<PAGE>
[LOGO]
April 23, 1997
TO OUR STOCKHOLDERS:
On behalf of the Board of Directors and management of Playtex Products,
Inc., I cordially invite you to the Annual Meeting of Stockholders to be held on
Tuesday, May 20, 1997, at 11:00 a.m. at Chase Manhattan Bank, N.A., 270 Park
Avenue, New York, New York.
At the Annual Meeting, stockholders will be asked to elect the Board of
Directors and approve the selection of the Corporation's independent auditors,
all of which is fully described in the accompanying Notice of Annual Meeting and
Proxy Statement.
It is important that your stock be represented at the meeting regardless of
the number of shares you hold. You are encouraged to specify your voting
preferences by so marking and dating the enclosed proxy card. However, if you
wish to vote in accordance with the directors' recommendations, all you need do
is sign and date the card.
Please complete and return the proxy card in the enclosed envelope whether
or not you plan to attend the meeting. If you do attend and wish to vote in
person, you may revoke your proxy at that time.
If your shares are not registered in your own name and you would like to
attend the meeting, please ask the broker, trust, bank or other nominee which
holds the shares to provide you with evidence of your share ownership, which
will enable you to gain admission to the meeting.
Sincerely,
/s/ Michael R. Gallagher
MICHAEL R. GALLAGHER
Chief Executive Officer and Director
<PAGE>
PLAYTEX PRODUCTS, INC.
300 NYALA FARMS ROAD
WESTPORT, CONNECTICUT 06880
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1997
The Annual Meeting of Stockholders of Playtex Products, Inc. (the "Company")
will be held at Chase Manhattan Bank, N.A., 270 Park Avenue, New York, New York,
on Tuesday, May 20, 1997 at 11:00 a.m. local time, for the following purposes:
<TABLE>
<C> <S>
ITEM 1. To elect a Board of Directors for the ensuing year;
ITEM 2. To ratify the selection of the firm of KPMG Peat Marwick LLP as the
Company's independent auditors for fiscal year 1997; and
ITEM 3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
</TABLE>
The Board of Directors has set the close of business on April 1, 1997 as the
record date for determining stockholders entitled to notice of and to vote at
the meeting or any adjournment thereof.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors
/s/ Paul E. Yestrumskas
Paul E. Yestrumskas
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
APRIL 23, 1997
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND PROMPTLY
RETURNED IN THE ENCLOSED ENVELOPE, SO THAT YOUR SHARES WILL BE REPRESENTED
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.
<PAGE>
PLAYTEX PRODUCTS, INC.
300 NYALA FARMS ROAD
WESTPORT, CONNECTICUT 06880
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished to stockholders of Playtex Products,
Inc. (the "Company") in connection with the solicitation by the Board of
Directors of the Company of proxies for use at the Annual Meeting of
Stockholders of the Company to be held at Chase Manhattan Bank, N.A., 270 Park
Avenue, New York, New York, on Tuesday, May 20, 1997 at 11:00 a.m. local time,
and at any adjournments thereof (the "Annual Meeting"). This Proxy Statement and
the accompanying proxy card are being mailed beginning on or about April 25,
1997 to stockholders of the Company on April 1, 1997, the record date for the
Annual Meeting. The Company's Annual Report to Stockholders for the fiscal year
ended December 28, 1996 is included as an appendix to this document.
Stockholders of the Company are cordially invited to attend the Annual
Meeting. Whether or not you expect to attend, it is important that you complete
the enclosed proxy card, and sign, date and return it as promptly as possible in
the envelope enclosed for that purpose. You have the right to revoke your proxy
at any time prior to its use by filing a written notice of revocation with the
Secretary of the Company prior to the convening of the Annual Meeting, or by
presenting another proxy card with a later date. If you attend the Annual
Meeting and desire to vote in person, you may request that your previously
submitted proxy card not be used.
The cost of soliciting proxies and the cost of the Annual Meeting will be
borne by the Company. In addition to the solicitation of proxies by mail,
proxies may be solicited by personal interview, telephone and similar means by
directors, officers or employees of the Company, none of whom will be specially
compensated for such activities. The Company also intends to request that
brokers, banks and other nominees solicit proxies from their principals and will
pay such brokers, banks and other nominees certain expenses incurred by them for
such activities.
VOTING RIGHTS
As of April 1, 1997, the record date for determination of stockholders
entitled to notice of and to vote at the Annual Meeting (the "Record Date"), the
outstanding stock of the Company entitled to receive notice of and to vote at
the Annual Meeting consisted of 50,913,804 shares of the Company's common stock,
par value $.01 per share (the "Common Stock"). Each share of Common Stock is
entitled to one vote on each matter that is voted on at the Annual Meeting.
QUORUM; REQUIRED VOTE; VOTING PROCEDURES
A majority of the outstanding shares of Common Stock must be represented in
person or by proxy at the Annual Meeting in order for a quorum to be present.
Pursuant to applicable Delaware law, shares represented by proxies that reflect
abstentions or "broker non-votes" (i.e., shares held by a broker or nominee
which are represented at the meeting, but with respect to which such broker or
nominee is not empowered to vote on a particular item) will be counted as shares
that are present and entitled to vote for purposes of determining a quorum.
Directors will be elected by a favorable vote of a plurality of the shares of
Common Stock present and entitled to vote, in person or by proxy, at the Annual
Meeting. Abstentions and broker non-votes as to the election of directors will
not affect the election of the candidates receiving the plurality of votes. Each
other item to come before the Annual Meeting requires the approval of a majority
of the shares of Common Stock present in person or represented by proxy at the
Annual Meeting and entitled to vote on such item. Abstentions as to any such
item will have the same effect as votes against such item; however, broker
non-votes will be treated as not entitled to vote for purposes of determining
the vote required for approval of such item and will not have any effect on the
outcome of the matter.
<PAGE>
Unless contrary instructions are indicated on the proxy card, all shares of
Common Stock represented by valid proxies will be voted FOR the three items
listed on the proxy card and described below, and will be voted in the
discretion of the proxies in respect of such other business, if any, as may
properly be brought before the Annual Meeting. As of the date hereof, the Board
of Directors knows of no other business that will be presented for consideration
at the Annual Meeting other than those matters referred to herein. If you give
specific voting instructions by marking the boxes on the proxy card, your shares
of Common Stock will be voted in accordance with such instructions.
ELECTION OF DIRECTORS
Pursuant to the By-Laws of the Company, the Board of Directors has fixed at
nine the number of directors to be elected at the Annual Meeting. Directors are
elected annually by the stockholders and hold office until successors are
elected and qualified or until death, resignation or removal.
Each of the nominees set forth below, except C. Ann Merrifield, is currently
a director of the Company. Each nominee has agreed to serve as a director, if
elected, and the Company believes that each nominee will be available to serve.
If any nominee is unavailable to serve as a director, the shares may be voted
for the election of a substitute nominee as management of the Company may
propose.
Assuming the presence of a quorum, the election of directors requires the
favorable vote of a plurality of the shares of Common Stock present and entitled
to vote, in person or by proxy, at the Annual Meeting. Under applicable Delaware
law, abstentions and broker non-votes as to election of directors will be
counted as present for determining a quorum but will not affect the election of
candidates receiving a plurality of the votes.
If a stockholder wishes to withhold authority to vote for any nominee, such
stockholder can do so by following the directions set forth on the form of proxy
solicited by the Board of Directors or on the ballot distributed at the Annual
Meeting if such stockholder wishes to vote in person.
INFORMATION REGARDING NOMINEES
The names and ages of the nominees, their principal occupations or
employment (including their position with the Company, if applicable) during the
past five years and other data regarding them is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Robert B. Haas....................... 49 Chairman and Director
Michael R. Gallagher................. 51 Chief Executive Officer and Director
Michael F. Goss...................... 37 Executive Vice President, Chief Financial Officer and Director
Thomas H. Lee........................ 53 Director
Kenneth F. Yontz..................... 52 Director
Timothy O. Fisher.................... 47 Director
Douglas D. Wheat..................... 46 Director
Michael R. Eisenson.................. 41 Director
C. Ann Merrifield.................... 46 Director Nominee
</TABLE>
Robert B. Haas has been Chairman and a Director of the Company since June
1995. Mr. Haas has been actively involved in private investments since 1989,
specializing in leveraged buyouts. He currently serves as Chairman of the Board
and Chief Executive Officer of Haas Wheat & Partners Incorporated ("Haas Wheat &
Partners") (January 1995-present); Chairman of the Board and Chief Executive
Officer of Haas Wheat Advisory Partners Incorporated (1992-present) and Chairman
of the Board of Haas & Partners Incorporated (1989-present) (each of which is a
private investment firm specializing in leveraged
2
<PAGE>
acquisitions). Mr. Haas serves as a director of Specialty Foods Acquisition
Corporation, Specialty Foods Corporation and Sybron International Corporation.
Michael R. Gallagher has been the Chief Executive Officer and a Director of
the Company since July 1995. Prior to joining the Company, Mr. Gallagher was
Chief Executive Officer of North America for Reckitt & Colman PLC (1994-1995).
Mr. Gallagher was President and Executive Officer of Eastman Kodak's subsidiary
L&F Products from 1988 until the subsidiary was sold to Reckitt & Colman PLC in
1994. Mr. Gallagher was President of the Lehn & Fink Consumer Products Division
at Sterling Drug from 1984 until the Division was sold to Eastman Kodak in 1988.
Mr. Gallagher was President/General Manager of the Household Products Division
of the Clorox Corp. from 1982--1984. Prior to that Mr. Gallagher had various
marketing and general management assignments with Clorox and with Procter and
Gamble. Mr. Gallagher is a director of Fleet Bank N.A. and the Grocery
Manufacturers Association.
Michael F. Goss has been Executive Vice President and Chief Financial
Officer of the Company since December 1994. He has served as a Director of the
Company since September 1995. From 1992 to 1994, Mr. Goss was Treasurer and Vice
President-Corporate Development of Oak Industries, Inc. ("Oak"). From 1990 to
1992, he was Director of Financial Planning for Oak.
Thomas H. Lee has been a Director of the Company since December 1988. Since
1974, Mr. Lee has been President of the Thomas H. Lee Company, a firm engaged in
investment activities. He is currently a director of Autotote Corporation
(manufacturer of gaming industry control equipment), Finlay Fine Jewelry
Corporation (operator of leased fine jewelry departments), First Security
Services Corporation (provider of security services), Health-o-meter, Inc.
(manufacturer of consumer, medical and office supplies), Livent, Inc. (theater
productions), and Vail Resorts, Inc. (operator of resorts). Mr. Lee is also a
general partner of the ML-Lee Acquisition Fund, L.P., ML-Lee Acquisition Fund
II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P.
(collectively, the "ML-Lee Acquisition Funds"). Mr. Lee is Chairman of Thomas H.
Lee Advisors I, and general partner of Thomas H. Lee Advisors II, L.P., the
investment advisors to the ML-Lee Acquisition Funds. He is the general partner
of the THL Equity Advisors Limited Partnership, the general partner of and
investment advisor to Thomas H. Lee Equity Partners, L.P.
Kenneth F. Yontz has been a Director of the Company since June 1995. Mr.
Yontz has been Chairman of the Board, President and Chief Executive Officer of
Sybron International Corporation (a manufacturer of dental and laboratory
products) since 1987. He previously served as Executive Vice President of the
Allen-Bradley Company. He is a director of Berg Electronics, Inc.
Timothy O. Fisher has been a Director of the Company since May 1996. Mr.
Fisher has been a Vice President (since 1986) of The Hillman Company
(diversified investments and operations) and is a director of several private
companies.
Douglas D. Wheat has been a Director of the Company since June 1995. Mr.
Wheat has been President of Haas Wheat & Partners (January 1995-present);
President of Haas Wheat Advisory Partners Incorporated (1992-present) (each of
which is a private investment firm specializing in leveraged acquisitions);
Co-Chairman of Grauer & Wheat, Inc. (a private investment firm) (1989-1992) and
Senior Vice President of Donaldson, Lufkin & Jenrette Securities Corporation
(1985-1989). Mr. Wheat serves as a director of Specialty Foods Acquisition
Corporation, Specialty Foods Corporation and Smarte Carte, Inc..
Michael R. Eisenson has been a Director of the Company since March 1997. Mr.
Eisenson is the President and Chief Executive Officer of Harvard Private Capital
Group, Inc., which is the investment advisor for the private equity and real
estate portfolios of the Harvard University endowment fund. HPC currently has
$2.5 billion under management. Prior to joining Harvard in 1986, Mr. Eisenson
was a Manager with The Boston Consulting Group from 1981 to 1985. He serves on
the Board of Directors of Harken Energy Corporation, ImmunoGen, Inc., NHP
Incorporated, Somatix Therapy Corporation, and
3
<PAGE>
United Auto Group, Inc., as well as those of several private companies. Mr.
Eisenson was awarded a Juris Doctorate and a Master of Public and Private
Management degree by Yale University in 1981.
C. Ann Merrifield has been President of Genzyme Genetics, a wholly owned
subsidiary of Genzyme Corporation (a biotechnology company), since 1996. She
previously served as Vice President, Marketing and Business Development of
Genzyme Genetics from 1992 to 1996. Prior to that, Ms. Merrifield was a Partner
with Bain and Company (a consulting firm) from 1987 to 1992.
There are no family relationships among any of the foregoing persons.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 1, 1997 by (i) each director
and each nominee for director of the Company, (ii) the Named Executive Officers
(as defined in and set forth under "Executive Compensation--Summary Compensation
Table" below), (iii) each person believed by the Company to own beneficially
more than five percent of the outstanding Common Stock, and (iv) all directors
and Named Executive Officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIALLY
BENEFICIAL OWNER OWNED(1) PERCENT
- --------------------------------------------------------------- -------------------- -----------
<S> <C> <C>
Robert B. Haas................................................. 20,000,000(2) 39.3
Michael R. Gallagher........................................... 252,333(3) *
Michael F. Goss................................................ 108,001 *
Richard G. Powers.............................................. -- --
Max R. Recone.................................................. 95,001 *
James S. Cook.................................................. 145,001 *
Thomas H. Lee.................................................. 3,336,455(4) 6.6
Kenneth F. Yontz............................................... 1,800 *
Timothy O. Fisher.............................................. 21,663(5) *
Douglas D. Wheat............................................... -- --
Michael R. Eisenson............................................ -- --
C. Ann Merrifield.............................................. -- --
Stinson Capital Partners, L.P., et al (6)...................... 2,736,500 5.4
909 Montgomery Street
Suite 400
San Francisco, CA 94113
Partnerships managed by Haas Wheat & Partners (2).............. 20,000,000(2)(7) 39.3
All current directors, director nominees and Named Executive
Officers as a group (12 persons)............................. 23,960,254 46.7
</TABLE>
- ------------------------
* Indicates less than one percent.
(1) Includes shares that may be acquired upon the exercise of stock options
granted by the Company that are exercisable within 60 days of the Record
Date. The shares beneficially owned include 233,333, 80,001, 55,001, 55,001,
and 1,800 shares subject to currently exercisable options granted to Messrs.
Gallagher, Goss, Recone, Cook, and Yontz, respectively, and 425,136 shares
subject to currently exercisable options granted to all current directors
and Named Executive Officers as a group.
(2) Includes 8,055,555 (approximately 15.8% of the outstanding shares) owned by
HWH Capital Partners, L.P., 9,028,482 shares (approximately 17.7% of the
outstanding shares) owned by HWH Valentine Partners, L.P., and 2,915,963
shares (approximately 5.7% of the outstanding shares) owned by HWH
4
<PAGE>
Surplus Valentine Partners, L.P. ("Surplus"). The address of each of the
foregoing partnerships is c/o Haas Wheat & Partners Incorporated, 300
Crescent Court, Suite 1700, Dallas, Texas 75201. The sole general partner of
each of such partnerships is a limited partnership, and the sole general
partner of each of such limited partnerships is a corporation controlled by
Mr. Haas. By virtue of his control of such corporations, Mr. Haas has sole
voting and dispositive power over 17,084,037 shares and shared voting and
dispositive power over 2,915,963 shares.
(3) Includes 9,000 shares held by Mr. Gallagher's children. Mr. Gallagher
disclaims beneficial ownership of these shares.
(4) Includes 1,361,951 shares held of record by the 1989 Thomas H. Lee Nominee
Trust dated September 29, 1989, 1,406,204 shares held of record by the
ML-Lee Acquisition Fund, L.P., 343,726 shares held of record by the ML-Lee
Acquisition Fund II, L.P. and 183,560 shares held of record by the ML-Lee
Acquisition Fund II (Retirement Accounts), L.P. Mr. Lee disclaims beneficial
ownership of the shares held by the three ML-Lee Acquisition Funds. Certain
of the 1,361,951 shares held of record by the 1989 Thomas H. Lee Nominee
Trust are subject to options to purchase granted by such trust to certain
employees and consultants of the Thomas H. Lee Company. Also included are
20,507 shares held by the Stephen Zachary Lee 1988 Irrevocable Trust and
20,507 shares held by the Robert Schiff Lee 1988 Irrevocable Trust. Mr. Lee
also disclaims beneficial ownership of the shares held by such trusts.
(5) Includes 16,663 shares held of record by Mr. Fisher's spouse and children.
Mr. Fisher disclaims beneficial ownership of these shares.
(6) On February 26, 1997, the Company received a Schedule 13D dated February 18,
1997 filed with the Securities and Exchange Commission (the "Commission") in
respect of ownership of an aggregate of 2,736,500 shares of Common Stock by
a group comprised of Stinson Capital Partners, L.P., BK Capital Partners IV,
L.P., The Carpenters Pension Trust for Southern California, United
Brotherhood of Carpenters and Joiners of America Local Unions and Councils
Pension Fund, Insurance Company Supported Organizations Pension Plan,
Richard C. Blum & Associates, L.P., Richard C. Blum & Associates, Inc. and
Richard C. Blum. Each filing person reported shared voting power and shared
dispositive power with respect to all of such shares. The Company has not
attempted to verify independently any of the information contained in the
Schedule 13D.
(7) Of these shares, 2,915,963 shares (approximately 5.7% of the outstanding
shares) are owned by Surplus Phemus Corporation ("Surplus"), an affiliate of
Harvard Private Capital Group, Inc. (a corporation which invests and manages
the private equities portfolio of the Harvard University Endowment) which is
the sole limited partner of Surplus and shares voting and dispositive power
with respect to such shares.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers, directors and
persons who own more than ten percent of a registered class of the Company's
equity securities ("Reporting Persons") to file reports of ownership and changes
in ownership on Forms 3, 4 and 5 with the Commission and the New York Stock
Exchange, Inc. (the "NYSE"). These Reporting Persons are required by Commission
regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file
with the Commission and the NYSE.
Based on the Company's review of the copies of the forms it has received and
written representations from certain Reporting Persons, the Company believes
that all of its Reporting Persons complied with all filing requirements
applicable to them with respect to transactions during fiscal year 1996, except
that a Form 3 and Form 4 for Messrs. Fisher and Recone, respectively, were
inadvertently filed after the required date.
5
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BOARD MEETINGS, COMMITTEES AND ATTENDANCE
The Company's Board of Directors met or acted by unanimous written consent
six times during fiscal year 1996. Each Director attended or participated in at
least 75% of the total number of Board of Directors meetings or actions and
meetings or actions of Board of Directors committees on which the Director
served during the time he served on the Board of Directors of such committee.
The Board of Directors has an Audit Committee and a Compensation and Stock
Option Committee (the "Compensation Committee").
The Audit Committee was comprised of Messrs. Fisher, Lee, and Yontz during
fiscal year 1996. As directed by the Board of Directors, the functions of the
committee include recommending independent auditors to be employed by the
Company; conferring with the auditors regarding their audit of the Company;
reviewing the fees of such auditors and other terms of their engagement;
considering the adequacy of internal financial controls and the results of
fiscal policies and financial management of the Company; meeting with the
Company's internal auditors; reviewing with auditors the results of their
examination; and recommending changes in financial policies or procedures as
suggested by the auditors. The Audit Committee met twice during fiscal year
1996.
The Compensation Committee was comprised of Messrs. Haas, Herskowitz, Wheat
and Yontz until May 22, 1996 and was comprised of Messrs. Fisher and Yontz
thereafter during fiscal year 1996. The functions of the Compensation Committee
are to review new or modified programs in the areas of executive salary and
incentive compensation (including the Management Incentive Plan), deferred
compensation and stock plans; to review direct and indirect compensation
matters; to review management's compensation actions with respect to executive
officers and other key personnel; and to administer the Playtex 1994 Stock
Option Plan for Directors and Executive and Key Employees (the "1994 Playtex
Stock Option Plan"). The Compensation Committee met or acted by unanimous
written consent four times during fiscal year 1996. While serving on the
Compensation Committee, directors do not receive option awards (except, as to
Mr. Yontz, pursuant to formula grants) under the 1994 Playtex Stock Option Plan.
Pursuant to the Company's By-Laws, a Purchaser Nominating Committee
(comprised of Messrs. Haas and Wheat) and a Non-Purchaser Nominating Committee
(comprised of Messrs. Gallagher, Goss and Lee) nominate candidates for election
to the Company's Board of Directors in accordance with the procedures set forth
therein. Of the nominees for director set forth above, Messrs. Haas, Wheat,
Yontz, Fisher and Eisenson were nominated by the Purchaser Nominating Committee
and Messrs. Gallagher, Goss, Lee and Ms. Merrifield were nominated by the
Non-Purchaser Nominating Committee. See "Stockholder Nominations and Proposals."
DIRECTORS COMPENSATION
Directors who are officers or former officers of the Company and those
affiliated with any shareholders owning more than 5% of the Common Stock of the
Company do not receive any fees for their services as Directors. Mr. Yontz
receives, and if elected, Ms. Merrifield will receive an annual retainer of
$10,000, fees of $2,500 for each board meeting attended in person or by
telephone and $1,000 for each committee meeting attended in person or by
telephone, plus reimbursement of reasonable out-of-pocket expenses. In addition,
Mr. Yontz participates, and if elected, Ms. Merrifield will participate, in the
1994 Playtex Stock Option Plan.
CERTAIN TRANSACTIONS
The Company's businesses are unrelated to the businesses of Playtex Apparel,
Inc. ("Apparel"), a wholly owned subsidiary of Sara Lee Corporation ("Sara
Lee"). Sara Lee acquired all of the capital stock of Apparel from Playtex
Apparel Partners, L.P. (the "Apparel Partnership") in November 1991 in exchange
6
<PAGE>
for Sara Lee common stock. The Apparel Partnership holds all of the Company's
15 1/2% Junior Subordinated Notes due December 15, 2003. Playtex Investment
Corp., a wholly-owned subsidiary of the Company, holds a 15% debenture of the
Apparel Partnership due on December 15, 2003. Such amounts are reflected as "Due
to related party" and "Due from related party," respectively, in the
consolidated financial statements of the Company.
The Company has agreed to indemnify the Apparel Partnership and Apparel with
respect to product liability (including any toxic shock syndrome liability)
related to the Company's businesses and certain tax matters related to the
Apparel business prior to December 28, 1988, and Apparel has agreed to assume
one-half of any costs and expenses that may be incurred by the Company in
connection with its prior use of the Kent County Landfill Site, Houston,
Delaware.
On June 6, 1995, following the receipt of stockholder approval at the
Company's 1995 Annual Meeting of Stockholders (the "1995 Annual Meeting"), the
Company consummated the sale of 20 million shares of Common Stock at a price of
$9.00 per share to HWH Capital Partners, L.P., HWH Valentine Partners, L.P., and
HWH Surplus Valentine Partners, L.P. (collectively, the "Haas Wheat
Partnerships"), each a Delaware limited partnership managed by Haas Wheat &
Partners, pursuant to a Stock Purchase Agreement, dated as of March 17, 1995
(the "Stock Purchase Agreement"), between the Company and the Haas Wheat
Partnerships (the "Haas Wheat Transaction"). The Haas Wheat Partnerships' shares
constitute approximately 40% of the Company's outstanding Common Stock. At the
1995 Annual Meeting, designees of the Haas Wheat Partnerships were elected by
the Company's stockholders as a majority of the Company's Board of Directors.
Pursuant to the Stock Purchase Agreement, the Haas Wheat Partnerships have
agreed that, for up to ten years from March 1995, so long as such partnerships
own at least 25% of the outstanding voting securities of the Company, unless any
of certain events have occurred (including in the event that nominees of the
Purchaser Nominating Committee were to cease to constitute a majority of the
Board of Directors), such partnerships will vote all of their voting securities
of the Company for a Board of Directors that will consist at all times of a
simple majority of nominees selected by the Purchaser Nominating Committee and
the remainder of nominees selected by the Non-Purchaser Nominating Committee.
See "Security Ownership of Certain Beneficial Owners and Management--Board
Meetings, Committees and Attendance." Pursuant to the Stock Purchase Agreement,
(i) no ongoing management fees or advisory fees will be paid to the Haas Wheat
Partnerships or any of their affiliates until after June 6, 2000, other than for
services rendered to the Company in connection with specific transactions and
approved in advance by a majority of the Disinterested Directors (as defined) on
the Board of Directors, and (ii) until June 6, 2000, no director nominated by
the Purchaser Nominating Committee or officer of the Company who is a
stockholder, officer, director or employee of Haas Wheat & Partners will be paid
any fees for services rendered, including any salary, consulting fees, or
outside directors' fees.
The Company believes that the terms of all the arrangements with the Apparel
Partnership, Apparel, and the Haas Wheat Partnerships were and are fair to the
Company and comparable to those which could be obtained from unrelated third
parties.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash compensation paid by the Company and
its subsidiaries for services in all capacities during fiscal years 1996, 1995
and 1994 to the Company's Chief Executive Officer during fiscal year 1996 and
each of the four other executive officers of the Company during fiscal year 1996
who were serving as executive officers of the Company at the end of fiscal year
1996 and whose combined annual salary and bonus exceeded $100,000 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- --------------------------
OTHER SECURITIES AWARDS
ANNUAL UNDERLYING ALL OTHER
COMPEN- OPTIONS/ COMPEN-
SALARY BONUS SATION SARS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#)(1) ($)(2)
- -------------------------------------------- --------- ---------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Gallagher........................ 1996 $ 650,000 $ 1,093,000(3) $ -- 100,000 $ 186,991(4)
Chief Executive Officer and 1995 345,000 650,000 -- 800,000 392
Director 1994 -- -- -- -- --
Michael F. Goss............................. 1996 213,000 125,000 -- -- 28,928
Executive Vice President, Chief 1995 200,923 100,000 -- 127,500 52,563(5)
Financial Officer and Director 1994 15,384 -- -- 37,500 --
Richard G. Powers........................... 1996 80,769 32,500 -- 50,000 --
President, Personal 1995 -- -- -- -- --
Products Division 1994 -- -- -- -- --
Max R. Recone............................... 1996 201,269 90,000 -- -- 39,902
President, Consumer 1995 191,539 38,000 -- 95,000 35,522
Products Division 1994 179,231 71,692 -- 15,000 35,875
James S. Cook............................... 1996 193,462 88,000 -- -- 39,758
Senior Vice President, 1995 185,077 34,000 -- 95,000 35,802
Operations 1994 175,846 77,372 -- 15,000 36,458
</TABLE>
- ------------------------
(1) Options are exercisable starting 12 months after the grant date, with
one-third of the shares covered thereby becoming exercisable at that time
and an additional one-third of the options becoming exercisable on each
successive anniversary date, with full vesting occurring on the third
anniversary date. Mr. Gallagher's 1995 options, however, became exercisable
in equal installments over a four year period, with full vesting occurring
on the fourth anniversary of the grant date.
(2) Except with respect to Mr. Gallagher in 1996 and Mr. Goss in 1995,
represents employer contribution to the Playtex Products Profit-Sharing
Retirement Plan (the "Retirement Plan") and Deferred Benefit Equalization
Plan (the "Deferred Plan") and premiums paid by employer for term life
insurance.
(3) Represents $793,000 paid pursuant to the Company's Management Incentive Plan
and $300,000 paid pursuant to Mr. Gallagher's Special Bonuses Program
established in the Memorandum of Understanding dated July 10, 1995.
(4) Represents $144,062 employer contribution to the Retirement Plan and the
Deferred Plan and premium paid by employer for term life insurance, and
$42,929 in connection with Mr. Gallagher's relocation to Connecticut in
1996.
(5) Represents $2,563 employer contribution to the Retirement Plan and the
Deferred Plan and premium paid by employer for term life insurance, and a
$50,000 moving allowance in connection with Mr. Goss's relocation to
Connecticut in 1995.
8
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information related to stock options exercised
by the Named Executive Officers during fiscal year 1996 and unexercised stock
options and stock appreciation rights ("SARs") held by the Named Executive
Officers at fiscal year end.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 28, DECEMBER 28,1996
SHARES 1996(#)(2) ($)(2)(3)
ACQUIRED VALUE ----------------- -------------------
ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#)(1) ($)(1) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ------------------- ------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Michael R. Gallagher........................... -- -- 200,000/700,000 0/0
Michael F. Goss................................ -- -- 67,501/97,499 21,875/10,937
Richard G. Powers.............................. -- -- 0/50,000 0/0
Max R. Recone.................................. -- -- 41,668/68,332 0/0
James S. Cook.................................. -- -- 41,668/68,332 0/0
</TABLE>
- ------------------------
(1) None of the Named Executive Officers exercised any stock options during
fiscal year 1996.
(2) No SARs are outstanding.
(3) The closing price for the Company's Common Stock as reported by the New York
Stock Exchange on December 27, 1996 (the last trading day of fiscal year
1996) was $7.625.
OPTION GRANTS DURING FISCAL YEAR 1996
The following table provides information related to options granted to the
Named Executive Officers during fiscal year 1996. No SARs were granted during
fiscal year 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS/ VALUE AT ASSUMED
SARS EXERCISE ANNUAL RATES OF STOCK
OPTIONS/ GRANTED TO OR PRICE APPRECIATION FOR
SARS EMPLOYEES BASE OPTION TERM(1)
GRANTED IN FISCAL PRICE EXPIRATION ------------------------
NAME (#)(2) YEAR ($/SH)(3) DATE 5% ($) 10% ($)
- ------------------------------------ --------- ------------- ----------- --------------- ---------- ------------
Michael R. Gallagher................ 100,000 60% $ 9.00 May 15, 2006 $ 566,005 $ 1,434,368
Michael F. Goss..................... -- -- -- -- -- --
Richard G. Powers................... 50,000 30% 8.00 July 25, 2006 148,576 376,522
Max R. Recone....................... -- -- -- -- -- --
James S. Cook....................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon the exercise of the options immediately
prior to the expiration of their term, assuming the specified compounded
rates of appreciation on the Company's Common Stock over the term of the
options. Assumed rates of appreciation are not necessarily indicative of
future stock performance.
(2) Options granted to persons other than non-employee directors in fiscal year
1996 under the 1994 Playtex Stock Option Plan are exercisable starting 12
months after the grant date, with one-third of the shares covered thereby
becoming exercisable at that time and an additional one-third of the options
becoming exercisable on each successive anniversary date, with full vesting
occurring on the third anniversary date.
(3) The exercise price was equal to the fair market value of the Common Stock on
the date of grant. The option exercise price and tax withholding obligations
related to exercise may be paid in cash, by delivery of already owned
shares, by offset of the underlying shares, or in any other form of valid
9
<PAGE>
consideration or a combination of any of the foregoing, as determined by the
Compensation Committee in its discretion.
1994 PLAYTEX STOCK OPTION PLAN
The 1994 Playtex Stock Option Plan, which has been approved by the Company's
stockholders, authorizes the grant to directors, executives and other key
employees of the Company of long-term incentive share awards in the form of
options ("Options") to purchase Common Stock and SARs. The 1994 Playtex Stock
Option Plan is administered by the Compensation Committee. The aggregate number
of shares of Common Stock which may be issued upon exercise of Options and SARs
may not exceed 3,047,785 shares (subject to further adjustments for stock
dividends and stock splits); provided that the aggregate number of such shares
which may be issued upon the exercise of Options and SARs granted to any single
director or Executive Officer (as defined in the 1994 Playtex Stock Option Plan)
may not exceed 1,000,000. Options and SARs may not be granted under the 1994
Playtex Stock Option Plan after October 2003. As of the Record Date, the number
of remaining shares available for issuance under the 1994 Playtex Stock Option
Plan was 692,852, which amount gives effect to grants made during fiscal year
1996 and the first quarter of fiscal year 1997.
BENEFIT PLANS FOR TERMINATED EMPLOYEES
The Company maintains a Severance Payment Policy under which the Named
Executive Officers (excluding the Chief Executive Officer) who are "terminated"
from service without cause are entitled to receive compensation for a period of
six to twelve months, depending on their years of accrued service.
ARRANGEMENTS WITH FORMER CHIEF EXECUTIVE OFFICER
The Company has retained Joel E. Smilow, its former Chairman and Chief
Executive Officer, as a consultant for a five-year period commencing July 10,
1995 (the "Consulting Period") at an annual fee of $250,000. The consulting
agreement does not require Mr. Smilow to devote any minimum amount of time to
the performance of consulting services. During the Consulting Period, the
Company will provide Mr. Smilow with an office and secretarial assistance. Mr.
Smilow is also entitled to reimbursement of certain expenses incurred in
connection with his consulting services, and is entitled to benefits under the
Company's medical and dental plan for the duration of the Consulting Period,
subject to his payment of any contributory amounts payable for the coverage
selected by him. Under the agreement, Mr. Smilow may not directly or indirectly
carry on any business in competition with the Company for the duration of the
Consulting Period. Furthermore, Mr. Smilow agrees not to disclose, make use of,
or make accessible any confidential information which he obtained from the
Company during the Consulting Period and for a five year period thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Haas served on the Compensation Committee of the Board of Directors
until May 22, 1996.
REPORT ON EXECUTIVE COMPENSATION
IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE COMMISSION, THE
FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND THE PERFORMANCE GRAPH
IMMEDIATELY THEREAFTER SHALL NOT BE DEEMED TO BE "SOLICITING MATERIAL" OR TO BE
"FILED" WITH THE COMMISSION OR SUBJECT TO REGULATIONS 14A OR 14C OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), OR TO THE
LIABILITIES OF SECTION 18 OF THE EXCHANGE ACT AND SHALL NOT BE DEEMED
INCORPORATED BY REFERENCE INTO ANY FILING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE EXCHANGE ACT, NOTWITHSTANDING ANY GENERAL INCORPORATION BY
REFERENCE OF THIS PROXY STATEMENT INTO ANY OTHER FILED DOCUMENT.
10
<PAGE>
The foundation of the Company's compensation policies is the view that the
Company's success is attributable to the efforts of its employees, including its
executive officers. The Company structures executive compensation in a manner
designed to provide competitive levels of compensation and to assist the Company
in attracting and retaining qualified executives. The Company endorses the
position that stock ownership by management is beneficial in aligning
management's and stockholders' interests in the Company. The compensation paid
to the Company's executive officers consists primarily of base salary, cash
bonuses under the Management Incentive Plan, and grants of Options pursuant to
the 1994 Playtex Stock Option Plan. In addition, the Company provides all
executive officers with term life insurance and contributions to the Retirement
Plan and the Deferred Plan.
Base salaries of executive officers are reviewed annually. In establishing
base salaries during fiscal year 1996, the Compensation Committee made
subjective determinations that were not subject to specific criteria. The
Compensation Committee considered such variables as the executive officer's
relative responsibilities, expertise, past year's compensation, and past year's
performance. The Compensation Committee also considered the compensation levels
of other comparable consumer products executives.
As in effect during fiscal year 1996, the Company's Management Incentive
Plan required a minimum level of annual corporate operating profit to be
achieved before any cash bonuses were payable to executive officers pursuant to
the plan. Amounts payable under the plan were calculated based upon the
following factors: (i) annual base salary; (ii) employee's targeted percentage
(a percentage of base salary that increases for higher positions within the
Company, thereby placing a greater percentage of compensation at risk for those
with greater responsibility); and (iii) corporate performance results with
respect to net sales, operating profit and cash flow (each as defined in the
Management Incentive Plan) measured against objectives established at the
beginning of the year, and (other than with respect to the Chief Executive
Officer) to include an individual performance factor based on measured
accomplishment of goal-oriented projects to be weighted equally with each other
component of the corporate performance factor.
The option incentive component of the total compensation package is intended
to retain and motivate executives to improve long-term stock market performance
and to increase value for all stockholders. The Compensation Committee generally
grants Options under the 1994 Playtex Stock Option Plan with an exercise price
equal to the market price at the date of the grant and, as a result, the Options
will have value only if the Company's stock price increases from the time of the
award. Grants are made to executive officers based on salary, responsibility,
and performance of the individual officer. Grants generally become exercisable
over the succeeding three years.
Mr. Gallagher was named Chief Executive Officer of the Company effective
July 10, 1995. The Company entered into a Memorandum of Understanding, dated as
of June 21, 1995 (the "Memorandum"), with Mr. Gallagher, providing for his
employment as the Company's Chief Executive Officer for a five-year period,
unless earlier terminated or extended in accordance with the Memorandum or by
agreement of the parties. The Memorandum, which was approved by the Compensation
Committee, provides for a base salary at the rate of $650,000 per annum through
December 31, 1996, subject to upward adjustment thereafter at the discretion of
the Committee, incentive bonuses and the grant of stock options with respect to
800,000 shares of Common Stock pursuant to the 1994 Playtex Stock Option Plan to
become exercisable in equal installments over a four-year period. The incentive
bonuses available to Mr. Gallagher under the Memorandum are (i) an Incentive
Bonus pursuant to the formulas set forth in the Company's Management Incentive
Plan, (ii) Special Bonuses as of the last day of calendar year 1995, 1996 and
1997 in the amounts of $650,000, $300,000 and $300,000, respectively, and (iii)
Special Price-Based Incentive Compensation consisting of certain cash payments
in the event the Company's Common Stock reaches certain trading price levels for
at least 30 consecutive days prior to June 30, 2000. The Memorandum provides for
certain payments to Mr. Gallagher in the event of termination of his employment
prior to the June 30, 2000, including, if his employment is terminated by the
Company without "cause" (as defined) or due to Mr. Gallagher's death or
disability, continued payment of his base salary for 12 months, payment of any
Incentive Bonus otherwise due in the year of termination on a prorated basis,
and a cash payment
11
<PAGE>
equal to 75% of any unpaid Special Bonuses in respect of calendar years 1995,
1996 and 1997. During fiscal year 1996, Mr. Gallagher received stock options
with respect to an additional 100,000 shares of Common Stock pursuant to the
1994 Playtex Stock Option Plan which become exercisable in equal installments
over a three-year period.
The Compensation Committee has structured Mr. Gallagher's compensation in
order to link it to his individual performance and to grant substantial
incentives to the Chief Executive Officer tied to the performance of the Company
measured with respect to sales, profitability and cash flow and to the long-term
growth of the Company as measured by increases in the value of its Common Stock.
The Committee also considered the compensation packages available to chief
executives of comparable companies and the Company's need to attract, retain and
incentivize a chief executive officer of Mr. Gallagher's caliber.
The Compensation Committee has considered the potential future effects on
the Company's executive compensation program of Section 162(m) of the Internal
Revenue Code. Section 162(m) limits the deductibility by public companies of
certain executive compensation in excess of certain amounts per executive per
year, but excludes from the calculation of such limit certain elements of
compensation, including performance-based compensation, provided that certain
requirements are met. The 1994 Playtex Stock Option Plan has been designed and
administered to qualify awards made thereunder as performance-based compensation
excepted from such limitation on the deductibility of executive compensation.
The Company has also attempted to structure other elements of its executive
compensation program, including the Management Incentive Plan or portions
thereof, to qualify as performance-based compensation for purposes of Section
162(m).
March 5, 1997
The Compensation Committee
Timothy O. Fisher
Kenneth F. Yontz
12
<PAGE>
PERFORMANCE GRAPH
The following graph compares total stockholder returns for the Company to
the Standard & Poor's Stock 400 Index ("S&P 400") and a weighted composite index
of certain peer companies (the "Peer Index") selected by the Company, on a
quarterly basis for the period commencing on January 26, 1994 (the date of the
Company's initial public offering) through December 28, 1996 (the "Performance
Period"). The comparison assumes $100.00 was invested on January 26, 1994 in the
Company's Common Stock and in each of the foregoing indices and assumes
reinvestment of dividends, if any. The total return for the Company's Common
Stock decreased by 41.3% during the Performance Period as compared with an
increase in total return during the same period for the Peer Index of 10.2% and
for the S&P 400 of 61.5%. The comparisons in the graph below are set forth in
response to Commission disclosure requirements, and therefore are not intended
to forecast or be indicative of future performance of the Company's Common
Stock.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PLAYTEX PRODUCTS,
S&P 400 PEER INDEX INC
<S> <C> <C> <C>
1/26/94 100 100 100
End of Q1 '94 94.8 88.2 77.9
End of Q2 '94 93.9 85.4 64.4
End of Q3 '94 99.7 81.4 68.3
End of Q4 '94 99.6 79.4 54.8
End of Q1 '95 108.5 86.2 61.5
End of Q2 '95 118.1 86 75
End of Q3 '95 124.8 89.8 66.3
End of Q4 '95 131.1 95.8 57.7
End of Q1 '96 138.5 104.4 55.8
End of Q2 '96 144.8 103 72.1
End of Q3 '96 147.5 101.6 68.3
End of Q4 '96 161.5 110.2 58.7
</TABLE>
The Peer Index is comprised of the following: Tambrands Inc.,
Carter-Wallace, Inc., Alberto-Culver Company, Church & Dwight Co., Inc., and
Paragon Trade Brands Inc. The Peer index has been restated to exclude
Maybelline, Inc. as it was acquired during 1996 and is no longer publicly
traded. The returns for each issuer within the Peer Index have been weighted
according to such issuer's respective stock market capitalization at the
beginning of the period presented. The Company selected the issuers that
comprise the Peer Index on the basis that each had comparable lines of business
and/or comparable stock market capitalization to the Company.
RATIFICATION OF SELECTION OF AUDITORS
The auditing firm of KPMG Peat Marwick LLP has examined the financial
statements of the Company since 1986. The Board of Directors wishes to utilize
its services for the Company and its subsidiaries for the fiscal year ending
December 27, 1997. A resolution will be presented to the meeting to ratify the
appointment of that firm by the Board of Directors as independent accountants to
examine the financial statements of the Company and its subsidiaries for the
fiscal year ending December 27, 1997, and to perform other appropriate
accounting services. Representatives of that firm will be present at the
meeting, will have the opportunity to make a statement if they desire to do so,
and will be available to respond to appropriate questions by stockholders.
If the stockholders do not ratify the selection of KPMG Peat Marwick LLP by
the affirmative vote of a majority of the number of votes entitled to be cast by
the Common Stock represented at the Annual Meeting, the selection of independent
accountants will be reconsidered by the Board of Directors. Under applicable
Delaware law, in determining whether this item has received the requisite number
of affirmative votes, abstentions will have the same effect as votes against
this item; however, broker non-votes will be treated as not entitled to vote for
purposes of determining approval of this item and will not have any effect on
the outcome of the matter.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION OF
THE APPOINTMENT OF KPMG PEAT MARWICK LLP.
13
<PAGE>
OTHER MATTERS
The Board of Directors and management of the Company know of no other
matters to be brought before the Annual Meeting. If other matters should arise
at the Annual Meeting, shares represented by proxies will be voted at the
discretion of the proxy holder.
STOCKHOLDER NOMINATIONS AND PROPOSALS
Any stockholder who intends to present a proposal (other than with respect
to the election of directors) at the 1998 annual meeting of stockholders and who
wishes such proposal to be included in the Proxy Statement for that meeting must
submit such proposal in writing to the Secretary of the Company, at the address
of the Company set forth on the first page of this Proxy Statement, and such
proposal must be received on or before December 26, 1997, or, if the 1998 annual
meeting is changed by more than thirty (30) calendar days from May 20, such
proposal must be received a reasonable time before the solicitation is made.
In addition, any stockholder who intends to nominate any person for election
as a director at the 1998 annual meeting must make such nominations by written
notice given by or on behalf of a stockholder of record (the "Notice of
Nomination"). The Notice of Nomination must be delivered personally to, or
mailed to, and received at the principal executive office of the corporation,
addressed to the attention of the Secretary, no later than ten (10) days after
the first date of public disclosure by the Company of the date of the annual
meeting or special meeting of stockholders; PROVIDED, HOWEVER, that such Notice
of Nomination shall not be required to be given more than sixty (60) days prior
to an annual or special meeting of stockholders. Public disclosure shall be
deemed to be first made when disclosure of such date of the annual meeting or
special meeting of stockholders is first made in a press release reported by the
Dow Jones News Services, Associated Press or comparable national news service,
or in a document publicly filed by the corporation with the Commission pursuant
to Sections 13, 14 or 15(d) of the Exchange Act or any successor thereto. Such
Notice of Nomination shall set forth (i) the name and address of the person
proposing to make nominations, (ii) the class and number of shares of capital
stock held of record, held beneficially and represented by proxy held by such
person as of the record date for the meeting and as of the date of such Notice
of Nomination, (iii) all information regarding each stockholder nominee that
would be required to be set forth in a definitive proxy statement filed with the
Commission pursuant to Section 14 of the Exchange Act, or any successor thereto,
and the written consent of each such stockholder nominee to serve if elected,
and (iv) all other information that would be required to be filed with the
Commission if the person proposing such nominations were a participant in a
solicitation subject to Section 14 of the Exchange Act or any successor thereto.
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that any proposed nomination of a stockholder nominee was not
made in accordance with the foregoing procedures and, if he should so determine,
he shall so declare to the meeting and the defective nomination shall be
disregarded.
By Order of the Board of Directors
/s/ Paul E. Yestrumskas
Paul E. Yestrumskas
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
April 23, 1997
14
<PAGE>
APPENDIX A
PLAYTEX PRODUCTS, INC.
1996 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
PLAYTEX PRODUCTS, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION ----
Selected Financial Data 3
Management's Discussion and Analysis of
Financial Condition and Results of Operations 4 - 8
Consolidated Financial Statements 9 - 12
Notes to Consolidated Financial Statements 13 - 34
PART II - OTHER INFORMATION
Independent Auditors' Report 35
Report of Management 36
Other Information 37 - 38
A-2
<PAGE>
PLAYTEX PRODUCTS, INC.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION> TWELVE MONTHS ENDED
-----------------------------------------------------------------------------------------
DEC. 28, DEC. 30, DEC. 31, DEC. 25, DEC. 26,
1996 1995 1994 1993 1992
--------------- -------------- ------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 498,742 $ 483,581 $ 473,275 $ 409,858 $ 384,486
Gross profit 306,230 295,452 306,674 273,136 257,937
Operating expenses, excluding
amortization of intangibles 194,184 195,457 166,799 143,834 139,098
Amortization of intangibles 12,846 11,268 10,181 14,529 14,981
Write-off of SMILETOTE and Beauty
Care intangible assets - 1995 and
1993, respectively -- 6,441 -- 121,620 --
Operating earnings (loss) 99,200 82,286 129,694 (6,847) 103,858
Interest expense, net 64,860 71,361 76,153 115,949 114,016
Earnings (loss) before cumulative
effect of accounting changes
and extraordinary loss 18,199 2,774 29,547 (124,845) (15,258)
Net earnings (loss) available to
common stockholders 18,199 2,774(1) 28,384 (137,655)(2) (26,421)
Net earnings (loss) per share before
cumulative effect of accounting changes
and extraordinary loss available to
common stockholders (primary
and fully diluted) $ 0.36 $ 0.07(3) $ 0.97(4) $ (12.67)(5) $ (2.44)
Weighted average common
shares outstanding 50,883 42,309 29,212 10,867 10,845
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit) $ 6,522 $ 28,637 $ 17,623 $ (24,632) $ 1,372
Total assets 660,331 682,861 599,400 588,457 716,083
Total long-term debt,
including current portion
and excluding due to related party 739,700 790,050 875,700 915,413 930,032
Redeemable preferred stock -- -- -- 139,644 124,834
Common stock and other
stockholders' equity (deficit) (282,727) (300,976) (465,997) (723,408) (544,917)
</TABLE>
(1) Earnings available to common stockholders for the twelve months ended
December 30, 1995 excludes the extraordinary loss of $7.9 million (net of
$5.2 million of income tax benefit) related to early extinguishment of
debt in connection with the 1995 Transaction.
(2) Loss from continuing operations available to common stockholders for the
twelve months ended December 25, 1993 excludes the cumulative effect of
accounting changes of $0.9 million (net of $0.7 million of income tax
benefit) and extraordinary loss of $39.4 million (net of $25.4 million of
income tax benefit) related to the early extinguishment of debt in
connection with the 1994 Recapitalization.
(3) Fiscal 1995 earnings per share from continuing operations
available to common stockholders, assuming the 1995 Transaction
had been consummated on January 1, 1995, would have been $0.13
per share.
(4) Fiscal 1994 earnings per share from continuing operations available to
common stockholders, assuming the 1994 Recapitalization had been
consummated on December 26, 1993, would have been $1.01 per share.
(5) Fiscal 1993 loss per share from continuing operations available to common
stockholders of ($12.67) includes the effect of the write-off of Beauty
Care excess cost ($11.19 loss per share).
A-3
<PAGE>
PLAYTEX PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the historical
audited consolidated financial statements and notes thereto, presented on pages
9 through 34 hereof.
In accordance with Rule 14a-3(c) under the Securities Exchange Act of 1934
(the "Exchange Act"), information contained herein is provided solely for the
information of stockholders and of the Securities and Exchange Commission. Such
information shall not be deemed to be "soliciting material" or to be "filed"
with the Commission or subject to Regulation 14A under the Exchange Act (except
as provided in Rule 14a-3) or to the liabilities of Section 18 of the Exchange
Act, unless, and only to the extent that, it is expressly incorporated by
reference into the Annual Report on Form 10-K of Playtex Products, Inc. for its
fiscal year ended December 28, 1996.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this commentary or others made hereafter (including
orally) may constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to: intensified competition, higher spending for advertising
and promotion, new product initiatives, continued activity in the private label
sector, the loss of a significant customer, product liability litigation, and
changes in governmental regulation.
A. TWELVE MONTHS ENDED DECEMBER 28, 1996 VERSUS
TWELVE MONTHS ENDED DECEMBER 30, 1995
RESULTS OF OPERATIONS
NET SALES - Fiscal 1996 net sales increased $15.2 million, or 3%, versus
fiscal 1995 to $498.7 million. For the year, Feminine Care net sales
decreased $18.1 million, or 7%, versus fiscal 1995. Infant Care, Sun Care and
Household Products reported growth in net sales versus fiscal 1995 of 25%,
46% and 6%, respectively.
Net sales for the Feminine Care business were $225.5 million for the
twelve months ended December 28, 1996. These results reflect: 1) the
rigorous competitive environment in the tampon category, particularly in the
first half of the year; 2) a reduction in the level of inventories carried by
retailers during the year; and 3) a stabilization in the Company's unit
market share at
A-4
<PAGE>
PLAYTEX PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
23% for the year. Although shipments to retailers were off 7% during the year,
retail takeaway was only off 1%, roughly in line with the category.
Infant Care net sales were $109.5 million, up $21.9 million, or 25%, versus
fiscal 1995. The increase in net sales was due primarily to the continued growth
of the 6-ounce PLAYTEX SPILL- PROOF(TM) Cup and the successful introductions in
1996 of the 9-ounce SPILL-PROOF Cup and the QUICKSTRAW(TM) bottle.
Sun Care net sales for fiscal 1996 were $73.3 million, an increase of 46%
over fiscal 1995. Contributing to the increase in net sales was an increase in
market share for the year from 18% to 19%, category growth of 2% versus 1995,
and $10.3 million of additional revenues as a result of the acquisition on
October 31, 1995 of the remaining portion of Banana Boat Holdings Corporation
(the "BBH Acquisition") not previously owned by Playtex.
The Household Product group includes the WOOLITE(R) rug and upholstery
cleaning business ("WOOLITE") and PLAYTEX GLOVES. As a group, Household Products
net sales increased $3.2 million, or 5.6% during fiscal 1996. WOOLITE's net
sales increased $4.1 million versus 1995 to $27.8 million, while Glove net sales
of $32.8 million decreased $0.8 million versus the prior year. The increase in
WOOLITE net sales is associated with the complete integration of this business
after its acquisition in early 1995. The change in Gloves net sales was
attributed primarily to a change in pricing strategy which resulted in lower
reported revenue which was more than offset by lower trade spending. Playtex's
market share grew by three percentage points in 1996.
Net sales in Hair Care declined by $14.5 million versus fiscal 1995, to
$25.2 million. Much of this decline was attributable to the strategic decision
on the part of the Company to significantly reduce ineffective and unprofitable
trade spending associated with the JHIRMACK brand. For the year, JHIRMACK
represented just 5% of total net sales.
GROSS PROFIT - Gross profit of $306.2 million for the year ended December 28,
1996 increased $10.8 million, or 4%, versus fiscal 1995. For the year, gross
margin was 61.4% of net sales versus 61.1% of net sales in 1995. The increase in
margin was due, in part, to $3.4 million of pre-tax charges included in the 1995
cost of sales related to the BBH Acquisition, partially offset by a shift in
product sales mix to lower margin goods.
OPERATING EARNINGS - Operating earnings of $99.2 million for the year ended
December 28, 1996 were $16.9 million, or 21%, higher than for the prior fiscal
year. Contributing to this increase was the margin impact of the increased net
sales described above and the $15.5 million of one time pre-tax charges included
in the 1995 results. These one time charges were comprised of the following:
$3.4 million in the cost of sales as previously described, $5.7 million
(included in administrative expenses) to implement certain organizational
changes arising from management's plan to streamline and strengthen the Company,
and $6.4 million to write-off intangible assets associated with SMILETOTE(R).
The Company's advertising and promotion expenses increased by $1.8
million, or 2%, versus fiscal 1995. As part of Playtex's consumer oriented
marketing strategy, the Company is
A-5
<PAGE>
PLAYTEX PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
investing more heavily in advertising and consumer spending and focusing less
on trade spending. Excluding the impact of the 1995 one time items, the
remaining operating expenses increased $4.2 million versus 1995, mainly as a
result of the BBH Acquisition in the fourth quarter of 1995 and a continued
focus on new product development.
INTEREST EXPENSE - The decrease in interest expense of $6.5 million for the year
ended December 28, 1996 was attributable to lower debt levels and lower interest
rates. See note 7 of the Notes to the Consolidated Financial Statements.
B. TWELVE MONTHS ENDED DECEMBER 30, 1995 COMPARED TO
TWELVE MONTHS ENDED DECEMBER 31, 1994
RESULTS OF OPERATIONS
NET SALES - Fiscal 1995 net sales increased $10.3 million, or 2%, versus fiscal
1994 to $483.6 million. For the year, Feminine Care net sales decreased $13.5
million, or 5%, versus fiscal 1994. Infant Care, Sun Care and Gloves reported
growth in net sales versus fiscal 1994 of 12%, 3% and 3%, respectively. The
acquisition of the WOOLITE rug and upholstery cleaning business in the first
quarter of 1995 contributed $23.7 million in additional sales.
Net sales for the Feminine Care business were $243.6 million for the twelve
months ended December 30, 1995. This decline in net sales was attributed to a
decline in the Company's market share partially offset by market growth.
Infant Care net sales were $87.5 million, up $9.6 million, or 12%, versus
fiscal 1994. The increase in net sales was due primarily to increased cup volume
associated with the success of the six-ounce PLAYTEX SPILL-PROOF CUP, which was
introduced in the fourth quarter of 1993, and a full year's impact of the
SMILETOTE line of cups and bottles that was acquired in July of 1994.
Sun Care net sales for fiscal 1995 were $50.3 million, an increase of 3%
over fiscal 1994. Contributing to the increase in net sales was an increase in
market share for the year from 15% to 16%, category growth of 7% versus 1994,
and $1.4 million of additional revenues as a result of the BBH Acquisition.
Partially offsetting these net sales gains were higher than expected product
returns related to the 1994 sun care season of approximately $3.1 million.
Glove net sales increased 3% to $33.6 million versus fiscal 1994. This gain
was attributed primarily to an estimated 3% category growth combined with a
three percentage point increase in market share to 33%. Partially offsetting
these increases was a $1.6 million decrease in net sales associated with the
discontinuation of the DURAMITT(R) product line. Excluding DURAMITT, net sales
for gloves increased 9% year to year.
Net sales in Hair Care declined by $11.6 million versus fiscal 1994 to
$39.7 million. For the year, JHIRMACK represented just 8% of total net sales.
GROSS PROFIT - Gross profit of $295.5 million for the year ended December 30,
1995 decreased $11.2 million, or 4%, versus fiscal 1994. For the year, gross
margin was 61.1% of net sales
A-6
<PAGE>
PLAYTEX PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
versus 64.8% of net sales in 1994. The decrease in margin was due to $3.4
million of one time charges incurred in the fourth quarter associated with
BANANA BOAT and the acquisition of BBH, a change in product mix to lower margin
products, and higher product costs, including increased costs for key materials
such as latex, resin, rayon, and corrugate.
OPERATING EARNINGS - Operating earnings of $82.3 million for the year ended
December 30, 1995 were $47.4 million, or 37%, lower than for the prior fiscal
year. Contributing to this decline were $15.5 million of pre-tax one time
charges previously described.
In line with the Company's strategy to more aggressively focus on the
consumer, advertising and promotion expenses were up $18.6 million, or 19%,
versus fiscal 1994. Selling, distribution and research costs increased $2.6
million versus 1994, mainly as a result of the acquisitions of WOOLITE in the
first quarter of 1995 and BBH in the fourth quarter of 1995.
WRITE-OFF OF SMILETOTE INTANGIBLE ASSETS - During the fourth quarter of 1995 and
in connection with certain strategic decisions regarding the SMILETOTE product
line, management determined that the unamortized intangible assets associated
with SMILETOTE were permanently impaired. See Note 11 of the Notes to the
Consolidated Financial Statements.
INTEREST EXPENSE - The decrease in interest expense of $4.8 million for the year
ended December 30, 1995 was attributable to lower debt levels as a result of the
$180 million equity infusion from partnerships managed by Haas Wheat & Partners
and lower interest rates associated with a $500 million Credit Agreement with
Chase Manhattan Bank (the "1995 Credit Agreement"). See note 7 of the Notes to
the Consolidated Financial Statements.
FINANCIAL CONDITION AND LIQUIDITY
At December 28, 1996, the Company's working capital decreased to $6.5
million from $28.6 million at December 30, 1995. This decrease was in line with
management's intention to reduce the levels of working capital required to
manage the Company. These efforts contributed to the generation of $50.0 million
of free cash flow and a corresponding reduction in long-term debt.
Long-term debt of $739.7 million at December 28, 1996 consisted of: a)
$342.5 million of borrowings under the Term Loan Facility, exclusive of $25.0
million included in current maturities (due within the next twelve months); b)
$2.2 million of borrowings under the Working Capital Facility; c) $10.0 million
of borrowings under the Acquisition Credit Facility; and d) $360.0 million
aggregate principal amount of 9% Senior Subordinated Notes. Of the $112.5
million of authorized credit from the Working Capital Facility and Acquisition
Credit Facility, on December 28, 1996, approximately $98.9 million was available
to be borrowed by the Company.
The Company believes that it will generate sufficient cash flow from
operations to make the scheduled interest and principal payments under the
1995 Credit Agreement and interest payments under the 9% Senior Subordinated
Notes. However, the Company does not expect to generate sufficient cash flow
from operations to make the principal payment due in 2003 on the
A-7
<PAGE>
PLAYTEX PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
9% Senior Subordinated Notes. Accordingly, the Company will have to either
refinance its obligations with respect to the 9% Senior Subordinated Notes
prior to maturity, sell assets or raise equity capital to repay the principal
amount of the 9% Senior Subordinated Notes. The Company's ability to make
scheduled principal payments, to refinance its obligations with respect to
its indebtedness, sell assets or raise equity capital depends on its
financial and operating performance, which, in turn, is subject to prevailing
economic conditions and to certain financial, business and other factors
beyond its control. Although the Company's cash flow from its operations and
borrowings have been sufficient to meet its historical debt service
obligations, there can be no assurance that the Company's operating results
will continue to be sufficient or that future borrowing facilities will be
available for the payment or refinancing of the Company's indebtedness.
The Company's outstanding indebtedness under the 1995 Credit Agreement bears
interest at floating rates. The Company has entered into three interest rate
protection agreements which hedge substantially all of the Company's long-term
bank debt. The first agreement effectively fixes the interest rate on $125
million at 7.71% until July 7, 1997. The second agreement effectively fixes the
interest rate on $100 million at 7.575% until July 25, 1997. At the option of
the counterparty, these agreements may each be extended for one additional year.
The third agreement effectively fixes the rate on $150 million at 7.34% until
July 25, 1998. This agreement will terminate with no penalty to either party if
the 90 day LIBOR rate on specified interest reset dates is equal to or greater
than 6.25%. See note 7 of the Notes to the Consolidated Financial Statements.
Capital expenditures for equipment and facility improvements were $9.7
million, $12.4 million and $8.5 million for the twelve months ended December 28,
1996, December 30, 1995 and December 31, 1994, respectively. These expenditures
were used primarily to upgrade production equipment and maintain facilities in
the ordinary course of business. Capital expenditures for 1997 are anticipated
at $15.0 million, mostly for production related equipment and facility
improvements and for projects consistent with those of the prior years.
Inflation in the United States and Canada has not been a significant
concern to the Company during recent periods.
With the exception of Sun Care, the Company's businesses have generally not
been seasonal in nature. Sun Care sales are highly seasonal with a range of 85%
to 90% of sales occurring in the first six months of the year. In addition, the
seasonality requires increased working capital to support inventory build prior
to the selling season and higher receivables levels resulting from extended
credit terms which are typical in the sun care industry.
A-8
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------- -------------- ------------
<S> <C> <C> <C>
Net sales $ 498,742 $ 483,581 $ 473,275
Cost of sales 192,512 188,129 166,601
---------- ----------- -----------
Gross profit 306,230 295,452 306,674
---------- ----------- -----------
Operating expenses:
Advertising and sales promotion 119,380 117,581 98,999
Selling, distribution and research 56,776 54,251 51,628
Administrative 18,028 23,625 16,172
Amortization of intangibles 12,846 11,268 10,181
Write-off of SMILETOTE intangible assets - 6,441 -
---------- ----------- -----------
Total operating expenses 207,030 213,166 176,980
---------- ----------- -----------
Operating earnings 99,200 82,286 129,694
Interest expense including related party interest
expense of $12,150, net of related party interest
income of $12,003 for all periods presented 64,860 71,361 76,153
---------- ----------- -----------
Earnings before income taxes 34,340 10,925 53,541
Income taxes 16,141 8,151 23,994
---------- ----------- -----------
Earnings before extraordinary loss 18,199 2,774 29,547
Extraordinary loss on early extinguishment
of debt, net of $5,180 tax benefit - (7,935) -
---------- ----------- -----------
Net earnings (loss) 18,199 (5,161) 29,547
Preferred dividend requirements - - (1,163)
Net earnings (loss) available to
common stockholders $ 18,199 $ (5,161) $ 28,384
========== =========== ==========
Earnings (loss) per share after preferred dividend
requirements (primary and fully diluted):
Before extraordinary loss $ .36 $ .07 $ .97
Net earnings (loss) $ .36 $ (.12) $ .97
Average shares outstanding 50,883 42,309 29,212
</TABLE>
See the accompanying notes to consolidated financial statements.
A-9
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
ASSETS 1996 1995
---------------- ----------------
<S> <C> <C>
Current assets:
Cash $ 6,205 $ 5,940
Receivables, less allowance for doubtful accounts 63,982 58,019
Inventories 37,637 49,190
Deferred income taxes 9,702 13,154
Other current assets 4,965 4,545
-------------- ------------
Total current assets 122,491 130,848
Net property, plant and equipment 53,408 52,462
Intangible assets, net:
Goodwill 348,449 359,629
Patents, trademarks and other 36,405 38,076
Deferred financing costs 15,337 17,426
Due from related party 80,017 80,017
Other noncurrent assets 4,224 4,403
-------------- ------------
Total assets $ 660,331 $ 682,861
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,131 $ 20,057
Accrued expenses 49,252 60,257
Income taxes payable 5,586 1,897
Current maturities of long-term debt 25,000 20,000
-------------- ------------
Total current liabilities 115,969 102,211
Long-term debt 714,700 770,050
Due to related party 78,386 78,386
Other noncurrent liabilities 14,207 16,784
Deferred income taxes 19,796 16,406
-------------- ------------
Total liabilities 943,058 983,837
-------------- ------------
Stockholders' equity:
Common stock, $0.01 par value, authorized
100,000,000 shares, issued 50,887,200 shares at
December 28,1996 and 50,879,701 shares at
December 30,1995 509 509
Additional paid-in capital 424,277 424,217
Retained earnings (deficit) (705,718) (723,917)
Foreign currency translation adjustment (1,795) (1,785)
-------------- ------------
Total stockholders' equity (282,727) (300,976)
-------------- ------------
Total liabilities and stockholders' equity $ 660,331 $ 682,861
============== =============
</TABLE>
See the accompanying notes to consolidated financial statements.
A-10
<PAGE>
<TABLE>
<CAPTION>
FOREIGN
REDEEMABLE ADDITIONAL RETAINED CURRENCY
PREFERRED COMMON PAID-IN EARNING TRANSLATION
STOCKS STOCK CAPITAL (DEFICIT)
Adjustment ----------- ------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance,
December 25, 1993 $ 139,644 $ 109 $ 25,301 $ (747,140) $ (1,678)
Net earnings - - - 29,547 -
Accrued dividend requirements 1,163 - - (1,163) -
Issuance of shares of common
stock, net - 200 244,116 -
Redemption of redeemable
preferred stocks (140,807) - - - -
Consent fee paid to Sara Lee - - (15,000) - -
Foreign currency translation
adjustment - - - - (289)
----------- -------- ----------- ----------- ---------
Balance,
December 31, 1994 - 309 254,417 (718,756) (1,967)
Net loss - - - (5,161) -
Issuance of shares of common
stock, net - 200 169,800 - -
Foreign currency translation
adjustment - - - - 182
----------- -------- ----------- ----------- ---------
Balance,
December 30, 1995 - 509 424,217 (723,917) (1,785)
Net earnings - - - 18,199 -
Issuance of shares of common
stock - - 60 - -
Foreign currency translation
adjustment - - - - (10)
----------- -------- ----------- ----------- ---------
Balance,
December 28, 1996 $ - $ 509 $ 424,277 $ (705,718) $ (1,795)
=========== ======== =========== =========== =========
</TABLE>
See the accompanying notes to consolidated financial statements.
A-11
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operations:
Net earnings (loss) $ 18,199 $ (5,161) $ 29,547
Non-cash items included in earnings:
Extraordinary loss - 7,935 -
Write-off of SMILETOTE intangible assets - 6,441 -
Amortization of intangibles 12,846 11,268 10,181
Amortization of deferred financing costs 2,089 2,246 2,358
Depreciation 8,929 8,496 7,412
Deferred income taxes 6,842 (133) 19,849
Other, net 48 (291) -
Increase (decrease) in working capital items,
net of effects of acquisitions:
Increase in receivables (5,963) (4,471) (10,871)
Decrease (increase) in inventories 11,553 4,629 (8,549)
Increase in other current assets (420) (1,802) (560)
Increase (decrease) in accounts payable 16,074 6,967 (10,959)
(Decrease) increase in accrued expenses (12,794) (7,076) 729
Increase (decrease) in income taxes payable 3,689 (4,207) (397)
(Decrease) increase in accrued interest (788) 2,238 (3,987)
------------ ------------ -----------
Net cash flow from operations 60,304 27,079 34,753
Cash flows used for investing activities:
Purchases of property, plant and equipment (9,740) (12,395) (8,503)
Businesses or investments acquired - (94,429) (7,044)
------------ ------------ -----------
Net cash used for investing activities (9,740) (106,824) (15,547)
Cash flows (used for) from financing activities:
Net (payments) borrowings under working
capital credit facilities (2,850) (42,650) 47,700
Long-term debt borrowings - 425,000 860,000
Long-term debt payments (47,500) (468,000) (947,413)
Payment of recapitalization costs - - (44,155)
Redemption of preferred stock - - (140,807)
Payment of financing costs - (9,113) (25,750)
Issuance of shares of common stock 60 170,000 244,316
Consent fee paid to Sara Lee Corporation - - (15,000)
Other, net (9) 75 (3,111)
------------ ------------ -----------
Net cash (used for) from financing activities (50,299) 75,312 (24,220)
Increase (decrease) in cash 265 (4,433) (5,014)
Cash at beginning of period 5,940 10,373 15,387
------------ ------------ -----------
Cash at end of period $ 6,205 $ 5,940 $ 10,373
============ ============ ===========
Supplemental disclosures of cash flow
information Cash paid during the periods for:
Interest $ 63,559 $ 66,884 $ 89,755
Income taxes, net of refunds $ 5,610 $ 10,748 $ 3,989
</TABLE>
See the accompanying notes to consolidated financial statements.
A-12
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Playtex Products, Inc. and all of its subsidiaries ("Playtex" or the
"Company"). All significant intercompany balances have been eliminated.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out
basis) or market. Inventory costs include material, labor and manufacturing
overhead.
LONG-LIVED ASSETS - Effective January 1, 1996, Playtex adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long Lived Assets and for Long Lived Assets to Be Disposed of
("SFAS 121")". Such adoption had no impact on the accompanying consolidated
financial statements. In accordance with SFAS 121, the Company systematically
reviews the recoverability of the long-lived assets by comparing their
unamortized carrying value to their related anticipated undiscounted future cash
flows. Any impairment related to long-lived assets is measured by reference to
the assets' fair market value. Impairments are charged to expense when such
determination is made.
NET PROPERTY, PLANT AND EQUIPMENT - Depreciation is provided on the
straight-line method over the estimated useful lives of the respective assets
(ranging from 3 to 40 years). Repair and maintenance costs ($5.5 million in
1996, $5.1 million in 1995 and $4.7 million in 1994) are expensed; renewals and
betterments are capitalized.
INTANGIBLE ASSETS - Intangible assets are amortized on a straight-line basis
over a period not exceeding 40 years. The Company systematically reviews the
recoverability of its goodwill by comparing their unamortized value to their
relative anticipated undiscounted future cash flows. Any impairment related to
goodwill is measured against discounted cash flows.
DEFERRED FINANCING COSTS - Fees and expenses relating to debt issuance costs are
classified as deferred financing costs and are amortized, under the interest
method, over the average life of the related debt (ranging from 8 to 10 years).
Fees and expenses related to bank financing are amortized on a straight line
basis over the term of the facility.
INCOME TAXES -Deferred tax assets and liabilities are provided using the asset
and liability method for temporary differences between financial and tax
reporting using the enacted tax rates in effect for the period in which the
differences are expected to reverse.
FOREIGN CURRENCY TRANSLATION - The functional currency of Playtex's Canadian
operations is the local currency. Net exchange gains or losses resulting from
the translation of assets and liabilities are accumulated in a separate section
of stockholders' equity titled "Foreign currency translation adjustment."
A-13
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EARNINGS PER SHARE - Earnings (loss) per share are net earnings (loss) less the
dividend requirements on preferred stocks, divided by the weighted average
number of common shares issued and outstanding for the periods. In connection
with the 1994 Recapitalization (as defined below), Playtex effected a one for
4.6296 reverse stock split. All per share information has been adjusted to
reflect the reverse stock split on a retroactive basis. The 1995 earnings per
share before extraordinary loss, assuming the 1995 Transaction (as defined
below) took place on January 1, 1995, would have been $0.13 per share. Earnings
per share in 1994, assuming the 1994 Recapitalization took place on December 26,
1993, would have been $1.01 per share.
USE OF ESTIMATES - The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting period.
Actual results could vary from those estimates.
2. THE 1995 TRANSACTION
On June 6, 1995, following the receipt of stockholder approval at the
Annual Meeting of Stockholders, the Company consummated the sale of 20 million
shares of common stock of the Company, par value $.01 per share, at a price of
$9.00 per share to HWH Capital Partners, L.P., HWH Valentine Partners, L.P., and
HWH Surplus Valentine Partners, L.P. (collectively, the "Investors"), each a
Delaware limited partnership managed by Haas Wheat & Partners Incorporated,
pursuant to a Stock Purchase Agreement, dated as of March 17, 1995, between the
Company and the Investors. The Investors' shares constitute approximately 40% of
the Company's outstanding common stock. At the Annual Meeting, designees of the
Investors were elected by the Company's stockholders as a majority of the
Company's Board of Directors. Costs and expenses associated with the sale (the
"Investment"), including advisory fees, investment banking, legal and certain
other expenses, amounted to approximately $10.0 million. The net proceeds of the
Investment were used by the Company, together with borrowings under the 1995
Credit Agreement (as defined below), to refinance all borrowings under the 1994
Credit Agreement (as defined in note 3).
Contemporaneously with the Investment, the Company entered into a new bank
credit agreement (the "1995 Credit Agreement" and, together with the Investment,
the "1995 Transaction") which provides for a new credit facility in the
aggregate amount of $500.0 million consisting of (i) $387.5 million in term
loans (the "1995 Term Loan Facility"), (ii) a $75.0 million revolving credit
facility (the "1995 Working Capital Facility") and (iii) a $37.5 million
acquisition revolving credit facility (the "1995 Acquisition Credit Facility").
Fees and expenses associated with the new credit agreement of $9.1 million are
being amortized over the term of the associated credit agreement.
3. THE 1994 RECAPITALIZATION
During the first quarter of fiscal 1994, Playtex completed a
recapitalization plan (the "1994 Recapitalization") designed to reduce
indebtedness, interest expense and preferred stock dividend requirements and
to improve Playtex's cash flow and operating and financial flexibility. The
1994
A-14
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recapitalization included transactions effected by Playtex and its former
subsidiary Playtex Family Products Corporation, which was subsequently merged
into Playtex. Therefore, all references to Playtex include the activities of
the merged companies.
The principal elements of the 1994 Recapitalization included: (a) the
issuance of 20.0 million shares of Common Stock at a price of $13.00 per share,
(b) borrowings from banks of $500.0 million under a term loan facility (the
"1994 Term Loan Facility") and of approximately $40.0 million under a $75.0
million working capital facility (the "1994 Revolving Credit Facility" and,
together with the 1994 Term Loan Facility, the "1994 Credit Agreement") and (c)
the issuance of $360.0 million aggregate principal amount of 9% Senior
Subordinated Notes due 2003 (the "9% Notes").
The net proceeds from the 1994 Recapitalization were used to retire the
indebtedness under the Company's previous term loan and revolving credit
facilities, and its senior and subordinated debt and preferred stocks (including
premiums, accrued interest and accrued preferred dividends). In addition, the
Company paid a $15.0 million consent fee to Sara Lee Corporation in
consideration for the early termination of Sara Lee's option to acquire the
remaining common stock of the Company. The 1994 Recapitalization and related
public debt and preferred stock redemptions were completed on March 4, 1994.
4. BUSINESSES AND INVESTMENTS ACQUIRED
BANANA BOAT HOLDING CORPORATION ("BBH") - On October 31, 1995, the Company and
BBH Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of
Playtex, acquired all issued and outstanding common shares not previously owned
by Playtex, of BBH, a Delaware corporation and manufacturer of BANANA BOAT sun
and skin care products (the "BBH Acquisition"). The BBH Acquisition was
completed pursuant to an agreement and plan of merger dated October 17, 1995.
Prior to the BBH Acquisition, Playtex had recognized 42.5% of the operating
profits from the sale of BANANA BOAT products, in accordance with the terms of a
distribution agreement between BBH and Playtex. Following the BBH Acquisition,
Playtex's equity ownership of BBH increased from 22% to 100% and the Company's
interest in the operating profits from the sale of BANANA BOAT products
increased to 100%. Concurrent with the BBH acquisition, the distribution
agreement was terminated.
The net funds expended for the BBH Acquisition included cash of $40.4
million, the retirement of $27.1 million of BBH's long-term debt, the assumption
of BBH's working capital facility and the payment of accrued interest and
transaction fees of $4.3 million. The BBH Acquisition was financed with $34.3
million of existing cash balances and advances under the 1995 Acquisition Credit
Facility of $37.5 million. The BBH Acquisition was accounted for as a purchase
and the results of operations of BBH have been included in the consolidated
statements of operations from the date of acquisition. Accordingly, the purchase
price was allocated to the assets acquired and the liabilities assumed based on
the fair values at the date of acquisition. The excess purchase price over the
fair value of net assets acquired was $44.1 million and is being amortized on a
straight-line basis over 40 years.
WOOLITE (R) RUG AND UPHOLSTERY CLEANING PRODUCTS ("WOOLITE") - Playtex
entered into an Asset Purchase and Sale Agreement, dated December 22, 1994,
with Reckitt & Colman, Inc. (R&C), a Delaware corporation, pursuant to which
Playtex acquired certain assets of the WOOLITE business from R&C (the
"Acquired Assets") under an exclusive, royalty-free trademark license in
perpetuity in the
A-15
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
United States and Canada. The purchase price for the Acquired Assets,
exclusive of $0.1 million for legal and other costs, was $21.7 million, which
was paid in cash with borrowings under the 1994 Revolving Credit Facility.
The WOOLITE acquisition was accounted for as a purchase and the results of
operations of WOOLITE have been included in the consolidated statements of
operations from the date of acquisition. Accordingly, the purchase price was
allocated to the assets acquired and the liabilities assumed based on the fair
values at the date of acquisition. The excess purchase price over the fair value
of net assets acquired was $17.3 million and is being amortized on a
straight-line basis over 30 years.
5. BALANCE SHEET COMPONENTS
The components of certain balance sheet accounts are as follows (in
thousands):
DECEMBER 28, DECEMBER 30,
1996 1995
-------------- ------------
Receivables $ 65,740 $ 60,061
Less allowance for doubtful accounts (1,758) (2,042)
----------- ----------
Net $ 63,982 $ 58,019
=========== ==========
Inventories:
Raw materials $ 13,854 $ 18,187
Work in process 1,004 1,267
Finished goods 22,779 29,736
----------- ----------
Total $ 37,637 $ 49,190
=========== ==========
Net property, plant and equipment:
Land $ 1,190 $ 1,190
Buildings 24,818 24,055
Machinery and Equipment 95,938 86,955
----------- ----------
121,946 112,200
Less accumulated depreciation (68,538) (59,738)
----------- ----------
Net $ 53,408 $ 52,462
=========== ==========
Goodwill $ 446,602 $ 446,482
Less accumulated amortization (98,153) (86,853)
----------- ----------
Net $ 348,449 $ 359,629
=========== ==========
Patents, trademarks and other $ 49,644 $ 49,769
Less accumulated amortization (13,239) (11,693)
----------- ----------
Net $ 36,405 $ 38,076
=========== ==========
A-16
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS) DECEMBER 28, DECEMBER 30,
1996 1995
-------------- -------------
Deferred financing costs $ 19,463 $ 19,463
Less accumulated amortization (4,126) (2,037)
------------ -----------
Net $ 15,337 $ 17,426
============ ===========
Accrued expenses:
Advertising and sales promotion $ 19,191 $ 29,401
Employee compensation and benefits 12,349 10,162
Interest 5,532 6,320
Insurance 4,731 4,858
Other 7,449 9,516
------------ -----------
Total $ 49,252 $ 60,257
============ ===========
6. DUE FROM RELATED PARTY
Playtex Investment Corp., a wholly owned subsidiary of Playtex, is the
holder of 15% debentures in aggregate principal amount of $40 million (the
"Apparel Debenture") issued by Playtex Apparel Partners, L.P. (the "Apparel
Partnership") in connection with its 1988 acquisition of Playtex Apparel, Inc.
Interest on the 15% debentures is payable annually in cash on each December 15.
However, with respect to any such interest amount payable prior to maturity,
Apparel Partnership may elect and elected for periods through December 15, 1993
to make such payments in additional 15% debentures. On December 16, 1996 and
December 15, 1995, the Apparel Partnership paid in cash the accrued interest for
the annual periods then ended. Principal and any unpaid accrued interest are due
in cash on December 15, 2003. The obligations of the Apparel Partnership are
nonrecourse to the partners of the Apparel Partnership. The assets of the
Apparel Partnership are Sara Lee Corporation common stock with a market value at
December 28, 1996 and December 30, 1995 of approximately $7.7 and $7.9 million,
respectively, cash of approximately $0.4 and $0.3 million, respectively, and
Playtex's 15 1/2% Subordinated Notes. See notes 8 and 15 for a discussion of the
relationship between the Apparel Partnership and Playtex. Playtex believes that
the Apparel Debenture represents the only material liability of the Apparel
Partnership.
A-17
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 28, DECEMBER 30,
1996 1995
--------------- --------------
1995 Credit Agreement:
Working Capital Facility $ 2,200 $ 5,050
Term Loan Facility 367,500 387,500
Acquisition Credit Facility 10,000 37,500
9% Senior Subordinated
Notes due 2003 360,000 360,000
------------ -----------
739,700 790,050
Less current maturities (25,000) (20,000)
------------- ------------
Total long-term debt $ 714,700 $ 770,050
============ ==========
On June 6, 1995, as part of the 1995 Transaction (as described in note 2),
Playtex entered into the 1995 Credit Agreement, which provided for borrowings of
$387.5 million under the 1995 Term Loan Facility, and up to $75.0 million and
$37.5 million under the 1995 Working Capital Facility and the 1995 Acquisition
Credit Facility, respectively. The 1995 Term Loan Facility provides for
semi-annual repayments of principal, including payments of $12.5 million due on
March 15, 1997 and September 15, 1997. Commitments under the 1995 Acquisition
Credit Facility are automatically and permanently reduced semi-annually at a
rate of $6.25 million beginning March 15, 2000. All borrowings under the 1995
Credit Agreement have a final maturity of June 30, 2002.
The rate of interest on borrowings under the 1995 Credit Agreement is, at
Playtex's option, a function of various alternative short term borrowing rates,
as defined in the 1995 Credit Agreement. Quarterly commitment fees of
three-eighths of 1% on the unutilized portion of the 1995 Credit Agreement and
an agency fee of $0.1 million per annum are also required. At December 28, 1996,
aggregate unused lines of credit (giving effect to outstanding letters of
credit) under the 1995 Credit Agreement amounted to $98.9 million.
The provisions of the 1995 Credit Agreement require Playtex to meet certain
financial covenants and ratios and also include conditions or restrictions on:
new indebtedness and liens; major acquisitions or mergers; capital expenditures
and disposition of assets; certain dividends and other distributions; and
prepayment and modification of indebtedness or equity capitalization. The 9%
Notes also contain restrictions and requirements with regard to similar matters.
Under the terms of the 1995 Credit Agreement and the 9% Notes, payment of cash
dividends on the common stock of Playtex is restricted. Certain wholly-owned
subsidiaries of the Company are guarantors of the 9% Notes (see note 20).
On June 9, 1995, the Company entered into an interest rate protection
agreement such that, for a two year period commencing July 6, 1995, interest
expense with respect to $125 million of its variable rate outstanding
indebtedness is at fixed rates. The agreement can be extended, at the option
A-18
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the counterparty, for an additional one year period. The agreement provides
for quarterly payments by Playtex at a rate of 6.17% up to October 6, 1995 and
at a rate of 5.96% until July 7, 1997 (or July 6, 1998 if the counterparty
exercises its option to extend the agreement) and receipt of payments from the
counterparty at a 90-day LIBOR rate. This agreement effectively fixes the rate
on $125 million at 7.71%, after giving effect to the 1.75% spread as provided
for in the 1995 Credit Agreement.
Effective July 25, 1995, the Company entered into a second interest rate
protection agreement to fix interest expense with respect to an additional $100
million of its outstanding indebtedness. This agreement provides for quarterly
payments by Playtex at a rate of 5.825% and receipt of quarterly payments from
the counterparty at a 90-day LIBOR rate until July 25, 1997 (or July 25, 1998,
if extended by the counterparty). This agreement effectively fixes the rate on
$100 million at 7.575%, after giving effect to the 1.75% spread as provided for
in the 1995 Credit Agreement.
Effective July 25, 1996, the Company entered into a third interest rate
protection agreement to fix interest expense with respect to an additional $150
million of its outstanding indebtedness. This agreement provides for quarterly
payments by Playtex at a rate of 5.59% and receipt of quarterly payments from
the counterparty at a 90-day LIBOR rate until July 25, 1998. The agreement will
terminate with no penalty to either party, if the 90-day LIBOR rate is equal to
or greater than 6.25% at any 90 day interest reset date. This agreement
effectively fixes the rate on $150 million at 7.34%, after giving effect to the
1.75% spread as provided for in the 1995 Credit Agreement.
Net receipts or payments under these agreements are recognized as an
adjustment to interest expense.
Aggregate annual maturities under the 1995 Credit Agreement are (in
millions): $25.0 in fiscal 1997, $30.0 in fiscal 1998, $50.0 in fiscal 1999,
$85.0 in fiscal 2000 and $105.0 in fiscal 2001.
At December 28, 1996, December 30, 1995 and December 31, 1994, the weighted
average interest rates for the 1995 Credit Agreement borrowings were 7.32%,
7.57% and 9.19%, respectively. In addition, the weighted average interest rates
on such borrowings were 7.35%, 8.11% and 7.30% for the twelve month periods
ended December 28, 1996, December 30, 1995 and December 31, 1994, respectively.
On February 2, 1994, Playtex issued $360.0 million aggregate principal
amount of 9% Notes. Interest on the 9% Notes is payable in cash semi-annually on
each June 15 and December 15.
Principal of the Notes is due on December 15, 2003.
8. DUE TO RELATED PARTY
Due to related party consists of 15 1/2% Subordinated Notes held by the
Apparel Partnership. Interest on the 15 1/2% Subordinated Notes is payable
annually in cash on each December 15. However, with respect to any such interest
amount payable prior to maturity, Playtex may elect and elected for periods
through December 15, 1993 to make such payments in additional 15 1/2%
Subordinated Notes. On December 16, 1996 and December 15, 1995, Playtex paid in
cash the
A-19
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accrued interest for the annual periods then ended. Principal and any unpaid
accrued interest on the 15 1/2% Subordinated Notes are payable in cash on
December 15, 2003.
9. INCOME TAXES
The provision for income taxes is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to amounts that are
more likely than not to be realized.
Earnings (loss) before income taxes, cumulative effect of accounting
changes and extraordinary loss are as follows (in thousands):
TWELVE MONTHS ENDED
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
--------- --------- ---------
U.S. $ 32,650 $ 8,579 $ 51,049
Foreign 1,690 2,346 2,492
--------- --------- ---------
Total $ 34,340 $ 10,925 $ 53,541
========= ========= =========
Playtex's provisions for income taxes for the twelve months ended December
28, 1996, December 30, 1995, and December 31, 1994 are as follows (in
thousands):
TWELVE MONTHS ENDED
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
----------- ---------- -----------
Current:
Federal $ 7,851 $ 9,174 $ 3,750
State and local 553 (2,123) (2,075)
Foreign 895 1,233 2,470
----------- ---------- -----------
9,299 8,284 4,145
---------- ---------- -----------
Deferred:
Federal 6,851 (82) 16,593
State and local 311 (26) 4,439
Foreign (320) (25) (1,183)
---------- ---------- -----------
6,842 (133) 19,849
---------- ---------- -----------
Total $ 16,141 $ 8,151 $ 23,994
========== ========== ===========
A-20
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Taxable and deductible temporary differences and tax credit carryforwards
which give rise to Playtex's deferred tax assets and liabilities at December 28,
1996 and December 30, 1995 are as follows (in thousands):
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
Deferred tax assets:
Allowances and reserves not
currently deductible $ 12,468 $ 17,604
Net operating loss carryforwards 6,185 6,745
Postretirement benefits reserve 2,256 2,009
Capitalized book expenses for tax purposes 675 581
State tax credits 58 136
------------ ---------
Total $ 21,642 $ 27,075
============ =========
Deferred tax liabilities:
Deferred gain on sale of business $ 14,650 $ 14,650
Property, plant and equipment 8,845 8,052
Trademarks 5,139 4,222
Undistributed earnings of foreign subsidiary 2,622 2,836
Other 480 567
------------ ---------
Total $ 31,736 $ 30,327
============ =========
Undistributed earnings of the Company's Canadian subsidiary for which U.S.
income taxes have not been provided were approximately $3.5 million at December
28, 1996. Such undistributed earnings are expected to be permanently reinvested
in the Canadian subsidiary.
At the time of its acquisition, BBH had net operating loss carryforwards of
$18.4 million that expire in years 2007 through 2010. These net operating loss
carryforwards can be utilized by Playtex, with certain limitations, on its
federal, state and local tax return for tax periods subsequent to October 31,
1995. Playtex expects to fully utilize these net operating loss carryforwards
prior to their expiration.
A-21
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's tax provision differed from the amount computed using the
federal statutory rate of 35% as follows (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
-----------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------ ---------- ------------
<S> <C> <C> <C>
Expected federal income tax at statutory rates $ 12,019 $ 3,824 $ 18,739
Amortization and write-off of intangible assets 3,618 5,647 3,436
Settlement of tax examinations - (2,385) (1,498)
State and local income taxes 562 786 2,993
Foreign tax rate differential 279 331 362
Effect on deferred taxes due to change in
Canada withholding tax rates (214) - -
Other, net (123) (52) (38)
-------- -------- --------
Total tax provision $ 16,141 $ 8,151 $ 23,994
======== ======== ========
</TABLE>
During 1995 and 1994, several state jurisdictions concluded their
examinations of tax returns filed by Playtex or its subsidiaries for various
years 1987 through 1992 or the statute of limitations related to other specific
situations lapsed. As a result of these favorable developments, Playtex recorded
a $2.4 million and a $1.5 million tax benefit in the provision for income taxes
for the years ended December 30, 1995 and December 31, 1994, respectively.
10. COMMON STOCK
During 1994, the Company established a long-term incentive plan (the "1994
Stock Option Plan") under which awards of incentive stock options, nonqualified
stock options and stock appreciation rights ("SARs") may be granted to directors
and key employees of the Company. Stock options granted under the 1994 Stock
Option Plan may have a term not in excess of ten years. The exercise price for
stock options may not be less than the fair market value of the common stock on
the date of grant. Except with respect to formula grants to certain non-employee
directors, options vest over a period determined by the Compensation and Stock
Option Committee.
SARs may be granted in tandem with a stock option grant or at any time
following the stock option grant. Upon exercise of a SAR, the grantee will
receive cash equal to the excess of the fair market value of a share of common
stock over the exercise price. No SARs have been granted.
On June 6, 1995, the Company's stockholders approved an amendment to the
1994 Stock Option Plan increasing the number of shares of common stock available
for issuance upon exercise of options and SARs from 1,047,785 to 3,047,785 and
increasing the number of shares available for issuance upon exercise of options
and SARs grants to any single executive officer from 300,000 to 1,000,000.
In 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"). As permitted by SFAS 123, the Company will
continue to follow the provisions of APB No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES and related interpretations in accounting for
A-22
<PAGE>
compensation expense related to the issuance of stock options. Had
compensation costs related to the issuance of stock options under the
Company's 1994 Stock Option Plan been determined based on the estimated fair
value at the grant dates for awards under SFAS 123, the Company's net income
and earnings per share for the twelve months ended December 28, 1996 and
December 30, 1995 would have been reduced to the pro forma amounts listed
below:
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 28, December 30,
1996 1995
--------------- -------------
<S> <C> <C>
Net income (loss) to common shareholders
As reported $ 18,199 $ (5,161)
Pro forma $ 15,649 $ (6,611)
Earning per share (primary & fully diluted)
As reported $ 0.36 $ (0.12)
Pro forma $ 0.31 $ (0.16)
</TABLE>
The fair value of each stock option grant was estimated on the date of
grant using the Black- Scholes option-pricing model with the following
assumptions: weighted average risk-free interest rates of 6.63% and 6.26% for
fiscal 1996 and 1995, respectively; no dividend yield; expected lives of 5
years; and volatility of 35%.
A summary of the status of the 1994 Stock Option Plan for fiscal 1996, 1995
and 1994 and the changes during those years is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ ---------------------
Weighted-- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 2,240,800 $ 9.17 297,500 $ 12.21 - $ -
Granted 166,000 8.76 2,080,700 8.82 321,500 12.27
Exercised (7,499) 7.87 - - - -
Forfeited (83,867) 9.47 (137,400) 10.43 (24,000) 13.00
--------- ---------- -------
Outstanding at end of year 2,315,434 9.14 2,240,800 9.17 297,500 12.21
========= ========== =======
Options exercisable at year-end 715,452 9.37 76,348 11.98 None
Weighted-average fair
value of options granted
during the year $ 4.40 $ 4.43
</TABLE>
A-23
<PAGE>
<TABLE>
<CAPTION>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about fixed stock options
outstanding at December 28, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES 12/28/96 LIFE PRICES 12/28/96 PRICES
- ------------------ ----------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$ 6.000 to 7.000 37,500 7.96 $ 6.7500 25,000 $ 6.7500
$ 7.000 to 8.000 971,834 8.61 7.8750 320,228 7.8750
$ 8.000 to 9.000 166,000 9.40 8.6528 3,000 8.2500
$ 9.000 to 10.000 800,000 8.48 9.8750 200,000 9.8750
$10.000 to 13.000 340,100 7.92 11.5134 167,224 12.0250
--------- -------
$ 6.750 to 13.000 2,315,434 8.51 9.1379 715,452 9.3663
========= =======
</TABLE>
11. WRITE-OFF OF SMILETOTE INTANGIBLE ASSETS
During the fourth quarter of fiscal 1995 and in connection with certain
strategic decisions regarding the SMILETOTE product line, the Company prepared
financial projections to evaluate the SMILETOTE business in terms of projected
net earnings and operating cash flows. Based upon the projections of
undiscounted operating earnings before amortization of intangible assets and
after considering interest on indebtedness, management concluded that the
unamortized value of the intangible assets associated with SMILETOTE had been
permanently impaired. Consequently, the Company wrote off in the fourth quarter
of fiscal 1995 the remaining $6.4 million of intangible assets associated with
SMILETOTE.
12. EXTRAORDINARY LOSS
In June 1995, in connection with the 1995 Transaction, Playtex recorded an
extraordinary loss of $7.9 million (net of income tax benefit of $5.2 million)
for costs and expenses related to the write-off of the unamortized portion of
deferred financing costs associated with the 1994 Credit Agreement. See notes
2 and 7.
13. LEASES
Future minimum payments under non-cancelable operating leases for years
after December 28, 1996 are as follows (in thousands): $3,430 in 1997, $3,560 in
1998, $3,010 in 1999, $2,472 in 2000, $2,472 in 2001 and $5,573 in later years.
A-24
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rent expense for operating leases amounted to (in thousands): $5,201,
$5,092, and $4,240 for the twelve months ended December 28, 1996, December 30,
1995, and December 31, 1994, respectively.
14. PENSION AND OTHER POSTRETIREMENT BENEFITS
PENSION PLANS - Substantially all Playtex U.S. hourly and approximately 78% of
all Canadian employees participate in pension plans. At December 28, 1996,
approximately 1,112 employees were covered by these plans, of which
approximately 189 retirees or beneficiaries were receiving benefits.
Changes in pension benefits, which are allocable to previous service of
employees, and gains and losses that occur because actual experience differs
from assumptions will be amortized over the estimated average future service
period of employees. Actuarial assumptions for the plans include: (a) 8% for
the expected long-term rate of return on plans assets, (b) 7.5% for the
discount rate for calculating the projected benefit obligation and (c) 3.25%
for the rate of average future increases in compensation levels.
Net pension expense (income) for the twelve months ended December 28, 1996,
December 30, 1995, and December 31, 1994 includes the following components (in
thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
------------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Service cost-benefits
earned during the period $ 721 $ 616 $ 622
Interest cost on projected
benefit obligation 1,688 1,559 1,414
Actual return on plan assets (3,711) (6,000) 872
Amortization of prior
service cost 73 73 59
Amortization of unrecognized
net gain (51) (2) (106)
Amortization of transition
gain over 10 years (193) (193) (192)
Excess (shortfall) of actual return
on plan assets over estimated 1,479 4,190 (2,797)
-------- -------- --------
Net pension expense (income) $ 6 $ 243 $ (128)
======== ======== ========
</TABLE>
A reconciliation of the projected benefit obligation for the pension plans
to the prepaid pension expense recorded at December 28, 1996 and December 30,
1995 is as follows (in thousands):
A-25
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, DECEMBER 30,
1996 1995
------------ -------------
Projected benefit obligation for
service rendered to date $ (24,347) $ (22,740)
Plan assets at fair value, primarily
listed stocks, money market funds
and guaranteed investment contracts 31,171 28,313
------------ ------------
Plan assets in excess of projected
benefit obligation 6,824 5,573
Unrecognized net gain from past
experience different from that assumed
and effects of changes in assumptions (4,398) (3,019)
Prior service cost not yet recognized
in net periodic pension cost 365 438
Unrecognized transition gain (395) (589)
----------- ------------
Prepaid pension expense $ 2,396 $ 2,403
=========== ============
The portion of the projected benefit obligation at December 28, 1996 and
December 30, 1995 representing the accumulated benefit obligation was $22.0
million, of which $21.2 million was vested, and $20.6 million, of which $19.8
million was vested, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - Playtex provides Company-sponsored
postretirement health care and life insurance benefits to certain U.S. retirees.
These plans require employees to share in the costs. Approximately 89 % of all
U.S. personnel may become eligible for Company-sponsored post-retirement health
care and life insurance if they were to retire from the Company. The cost of
providing Company-sponsored postretirement health care and life insurance
benefits for U.S. retirees was approximately $0.8 million for each of the twelve
months ended December 28, 1996, December 30, 1995, and December 31, 1994. The
Company accrues the estimated cost of these benefits during the participants'
active service periods up to the dates on which they become eligible for full
benefits.
Playtex also provides two non-contributory defined contribution plans and a
contributory 401(k) plan covering various employee groups. The amounts charged
to earnings for Playtex's defined contribution plans totaled $4.6 million, $4.7
million, and $4.2 million for the twelve months ended December 28, 1996,
December 30, 1995, and December 31, 1994, respectively.
15. RELATED PARTY TRANSACTIONS
Joel E. Smilow, a director and former senior executive officer of
Playtex and Hercules P. Sotos, former director and senior executive officer
of Playtex, are general partners of the Apparel Partnership, holding
beneficial interests of 58.5% and 13.5%, respectively, in the Apparel
A-26
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Partnership. Under a consulting agreement, which commenced in the third
quarter of 1995, the Company has retained Mr. Smilow as a consultant for a
five-year period at an annual fee of $250,000 plus expenses and certain
benefits. The consulting agreement does not require Mr. Smilow to devote any
minimum amount of time to the performance of consulting services.
On October 31, 1995, Playtex and a wholly-owned subsidiary acquired all
issued and outstanding common shares of BBH not previously owned by Playtex.
Prior to the BBH Acquisition, BBH was controlled by Thomas Lee Equity Partners,
L.P. and certain employees and affiliates of the Thomas H. Lee Company. Thomas
H. Lee, President of the Thomas H. Lee Company, is a director and a significant
stockholder of Playtex. Beginning in December 1992, Playtex had a distribution
agreement with Sun Pharmaceuticals Corp. ("Sun"), a wholly-owned subsidiary of
BBH, pursuant to which Playtex was the exclusive distributor of BANANA BOAT
products in all of the areas Sun had repurchased distribution rights from its
then current distributors. Concurrent with the acquisition, the distribution
agreement between Sun and Playtex was canceled. For the ten months ended October
31, 1995 and for the twelve months ended December 31, 1994 Playtex purchased
$30.1 million and $30.5 million, respectively, of BANANA BOAT products from Sun
and at December 31, 1994 Playtex had accounts payable to Sun of $3.9 million.
Playtex believes that the terms of all the arrangements with the Apparel
Partnership and BBH were fair to Playtex and comparable to those which could be
obtained from unrelated third parties.
16. BUSINESS AND CREDIT CONCENTRATIONS
Most of Playtex's customers are disbursed throughout the United States and
Canada. No single customer accounted for more than 10% of Playtex's net sales in
1996, 1995, or 1994 with the exception of Wal-Mart Stores, Inc. ("Wal Mart")
(approximately 18% in 1996, 17% in 1995, and 15% in 1994 ). At December 28, 1996
and December 30, 1995, no account receivable from any customer was significant,
except for Wal-Mart (approximately $11.9 million in 1996 and $11.1 million in
1995). Aggregate receivables from high risk customers are not considered
significant and Playtex estimates, based upon past experience, that it has
sufficient reserves to cover any losses arising from any such accounts.
17. DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH, RECEIVABLES, ACCOUNTS PAYABLE, INCOME TAXES AND ACCRUED EXPENSES - The
carrying amounts approximate fair value because of the short-term maturity of
these instruments.
1995 CREDIT AGREEMENT The carrying amounts approximate fair value because the
rate of interest on borrowings under the 1995 Credit Agreement is, at Playtex's
option, a function of various alternative short-term borrowing rates, as defined
in the 1995 Credit Agreement.
INTEREST RATE PROTECTION AGREEMENTS The fair value of interest rate
protection agreements is the estimated amount that Chase Manhattan Bank would
receive or pay to terminate the interest rate protection agreements at the
balance sheet date, taking into account current interest rates and the
current credit worthiness of the interest rate protection agreement
counterparties. Termination of the
A-27
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
interest rate protection agreements at December 28, 1996 would require
Playtex to pay the Chase Manhattan Bank $1.6 million.
LONG-TERM DEBT AND OTHER FINANCIAL INSTRUMENTS The fair value of the following
financial instruments was estimated at December 28, 1996 and December 30, 1995
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 30, 1995
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
9% Senior Subordinated Notes (a) $360,000 $353,400 $360,000 $317,700
15% Notes due from Playtex Apparel
Partners, L.P. (b) 80,017 80,017 80,017 80,017
15 1/2% Subordinated Notes due to Playtex
Apparel Partners, L.P. (b) 78,386 78,386 78,386 78,386
Other noncurrent assets (c) 4,224 4,100 4,403 4,270
Noncurrent liabilities (c) 14,207 12,930 16,784 15,270
</TABLE>
(a) At December 28, 1996 and December 30, 1995, the estimates were based on
the average range of bid/ask quotes provided by independent securities
dealers.
(b) The estimated fair value approximates the carrying amount at December
28, 1996 and December 30, 1995, based on the amount of future cash flows
associated with these instruments, discounted using an appropriate
interest rate.
(c) The fair values are based on a combination of actual cost associated
with recent purchases or the amount of future cash flows discounted
using Playtex's borrowing rate for similar instruments.
18. INFORMATION BY MAJOR GEOGRAPHIC SEGMENT
Net sales by geographic area represent sales to unaffiliated customers
only. Intergeographic sales and transfers between geographic areas are nominal
and have not been disclosed separately.
Operating earnings is defined as total revenue less operating expenses. In
computing operating earnings, interest and income taxes have not been deducted.
Identifiable assets by geographic area represent those assets that are used
in Playtex's operations in each area.
TWELVE MONTHS ENDED
------------------------------------------------
(IN THOUSANDS) DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
---------- ------------ ------------
Sales:
United States $ 459,075 $ 445,880 $ 436,091
Canada 39,667 37,701 37,184
--------- --------- ---------
$ 498,742 $ 483,581 $ 473,275
========= ========= =========
A-28
<PAGE>
<TABLE>
<CAPTION>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED
---------------------------------------------
(IN THOUSANDS) DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Operating earnings:
United States $ 97,702 $ 80,085 $ 127,136
Canada 1,498 2,201 2,558
---------- ----------- ---------
$ 99,200 $ 82,286 $ 129,694
========== ========== =========
Identifiable assets (at period end):
United States $ 647,629 $ 671,722 $ 589,649
Canada 12,702 11,139 9,751
---------- ---------- ---------
$ 660,331 $ 682,861 $ 599,400
========== ========== =========
</TABLE>
19. QUARTERLY DATA (UNAUDITED)
The following is a summary of the quarterly results of operations and
market price data for the Company for the twelve months ended December 28, 1996
and December 30, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- --------- -------- --------
<S> <C> <C> <C> <C>
FISCAL 1996
- -----------
Net sales $143,067 $131,872 $117,500 $106,303
Operating earnings 27,841 26,735 26,334 18,290
Net earnings 5,981 5,489 5,408 1,321
Earnings per share: (a)
Net earnings $ .12 $ .11 $ .11 $ .03
Market price - high $ 8 5/8 $ 10 3/8 $ 9 1/2 $ 9 1/2
- low $ 6 5/8 $ 7 1/8 $ 7 1/2 $ 7 1/8
FISCAL 1995
- -----------
Net sales $132,767 $135,627 $111,744 $103,443
Operating earnings (loss) 27,259 30,199 25,433 (605)
Earnings (loss) before extraordinary items 3,753 6,521 5,488 (12,988)
Net earnings (loss) 3,753 (1,414) 5,488 (12,988)
Earnings (loss) per share: (a)
Before extraordinary items $ .12 $ .18 $ .11 $ (.26)
Net earnings (loss) $ .12 $ (.04) $ .11 $ (.26)
Market price - high $ 8 5/8 $ 10 1/4 $ 12 1/2 $ 9
- low $ 6 3/4 $ 7 1/2 $ 8 3/8 $ 6 1/2
</TABLE>
(a) Per share data is computed independently for each of the periods presented;
therefore, the sum of the earnings per share amounts for the quarters may not
equal the total for the year.
A-29
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The 9% Notes are guaranteed by certain wholly-owned subsidiaries of the
Company (the "Guarantors"), namely Playtex Sales & Services, Inc. ("PSSI"),
Playtex Manufacturing, Inc. ("PMI") and Sun Pharmaceuticals Corp. ("Sun"). The
remaining first tier and lower tier subsidiaries of the Company are not
guarantors of the 9% Notes (the "Non-Guarantors"). PSSI provides sales
solicitation, management and administrative services to Playtex and its U.S.
affiliates. PMI is a contract manufacturer and contract research and development
services provider for Playtex and its U.S. affiliates. Sun owns the BANANA BOAT
trade name and certain other intangible assets associated with the BANANA BOAT
business. Sun distributes its product outside the U.S. and Puerto Rico and to
certain U.S. distributors excluding Playtex. Sun has entered into license
agreements with Playtex and other unrelated licensors for the right to use the
BANANA BOAT trade name and intangible assets associated with the BANANA BOAT sun
and skin care business and manufacture and distribute BANANA BOAT products.
The Non-Guarantors include Playtex Beauty Care, Inc., a manufacturer and
distributor of JHIRMACK hair care products, Playtex Investment Corporation, an
investment holding company which holds the 15% debentures issued by Playtex
Apparel Partners, L.P. due December 15, 2003, Playtex International, Inc., sole
shareholder of Playtex Limited, a manufacturer and distributor of Playtex
products in Canada, SmileTote, Inc., owner of certain Infant Care related
intangible assets, TH Marketing Corp., sole shareholder of Playtex Foreign Sales
Corporation, and Playtex Foreign Sales Corporation, a foreign sales corporation
as defined by Internal Revenue Code Section 922.
The Guarantors are joint and several guarantors of the 9% Notes. Such
guarantees are joint and several obligations of the Guarantors, irrevocable and
full and unconditional, limited to the largest amount that would not render such
Guarantors' obligations under the guarantees subject to avoidance under any
applicable federal or state fraudulent conveyance or similar law. The guarantees
are senior subordinated obligations of the applicable Guarantor, and are
subordinated to all senior obligations of such Guarantor, including guarantees
of the Company's obligations under the 1995 Credit Agreement.
The Notes contain certain restrictions and limitations, which, among other
things, restrict the type and/or amount of additional indebtedness that may be
incurred by Playtex or its subsidiaries, payment of dividends and other
distributions, issuances of preferred stock; loans and advances; certain
transactions with Playtex stockholders and affiliates; certain mergers and
consolidations; certain sales or transfers of assets; the creation of certain
liens; the transfer of assets to certain subsidiaries; and restrictions on
dividends and other distributions by subsidiaries, including the Guarantors.
The information which follows presents condensed financial information as
of December 28, 1996 and December 30, 1995 of (a) the Company on a consolidated
basis, (b) the parent company only ("Parent Company"), (c) the combined
Guarantors, and (d) the combined Non-Guarantors.
A-30
<PAGE>
<TABLE>
<CAPTION>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET DATA
AS OF DECEMBER 28, 1996
(In thousands)
CONSOLI- LIMINA- PARENT COMBINED NON-
ASSETS DATED TIONS COMPANY GUARANTORS GUARANTORS
--------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Current assets $ 122,491 $ -- $ 66,474 $ 39,436 $ 16,581
Investment in subsidiaries -- (70,924) 70,924 -- --
Intercompany receivable -- (126,773) 120,717 5,717 339
Net property, plant and
equipment 53,408 -- 309 51,743 1,356
Intangible assets 384,854 -- 316,057 66,749 2,048
Other noncurrent assets 99,578 (504) 19,556 -- 80,526
--------- ---------- --------- ---------- ----------
Total assets $ 660,331 $ (198,201) $ 594,037 $ 163,645 $ 100,850
========= ========== ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 115,969 $ -- $ 69,584 $ 39,723 $ 6,662
Intercompany payable -- (126,773) -- -- 126,773
Long-term debt 793,086 -- 793,086 -- --
Other noncurrent liabilities 34,003 (504) 14,094 2,966 17,447
--------- --------- --------- ---------- ----------
Total liabilities 943,058 (127,277) 876,764 42,689 150,882
Stockholders' equity (282,727) (70,924) (282,727) 120,956 (50,032)
--------- --------- --------- ---------- ----------
Total liabilities an
stockholders' equity $ 660,331 $ (198,201) $ 594,037 $ 163,645 $ 100,850
========= ========= ========= ========== ==========
CONDENSED CONSOLIDATING BALANCE SHEET DATA
AS OF DECEMBER 30, 1995
(In thousands)
CONSOLI- ELIMINA- PARENT COMBINED NON-
ASSETS DATED TIONS COMPANY GUARANTORS GUARANTORS
--------- ---------- --------- ---------- ----------
Current assets $ 130,848 $ (460) $ 112,969 $ 1,303 $ 17,036
Investment in subsidiaries -- (68,280) 68,280 -- --
Intercompany receivable -- (127,210) 126,955 -- 255
Net property, plant and
equipment 52,462 -- 201 50,757 1,504
Intangible assets 397,705 -- 326,752 68,837 2,116
Other noncurrent assets 101,846 (505) 21,832 -- 80,519
--------- --------- --------- --------- ---------
Total assets $ 682,861 $(196,455) $ 656,989 $ 120,897 $ 101,430
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 102,211 $ (460) $ 94,762 $ -- $ 7,909
Intercompany payable (127,210) -- -- 127,210
Long-term debt 848,436 -- 848,436 -- --
Other noncurrent liabilities 33,190 (505) 14,767 2,271 16,657
--------- --------- --------- --------- ----------
Total liabilities 983,837 (128,175) 957,965 2,271 151,776
Stockholders' equity (300,976) (68,280) (300,976) 118,626 (50,346)
--------- --------- --------- --------- ----------
Total liabilities and
stockholders' equity $ 682,861 $(196,455) $ 656,989 $ 120,897 $ 101,430
========= ========= ========= ========= =========
</TABLE>
A-31
<PAGE>
<TABLE>
<CAPTION>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 28, 1996:
(In thousands)
CONSOLI- ELIMINA- PARENT COMBINED NON-
DATED TIONS COMPANY GUARANTORS GUARANTORS
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 498,742 $(167,269) $ 438,127 $ 168,890 $ 58,994
Cost of sales 192,512 (104,374) 161,849 108,699 26,338
--------- --------- --------- --------- ---------
Gross profit 306,230 (62,895) 276,278 60,191 32,656
Operating expenses:
Advertising, selling and
administrative 194,184 (62,895) 171,534 53,666 31,879
Amortization of intangibles 12,846 -- 10,570 2,208 68
--------- --------- --------- --------- --------
Total operating expenses 207,030 (62,895) 182,104 55,874 31,947
--------- --------- --------- --------- --------
Operating earnings 99,200 -- 94,174 4,317 709
Interest expense, net 64,860 -- 76,864 (1) (12,003)
Equity in net earnings
of subsidiaries -- 10,456 (10,456) -- --
--------- --------- --------- --------- --------
Earnings before
income taxes 34,340 (10,456) 27,766 4,318 12,712
Income taxes 16,141 -- 9,567 1,988 4,586
--------- --------- --------- --------- --------
Net income $ 18,199 $ (10,456) $ 18,199 $ 2,330 $ 8,126
========= ========= ========= ========= ========
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 30, 1995:
(In thousands)
CONSOLI- ELIMINA- PARENT COMBINED NON-
DATED TIONS COMPANY GUARANTORS GUARANTORS
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 483,581 $ (7,427) $ 417,894 $ 1,367 $ 71,747
Cost of sales 188,129 (6,365) 163,233 1,227 30,034
--------- --------- --------- --------- ---------
Gross profit 295,452 (1,062) 254,661 140 41,713
Operating expenses:
Advertising, selling and
administrative 195,457 (1,062) 152,975 830 42,714
Amortization of intangibles 17,709 -- 10,427 365 6,917
--------- --------- --------- --------- ---------
Total operating expenses 213,166 (1,062) 163,402 1,195 49,631
--------- --------- --------- --------- ---------
Operating earnings 82,286 -- 91,259 (1,055) (7,918)
Interest expense, net 71,361 -- 83,326 -- (11,965)
Equity in net earnings
of subsidiaries -- (808) 808 -- --
--------- --------- --------- --------- ---------
Earnings (loss) before income
taxes and extraordinary loss 10,925 808 7,125 (1,055) 4,047
Income taxes 8,151 -- 4,351 (341) 4,141
--------- --------- --------- --------- ---------
Earnings (loss) before
extraordinary loss 2,774 808 2,774 (714) (94)
Extraordinary loss on early
retirement of debt, net of
$5,180 tax benefit (7,935) -- (7,935) -- --
--------- --------- --------- --------- ---------
Net loss $ (5,161) $ 808 $ (5,161) $ (714) $ (94)
========= ========= ========= ========= =========
</TABLE>
A-32
<PAGE>
<TABLE>
<CAPTION>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 28, 1996:
(In thousands)
CONSOLI- ELIMINA- PARENT COMBINED NON-
DATED TIONS COMPANY GUARANTORS GUARANTORS
--------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net earnings $ 18,199 $ (10,456) $ 18,199 $ 2,330 $ 8,126
Non-cash items included in earnings:
Amortization of intangibles 12,846 -- 10,570 2,208 68
Amortization of deferred
financing costs 2,089 -- 2,089 -- --
Depreciation 8,929 -- 72 8,428 429
Deferred taxes 6,842 -- 7,963 (1,449) 328
Other, net 48 10,456 (10,279) (120) (9)
Decrease (increase) in
net working capital 11,351 -- 13,273 (1,983) 61
--------- --------- --------- ---------- ---------
Net cash flows from operations 60,304 -- 41,887 9,414 9,003
--------- --------- --------- ---------- ---------
Cash flows (used for) investing activities:
Purchase of property, plant
and equipment (9,740) -- (45) (9,414) (281)
--------- --------- --------- ---------- ---------
Net cash flows used for
investing activities (9,740) -- (45) (9,414) (281)
--------- --------- --------- ---------- ---------
Cash flows from (used for)
financing activities:
Net payments under working
capital facilities and long-
term debt obligations (50,350) -- (50,350) -- --
Issuance of shares of common
stock, net 60 -- 60 -- --
(Payment) receipt of dividends -- -- 7,802 -- (7,802)
Other, net (9) -- (9) -- --
--------- ---------- --------- ---------- ---------
Net cash flows used for
financing activities (50,299) -- (42,497) -- (7,802)
--------- ---------- --------- ---------- ---------
Increase (decrease) in cash 265 -- (655) -- 920
Cash at beginning of period 5,940 -- 1,834 -- 4,106
--------- ---------- --------- ---------- ---------
Cash at end of period $ 6,205 $ -- $ 1,179 $ -- $ 5,026
========= ========== ========= ========== =========
</TABLE>
A-33
<PAGE>
<TABLE>
<CAPTION>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 30, 1995:
(In thousands)
CONSOLI- ELIMINA- PARENT COMBINED NON-
DATED TIONS COMPANY GUARANTORS GUARANTORS
---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net loss $ (5,161) $ 808 $ (5,161) $ (714) $ (94)
Non-cash items included in earnings:
Extraordinary loss 7,935 -- 7,935 -- --
Write-off of SMILETOTE intangibles 6,441 -- -- -- 6,441
Amortization of intangibles 11,268 -- 10,424 368 476
Amortization of deferred
financing costs 2,246 -- 2,246 -- --
Depreciation 8,496 -- 8,000 -- 496
Deferred taxes (133) -- 1,039 -- (1,172)
Other, net (291) (808) 268 -- 249
Decrease (increase) in
net working capital (3,722) -- (6,443) (391) 3,112
--------- ---------- -------- ---------- ----------
Net cash flows from operations 27,079 -- 18,308 (737) 9,508
--------- ---------- -------- ---------- ----------
<CAPTION>
Cash flows (used for) investing activities:
Purchase of property, plant
and equipment (12,395) -- (12,296) -- (99)
Business or investments
acquired (94,429) 737 (95,166) -- --
-------- ---------- -------- ---------- ----------
Net cash flows used for
investing activities (106,824) 737 (107,462) -- (99)
-------- ---------- -------- ---------- ----------
Cash flows from (used for)
financing activities:
Net payments under working
capital facilities and long-
term debt obligations (85,650) -- (85,650) -- --
Payment of financing costs (9,113) -- (9,113) -- --
Issuance of shares of common
stock, net 170,000 -- 170,000 -- --
(Payment) receipt of dividends -- -- 7,802 -- (7,802)
Other, net 75 -- 75 -- --
-------- ---------- -------- ---------- ----------
Net cash flows used for
financing activities 75,312 -- 83,114 -- (7,802)
-------- ---------- -------- ---------- ----------
Increase (decrease) in cash (4,433) 737 (6,040) (737) 1,607
Cash at beginning of period 10,373 (737) 7,874 737 2,499
-------- ---------- -------- ---------- ----------
Cash at end of period $ 5,940 $ -- $ 1,834 $ -- $ 4,106
======== ========== ======== ========== ==========
</TABLE>
A-34
<PAGE>
PLAYTEX PRODUCTS, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Playtex Products, Inc.
We have audited the accompanying consolidated balance sheets of Playtex
Products, Inc. and subsidiaries as of December 28, 1996 and December 30, 1995,
and the related consolidated statements of operations, redeemable preferred
stocks, common stock and other stockholders' equity and cash flows for the
twelve months ended December 28, 1996, December 30, 1995 and December 31, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Playtex Products,
Inc. and subsidiaries as of December 28, 1996 and December 30, 1995 and the
results of their operations and their cash flows for the twelve months ended
December 28, 1996, December 30, 1995 and December 31, 1994, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
February 7, 1997
Stamford, Connecticut
A-35
<PAGE>
PLAYTEX PRODUCTS, INC.
REPORT OF MANAGEMENT
The management of Playtex Products, Inc. is responsible for the financial and
operating information contained in the Annual Report, including the financial
statements covered by the independent auditors' report. These statements were
prepared in conformity with generally accepted accounting principles and
include, where necessary, informed estimates and judgements.
The Company maintains systems of accounting and internal control designed to
provide reasonable assurance that assets are safeguarded against loss, and that
transactions are executed and recorded properly so as to ensure that the
financial records are reliable for preparing financial statements.
Elements of these control systems are the establishment and communication of
accounting and administrative policies and procedures, the selection and
training of qualified personnel, and continuous programs of internal review.
The Company's financial statements are reviewed by its Audit Committee, which is
composed entirely of non-employee Directors. This Committee meets with the
independent auditors and management to review the scope and results of the
annual audit, interim reviews, internal controls, and financial reporting
matters. The independent auditors have direct access to the Audit Committee.
/s/Michael R. Gallagher
Chief Executive Officer
and Director
/s/Michael F. Goss
Executive Vice President,
Chief Financial Officer,
and Director
Westport, Connecticut
February 7, 1997
A-36
<PAGE>
PLAYTEX PRODUCTS, INC.
OTHER INFORMATION
CORPORATE INFORMATION
Shares of Playtex's Common Stock are traded on the New York Stock Exchange under
the symbol PYX.
Playtex has not paid a cash dividend since its inception, and its present policy
is to retain earnings for use in its business. Under its debt agreements,
Playtex is restricted from paying dividends unless it meets certain specified
financial criteria immediately following such payment.
STOCK TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C.
80 Challenger Road
Ridgefield Park, New Jersey 07660
(800)851-9677
AUDITORS
KPMG Peat Marwick LLP
Stamford, CT 06905
CORPORATE OFFICES
300 Nyala Farms Road
Westport, CT 06880
10-K REPORT
A copy of Annual Report on Form 10-K filed with the Securities and Exchange
Commission by Playtex Products, Inc. for the year ended December 28, 1996 is
available upon request from the Secretary of the Corporation at the Company's
corporate offices. Requests may be faxed to (203)341-4260.
A-37
<PAGE>
<TABLE>
<CAPTION>
PLAYTEX PRODUCTS, INC.
OTHER INFORMATION
BOARD OF DIRECTORS
<S> <C>
Robert B. Haas Chairman and Director, Chairman of the Board and Chief Executive
Officer of Haas Wheat & Partners Incorporated
Michael R. Gallagher Chief Executive Officer and Director
Michael F. Goss Executive Vice President, Chief Financial Officer, and Director
Joel E. Smilow Former President and Chief Executive Officer
Thomas H. Lee President of the Thomas H. Lee Company
Kenneth F. Yontz Chairman of the Board, President and Chief Executive Officer of
Sybron International Corporation
Douglas D. Wheat President of Haas Wheat & Partners Incorporated
Michael R. Eisenson President and Chief Executive Officer of Harvard Private Capital
Group, Inc.
Timothy O. Fisher Vice President of The Hillman Group
PRINCIPAL OFFICERS
Michael R. Gallagher Chief Executive Officer and Director
Michael F. Goss Executive Vice President, Chief Financial Officer, and Director
Richard G. Powers President, Personal Products Division
Max R. Recone President, Consumer Products Division
James S. Cook Senior Vice President, Operations
Irwin S. Butensky Senior Vice President, Research & Development
John D. Leahy Vice President, Sales
Paul E. Yestrumskas Vice President, General Counsel and Secretary
Frank M. Sanchez Vice President, Human Resources
Glenn A. Forbes Vice President, Finance
</TABLE>
A-38
<PAGE>
PLAYTEX PRODUCTS, INC.
300 NYALA FARMS ROAD, WESTPORT, CT 06880
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Playtex Products, Inc. hereby constitutes and
appoints Michael R. Gallagher, and Michael F. Goss, and each of them, the
true and lawful attorneys, agents and proxies of the undersigned, each with
full power of substitution, to vote at the meeting, (or if only one shall be
present and acting at the meeting then that one) all of the shares of stock
of the corporation that the undersigned would be entitled, if personally
present, to vote at the annual meeting of stockholders of the corporation to
be held on May 20, 1997 and at any adjournments thereof.
<PAGE>
<TABLE>
<S> <C>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN PLEASE MARK
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE YOUR VOTE AS / X /
VOTED "FOR" ITEMS 1 AND 2. INDICATED IN
THIS EXAMPLE
1. Election of directors to serve until the election and qualification of his or her successor.
FOR ALL NOMINEES WITHHOLD (Instructions: To withhold authority to vote for any nominee strike a
LISTED TO THE RIGHT AUTHORITY line through the nominee's name in the list below.)
(EXCEPT AS MARKED TO THE TO VOTE FOR ALL NOMINEES
CONTRARY) LISTED TO THE RIGHT R. Haas M. Gallagher M. Goss T. Lee
K. Yontz T. Fisher D. Wheat M. Eisenson
/ / / / C. Merrifield
2. The ratification of the appointment of KPMG Peat Marwick LLP as 3. In their discretion, the Proxies are authorized
independent auditors for the Corporation for fiscal year 1997. to vote upon such other business as may
properly come before the meeting.
FOR AGAINST ABSTAIN
/ / / / / / Receipt is acknowledged of
notice and proxy statement for
the foregoing meeting and of
annual report to stockholders
for the fiscal year ended
December 28, 1996.
When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or
guardian, please give full
title. If a corporation, please
sign in full corporate name by
president or other authorized
officer. If a partnership,
please sign partnership name by
authorized person.
------------------------------------
Signature
------------------------------------
Signature if held jointly
Dated 1997
------------------------
Please mark, sign, date and return the
proxy card promptly using the enclosed
envelope.
- ------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>
