float in the system versus what is excess cash balances that are invested say on an overnight basis?

I guess, for instance, if I can have you look at the balance sheet that we have attached to our press release, you'll notice a new line on there called overcrafts below accounts payable. And that really is a change required based on an interpretations of a technical bulletin that's been out there. And that really represents the payables that are going to hit your cash balance in the near term. In essence, checks that have been issued. So, payable checks that have been issued so that can give you a feel that 20 -- I forget the number. $20-something million -- 11 million this year, 23 million last year. That's kind of the working capital impacts that you'll see in the near term. You can deduct that from our cash balance.

Ok. Ok. And then just the other question is just to try to understand the realignment. If you rewind the clock a little bit, the company in '03 was organized along product categories and went from product categories to a geographic organization. Now you're taking it back from geographic to product categories. I'm just wondering how much of that is maybe attributable to say your view or your bias on what you think is most effective organizationally versus what you might have spotted in terms of redundancies in the organization when you got there.

It is actually neither of those two. I think several years ago the company was organized on three divisions. Three divisional basis. We went to two divisions and now really we're eliminating those divisions and consolidating, if you will into one division called the company. And then looking at the business, so that we manage from a product standpoint by category but as a go to market, in other words, as seen by our customers, the Wal-Mart, K-mart, Targets of the world as one company. So, we've moved, for example to a senior executive in charge of sales, all sales. One person. One voice. Speak on behalf of Playtex for that function. Same will be true of marketing. So, it is really quite a different organization and in many ways, it is a much more streamlined organization. That begs the question of why did we move to it?

We moved to it because this streamlined organization allows us to reduce costs, improve the efficiency and effectiveness with which we can bring new products to the marketplace. And it allows more single point accountability for the results and for our customers to deal with us. Why would, for example, a customer want more than one person to deal with from the Playtex company? No, you want somebody to call and somebody that represents the sales organization.

Ok. Let me ask a question. I don't know if Wal-Mart is a good example but therefore, would you have one sales group -- I know you have one sales group that calls on Wal-Mart here domestically but would that sales group also be responsible for calling on Wal-Mart Europe, for example? Or is there -- will there still be a separate sales organization for the international group?

We're still organized separately internationally. We have a head of international sales. We have separate a Canadian organization that handles Canada. But both of these now report to the head of global sales whose name I mentioned earlier, Perry Beaden.

Thank you.

You bet.

Your next question is a follow-up from the line of Reza Lhab [ph] of Lehman Brothers. Please proceed.

Can you give us a little better idea of the rate of increase in raw material cost or kind of a dollar magnitude in which particular items it might be affecting? Some general idea of the raw material situation you're dealing with. I know you have a lot of offsets to it.

Yeah, we have, we're seeing increases -- we have long-term contracts with many of our suppliers and these contracts mature, we see -- we've seen price increases this year. I don't want to give you a percentage but I will tell you that the costs have gone up in all of the places you would expect them to go up. Which is based on higher prices underlying raw materials, plastic, for example, related to the price of oil.

As we mentioned in total, for 2005, we expect those costs to offset the incremental savings from the initial restructuring of 6 to 8 so that can give you an idea of what the annual impact of those costs are anticipated in '05.

And then just a follow-up, Kris, I'm not sure if you gave out what the net change in working capital should be in '05.

No, I didn't. I expect the net change to be a decline. A source of cash.

Five to $10 million? Something of that range?

I don't want to give out a range at this point.

Thank you.

Your final question comes from the line of Ben Alexander of Alexander Capital. Please proceed.

Yes. I would like to ask do you have any points you can share with us relative to your long-term views on how to get the top line growing at Playtex?

We'll be spending more time on this -- at our analyst day in April but I think the key to growing our top line sales are the following. Number one, we need to have products consumers want to buy that perform equal or better than the alternatives that customer can buy. So, for example, Beyond is a great example. It is a preferred product. Second thing is if we have preferred products, we need to make sure their value is proper in the market which means correct pricing, in order to get our pricing right, we have to reduce our costs. And the restructuring which we've announced is part of our efforts to reduce our costs. So, growing the top line is all about new products that are exciting and products that perform for their intended use better than other options the consumer has at a similar or equal price.

Thank you.

You bet.

At this time, you have no further questions. Ladies and gentlemen, this concludes your question and answer session for today. I would now like to turn the conference over to Mr. Neil DeFeo, President and CEO. Please proceed, sir.

Ok. Thank you for all of your questions. Overall, as I said earlier, we had a very good year. This year was the first year in four years that we actually grew. We have solid growth in our infant care, our feminine care and our skin care core categories. We stabilized our Femcare franchise and introduced new products in each of our core categories. We maintained all of our number one or number two positions in these categories and we continue to grow our key brands. We have plans in place that are expected to accelerate this growth in the coming year. Especially in Beyond, some of which we've talked about.

We saw margin expansion as a result of our restructuring begun by the prior management. As part of our strategy, we will continue our efforts to reduce costs and adjust the organization to be in line with its revenue base and to be competitive with our consumer peers. The business realignment is also expected to reduce organizational complexity and improve our innovation process and speed to market. We sold the Woolite brand which helped strengthen our focus on our core categories and provided cash which we expect to use to pay down debt assuming bond availability in pricing. We're also finished developing our new strategic plan which we expect to share with you in early April. I expect 2005 to be a transitional year as we implement our new strategic plan and business realignment plan. As we make the organizational and process improvements, we need to drive our business.

We're well on our way to growing a more profitable and better structured Playtex. I'm confident that our shareholders will be pleased as we continue to make our improvements over the next several years. Finally, we want to invite all of you to join us as we present our new strategy at our analyst's day on April 5th in New York City. For security purposes, registration is required to attend this event so contact Laura Kiernan to sign up. I want to thank all of you for participating in this conference call today. And for your interest in Playtex. I look forward to seeing you in April. Please follow up with Laura on any questions you may have and thank you for attending the call.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.