<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PLAYTEX PROCUCTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
May 15, 1998
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
Thursday, June 4, 1998, at 9:30 a.m. at the Regency Hotel, 540 Park Avenue, New
York, New York.
At the Annual Meeting, stockholders will be asked to elect the Board of
Directors, approve an amendment to the Company's By-laws, approve an amendment
to the Playtex 1994 Stock Option Plan for Directors and Executive and Key
Employees 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 JUNE 4, 1998
The Annual Meeting of Stockholders of Playtex Products, Inc. (the
"Company") will be held at the Regency Hotel, 540 Park Avenue, New York, New
York, on Thursday, June 4, 1998 at 9:30 a.m. local time, for the following
purposes:
ITEM 1. To elect a Board of Directors for the ensuing year;
ITEM 2. To ratify the Amendment to the Company's By-laws requiring that
one Non-Purchaser Director (as defined in the By-laws of the
Company) be designated by J.W. Childs Equity Partners, L.P.;
ITEM 3. To ratify the amendment to the Playtex 1994 Stock Option Plan for
Directors and Executives and Key Employees (the "1994 Stock
Option Plan" or the "Plan");
ITEM 4. To ratify the selection of the firm of KPMG Peat Marwick LLP as
the Company's independent auditors for fiscal year 1998; and
ITEM 5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has set the close of business on May 11, 1998 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
MAY 15, 1998
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 the Regency Hotel, 540 Park Avenue,
New York, New York, on Thursday, June 4, 1998 at 9:30 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 May 15, 1998 to
stockholders of the Company on May 11, 1998, the record date for the Annual
Meeting (the "Record Date"). The Company's Annual Report to Stockholders for the
fiscal year ended December 27, 1997 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 8, 1998 the outstanding stock of the Company consisted of
60,274,051 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.
Approval of the By-laws Amendment (as defined) requires the approval of the
holders of Common Stock representing at least 66 2/3% of the outstanding Common
Stock. 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;
<PAGE>
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.
Unless contrary instructions are indicated on the proxy card, all shares of
Common Stock represented by valid proxies will be voted FOR the five 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
eleven 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 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.
NAME AGE POSITION
Robert B. Haas. . . . . . . . 50 Chairman and Director
Michael R. Gallagher. . . . . 52 Chief Executive Officer and Director
Michael F. Goss . . . . . . . 38 Executive Vice President, Chief Financial
Officer and Director
Thomas H. Lee . . . . . . . . 54 Director
Kenneth F. Yontz. . . . . . . 53 Director
Timothy O. Fisher . . . . . . 48 Director
Douglas D. Wheat. . . . . . . 47 Director
Michael R. Eisenson . . . . . 42 Director
C. Ann Merrifield . . . . . . 47 Director
Wyche H. Walton . . . . . . . 32 Director
John W. Childs. . . . . . . . 56 Director
<PAGE>
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
1978, 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 acquisitions).
Mr. Haas is also the Chairman and a director of Nebraska Book Company, Inc.
(1998-present). Mr. Haas serves as a director of Specialty Foods Acquisition
Corporation, Specialty Foods Corporation, Sybron International Corporation,
Smarte Carte Corporation, Walls Holding Company, Inc. and NBC Acquisition Corp.
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 Company 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 Finlay Enterprises, Inc.
(operator of leased fine jewelry departments), First Security Services
Corporation (provider of security services), 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, Smarte Carte Corporation, Nebraska
Book Company, Inc., NBC Acquisition Corp., and Walls Holding Company, Inc.
<PAGE>
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. 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., and United Auto Group, Inc., as
well as those of several private companies.
C. Ann Merrifield has been a Director since May 1997. Ms. 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.
Wyche H. Walton has been a Senior Vice President of Haas Wheat & Partners
Incorporated, a private investment firm specializing in leveraged acquisitions,
since 1995. From 1994 to 1995, Mr. Walton was Chief Financial Officer of McGarr
Capital Management Corp., a private investment firm. During 1993 and 1994, he
was a Manager at KPMG Peat Marwick, LLP. Mr. Walton also serves as a Director of
Smarte Carte Corporation.
John W. Childs has been President of J.W. Childs Associates, L.P., a
Boston-based private investment firm, since July 1995. Prior to that time, he
was an executive at The Thomas H. Lee Company from May 1987, most recently
holding the position of Senior Managing Director. Prior to that, Mr. Childs was
with the Prudential Insurance Company of America where he held various
executive positions in the investment area ultimately serving as Senior
Managing Director in charge of the Capital Markets Group. He is a director of
Big V Supermarkets, Inc., Central Tractor Farm & Country, Inc., Chevys, Inc.,
Cinnabon, Inc., DESA International, Inc., The Edison Project, Inc., and
Select Beverages, Inc.
There are no family relationships among any of the foregoing persons.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS.
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 8, 1998 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.
NAME OF NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT
Robert B. Haas. . . . . . . . . . . 20,000,000(2) 33.2%
Michael R. Gallagher. . . . . . . . 485,668(3) *
Michael F. Goss . . . . . . . . . . 163,001 *
Richard G. Powers . . . . . . . . . 16,667 *
Max R. Recone . . . . . . . . . . . 126,667 *
James S. Cook . . . . . . . . . . . 176,667 *
Thomas H. Lee . . . . . . . . . . . 3,336,455(4) 5.5%
Kenneth F. Yontz. . . . . . . . . . 10,600 *
Timothy O. Fisher . . . . . . . . . 21,663(5) *
<PAGE>
Douglas D. Wheat. . . . . . . . . . -- --
Michael R. Eisenson . . . . . . . . 2,915,963(6) 4.8%
C. Ann Merrifield . . . . . . . . . 1,800 --
Wyche H. Walton . . . . . . . . . . -- --
John W. Childs. . . . . . . . . . . 8,338,422(7) 13.8%
Stinson Capital Partners, L.P., et al (8)
909 Montgomery Street
Suite 400
San Francisco, CA 94113 . . . . . . 5,001,300 8.3%
Partnerships managed by Haas Wheat &
Partners(2) . . . . . . . . . . . 20,000,000(2)(7) 33.2%
All current directors, director nominees
and Named Executive Officers as a group
(14 persons). . . . . . . . . . . 32,677,610 53.5%
___________
* 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 April 8,
1998. The shares beneficially owned include 466,668, 135,001, 16,667,
86,667, 86,667, 10,600 and 1,800 shares subject to currently exercisable
options granted to Messrs. Gallagher, Goss, Powers, Recone, Cook, and Yontz
and Ms. Merrifield, respectively, and 804,070 shares subject to currently
exercisable options granted to all current directors and Named Executive
Officers as a group.
(2) Includes 8,055,555 (approximately 13.4% of the outstanding shares) owned by
HWH Capital Partners, L.P., 9,028,482 shares (approximately 15.0% of the
outstanding shares) owned by HWH Valentine Partners, L.P., and 2,915,963
shares (approximately 4.8% of the outstanding shares) owned by HWH Surplus
Valentine Partners, L.P. 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. While Mr. Lee has shared
voting and dispositive power over the shares held by the limited
partnerships, he disclaims beneficial ownership of such shares. 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. The
address of Mr. Lee is c/o The Thomas H. Lee Company, 75 State Street, Suite
2600, Boston, MA 02109.
(5) Includes 16,663 shares held of record by Mr. Fisher's spouse and children.
Mr. Fisher disclaims beneficial ownership of these shares.
(6) Represents shares owned by HWH Surplus Valentine Partners, L.P., of which
Phemus Corporation is the sole Limited Partner. Mr. Eisenson is the
President and Chief Executive Officer of Harvard Private Capital Group,
<PAGE>
the investment advisor for Phemus Corporation. While Mr. Eisenson has
shared voting and dispositive power over the shares, he disclaims
beneficial ownership of such shares.
(7) Includes 7,855,764 (approximately 13.0% of the outstanding shares) owned by
J.W. Childs Equity Partners L.P. ("Childs"), a Delaware limited
partnership, J.W. Childs Advisors L.P. ("JWC Advisors"), a Delaware limited
partnership which is the general partner of Childs, J.W. Childs
Associates, L.P. ("Associates L.P."), a Delaware limited partnership which
is the general partner of JWC Advisors and J.W. Childs Associates, Inc.
("Associates Inc."), a Delaware corporation which is the general partner
of Associates L.P. and 482,658 shares owned by John W. Childs. The address
of Mr. Childs is c/o J.W. Childs Associates, L.P., One Federal Street,
Boston, MA 02110.
(8) On December 16, 1997, the Company received a Schedule 13D filed with the
Securities and Exchange Commission (the "Commission") in respect of
ownership of an aggregate of 5,001,300 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.
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 1997.
BOARD MEETINGS, COMMITTEES AND ATTENDANCE
The Company's Board of Directors met or acted by unanimous written consent
eight times during fiscal year 1997. Except for Mr. Childs and Mr. Walton, who
became Directors in January 1998, 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 until
May 20, 1997 and was comprised of Messrs. Fisher and Lee and Ms. Merrifield
thereafter during fiscal year 1997. 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
<PAGE>
examination; and recommending changes in financial policies or procedures as
suggested by the auditors. The Audit Committee met twice during fiscal year
1997.
The Compensation Committee was comprised of Messrs. Fisher, Wheat and Yontz
during fiscal year 1997. 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 as amended (the "1994 Stock Option
Plan" or the "Plan"). The Compensation Committee met or acted by unanimous
written consent seven times during fiscal year 1997. While serving on the
Compensation Committee, Directors do not receive option awards (except, as to
Mr. Yontz, pursuant to formula grants) under the 1994 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, Eisenson and Walton were nominated by the Purchaser Nominating
Committee and Messrs. Gallagher, Goss, Lee, Childs 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 and
Ms. Merrifield 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 and Ms. Merrifield participate in
the 1994 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 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 33% 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
<PAGE>
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.
On January 28, 1998, in connection with the closing of the transactions
contemplated by the Merger Agreement, dated as of December 22, 1997 (the "Merger
Agreement"), by and among the Company, Personal Care Holdings, Inc. ("PCH"),
J.W. Childs Equity Partners, L.P. (the "Principal PCH Shareholder") and PCG
Acquisition Corp., the Company issued to the Principal PCH Shareholder and other
holders of the capital stock of PCH (collectively, the "PCH Holders") an
aggregate of 9,257,345 shares of Common Stock and cash in an aggregate amount of
approximately $91.0 million. Of the total shares of Common Stock issued in
connection with the closing of the Merger Agreement, the Principal PCH
Shareholder was issued 7,855,764 shares of Common Stock. John W. Childs, a
director of the Company, is an affiliate of the Principal PCH Shareholder and,
as a result, is deemed to be the beneficial owner of the shares of Common Stock
held by the Principal PCH Shareholder which, together with the 482,658 shares of
Common Stock beneficially owned by Mr. Childs directly, constitutes
approximately 13.8% of the Company's outstanding Common Stock. See "Security
Ownership of Certain Beneficial Owners and Management." In connection with the
closing of the Merger Agreement, the Company, the Principal PCH Shareholder and
the other PCH Holders entered into a Stockholders Agreement, dated as of January
28, 1998 (the "Stockholders Agreement"). In satisfaction of an obligation of
the Company under the Stockholders Agreement, the Board of Directors of the
Company, effective January 28, 1998, increased the size of the Board, and filled
the vacancies thus created by electing John W. Childs and Wyche H. Walton as
directors. Also in satisfaction of an obligation of the Company under the
Stockholders Agreement, the Board of Directors approved the By-laws Amendment
and has submitted the By-laws Amendment to the stockholders of the Company for
approval. If approved, the By-laws of the Company, as so amended, will provide
that until the earlier of (i) January 28, 2008 and (ii) the date on which the
Principal PCH Shareholder holds fewer than 4,628,688 shares of Common Stock, one
of the nominees selected by the Non-Purchaser Nominating Committee shall be
designated by the Principal PCH Shareholder. See "Security Ownership of Certain
Beneficial Owners and Management -- Board Meetings, Committees and Attendance."
In connection with the transactions described in the preceding two
paragraphs, the Company granted to the Haas Wheat Partnerships and certain of
their affiliates which include certain directors of the Company, and the PCH
Holders, including the Principal PCH Shareholder, the right, under certain
circumstances, to (i) cause the company to register under the Securities Act
certain shares of Common Stock held by them, and (ii) include in a registration
under the Securities Act of shares of Common Stock by the Company or others,
certain shares of Common Stock held by them.
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.
<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 1997,
1996 and 1995 to the Company's Chief Executive Officer and each of the four
other executive officers of the Company who were serving as executive officers
of the Company at the end of fiscal year 1997 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 . . . . . . 1997 $699,615 $ 634,600(3) $ -- -- $256,160(4)
Chief Executive Officer and 1996 650,000 1,093,000(3) -- 100,000 186,991(4)
Director 1995 345,000 650,000 -- 800,000 392
Michael F. Goss. . . . . . . . . 1997 226,539 100,000 -- 30,000 47,606
Executive Vice President, 1996 213,000 125,000 -- -- 28,928
Chief Financial Officer and 1995 200,923 100,000 -- 127,500 52,563(5)
Director
Richard G. Powers. . . . . . . . 1997 203,846 47,000 -- 20,000 5,458
President, Personal Products 1996 80,769 32,500 -- 50,000 --
Division 1995 -- -- -- -- --
Max R. Recone. . . . . . . . . . 1997 211,231 55,000 -- 20,000 38,275
President, Consumer Products 1996 201,269 90,000 -- -- 39,902
Division 1995 191,539 38,000 -- 95,000 35,522
James S. Cook. . . . . . . . . . 1997 202,077 41,000 -- 15,000 36,646
Senior Vice President, 1996 193,462 88,000 -- -- 39,758
Operations 1995 185,077 34,000 -- 95,000 35,802
</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 1997 and 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 $334,600 and $793,000 paid pursuant to the Company's Management
Incentive Plan for fiscal years 1997 and 1996, and $300,000 paid pursuant
to Mr. Gallagher's Special Bonuses Program
<PAGE>
established in the Memorandum of Understanding dated July 10, 1995 for each
of the fiscal years ended 1997 and 1996.
(4) Represents $135,184 and $144,062 employer contribution to the Retirement
Plan and the Deferred Plan and premium paid by employer for term life
insurance, and $120,976, and $42,929 in connection with Mr. Gallagher's
relocation to Connecticut in 1996 for fiscal years 1997 and 1996,
respectively.
(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
$50,000 moving allowance in connection with Mr. Goss's relocation to
Connecticut in 1995.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information related to Options exercised by
the Named Executive Officers during fiscal year 1997 and unexercised Options and
SARs held by the Named Executive Officers at fiscal year end.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 27, DECEMBER 27,1997
1997(#)(2) ($)(2)(3)
SHARES ----------------- ----------------------
ACQUIRED VALUE
ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#)(1) ($)(1) UNEXERCISABLE UNEXERCISABLE
- ---- -------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Michael R. Gallagher. . . -- -- 433,334/466,666 27,083/54,166
Michael F. Goss . . . . . -- -- 122,501/72,499 227,865/64,009
Richard G. Powers . . . . -- -- 16,667/53,333 30,208/65,416
Max R. Recone . . . . . . -- -- 78,334/51,666 71,042/40,520
James S. Cook . . . . . . -- -- 78,334/46,666 71,042/39,270
</TABLE>
___________
(1) None of the Named Executive Officers exercised any Options during fiscal
year 1997.
(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 26, 1997 (the last trading day of fiscal
year 1997) was $9.8125.
OPTION GRANTS DURING FISCAL YEAR 1997
The following table provides information related to options granted to the
Named Executive Officers during fiscal year 1997. No SARs were granted during
fiscal year 1997.
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS/ VALUE AT ASSUMED
SARS EXERCISE ANNUAL RATES OF STOCK
OPTIONS/ GRANTED TO OR PRICE APPRECIATION FOR
SARS EMPLOYEES BASE OPTION TERM(1)
GRANTED IN FISCAL PRICE EXPIRATION ------------------------
NAME (#)(2) YEAR ($/SH)(3) DATE 5% ($) 10% ($)
- ---- ------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Goss..... 30,000 5% $9.5625 September 22, 2007 $180,414 $457,204
Richard G. Powers... 20,000 3% 9.5625 September 22, 2007 120,276 304,803
Max R. Recone....... 20,000 3% 9.5625 September 22, 2007 120,276 304,803
James S. Cook....... 15,000 2% 9.5625 September 22, 2007 90,207 228,602
</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
1997 under the 1994 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 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 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 stock appreciation rights
("SARs"). The 1994 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 Stock Option Plan) may not exceed 1,000,000. Options and SARs may not be
granted under the 1994 Stock Option Plan after October 2003. During the first
quarter of 1998, approval was obtained from the Board of Directors and by the
written consent of a majority of the Shareholders providing for an additional
2,000,000 shares of Common Stock for issuance under the 1994 Stock Option Plan.
As of April 8, 1998, the number of remaining shares available for issuance
under the 1994 Stock Option Plan was 2,009,076, which amount gives effect to the
additional 2,000,000 shares approved by the majority of the Company's
<PAGE>
shareholders. The Stock Option Plan Amendment contained herein is a
ratification of the action described in the preceding sentence previously taken
by a majority of the Shareholders by written consent of such Shareholders.
BENEFIT PLANS FOR TERMINATED EMPLOYEES
The Company maintains a Severance Payment Policy under which employees
(excluding the Named Executive Officers) who are "terminated" from service
without cause are entitled to receive compensation for a period of two to twelve
months, depending on their years of accrued service.
Each of the Named Executive Officers is party to an agreement with the
Company with respect to termination of employment. In the event of termination
by the Company without Cause (as defined in such agreements) which occurs prior
to a Change of Control (as defined in such agreements), Mr. Gallagher and Mr.
Goss are entitled to receive two years' salary, bonus and fringe benefits, and
the other Named Executive Officers are entitled to receive one year's salary,
bonus and fringe benefits. Additionally, in the event of termination of
employment prior to a Change of Control, due to death or "Disability" (as
defined in the Company's Long Term Disability Policy), Mr. Gallagher or his
estate is entitled to receive two years' salary, bonus and fringe benefits. In
the event employment is terminated within three years following a Change of
Control, each Named Executive Officer except Mr. Gallagher would receive one
year's salary, bonus and fringe benefits. Mr. Gallagher would enter into a five
year non-compete agreement following termination arising from a Change of
Control for total consideration equal to three years' salary, bonus and fringe
benefits. Mr. Goss is additionally obligated to make himself available as a
consultant to the Company for a period of six months following termination
arising from a Change of Control for total consideration equal to one year's
salary, bonus and fringe benefits. In the event of a Change of Control, each
Named Executive Officer is entitled to receive a one-time payment equal to the
highest annual bonus received in the last three fiscal years, whether or not
employment is terminated.
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
None.
REPORT ON EXECUTIVE COMPENSATION
<PAGE>
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.
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 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 1997, 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.
Amounts payable under the plan were calculated based upon the following
factors: (i) annual base salary; (ii) each 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 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 by the Board, and (iv) except for the Company's Chief Executive Officer
(the "Chief Executive Officer"), 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 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, certain incentive bonuses and the grant
of stock options with respect to 800,000 shares of Common Stock pursuant to
<PAGE>
the 1994 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 annual 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 $1 million cash payments if and when the Company's Common Stock
first reaches trading price levels of $15, $20, $25 and $30, in each case, for
at least 30 consecutive days prior to June 30, 2000. During fiscal year 1996,
Mr. Gallagher received stock options with respect to an additional 100,000
shares of Common Stock pursuant to the 1994 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 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 4, 1998
The Compensation Committee
Timothy O. Fisher
Douglas D. Wheat
Kenneth F. Yontz
<PAGE>
PERFORMANCE GRAPH
The following table 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
fiscal year basis for the period commencing on January 26, 1994 (the date of the
Company's initial public offering) through December 27, 1997 (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 24.5% during the Performance Period as compared with an
increase in total return during the same period for the Peer Index of 31.4% and
for the S&P 400 of 96.9%. 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.
S&P PEER PLAYTEX
400 INDEX PRODUCTS INC.
------ ------ -------------
January 26, 1994 100.0 100.0 100.0
December 31, 1994 99.6 70.5 54.8
December 30, 1995 131.1 80.9 57.7
December 28, 1996 161.5 110.8 58.7
December 27, 1997 196.9 131.4 75.5
The Peer Index is comprised of the following: Carter-Wallace, Inc.,
Alberto-Culver Company, Church & Dwight Co., Inc., and Paragon Trade Brands Inc.
The Peer Index has been restated to exclude Tambrands, Inc. as it was acquired
during 1997 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.
AMENDMENT OF THE COMPANY'S BY-LAWS
On January 28, 1998, in connection with the closing of the transactions
contemplated by the Merger Agreement, dated as of December 22, 1997
(the "Merger Agreement"), among the Company, PCG Acquisition Corp., Personal
Care Holdings, Inc. and the principal stockholder of PCH, J.W. Childs Equity
Partners, L.P. (defined in the Merger Agreement as the "Principal Stockholder"),
and in satisfaction of its obligations under that certain Stockholders
Agreement, dated as of January 28, 1998, by and among the Company, the Principal
Stockholder and the other persons parties thereto, the Board of Directors of the
Company approved, subject to approval of such amendment by the affirmative vote
of the holders of Common Stock representing at least sixty-six and two-thirds
percent (66 2/3%) of the outstanding Common Stock, a proposed amendment (the
"By-laws Amendment") to Section 15(b) in Article III of the Company's By-laws.
<PAGE>
Pursuant to the By-laws Amendment, the qualifications for directors stated
in the Company's By-laws would be amended to provide that, for a period of time
specified therein, one director of the Company will be designated by the
Principal Stockholder.
The proposed amendment to Section 15(b) in Article III of the Company's
By-laws reads as follows:
"The existing Section 15(b) in Article III of the By-laws shall be
redesignated Section 15(b)(A) and a Section 15(b)(B) shall be added to read as
follows:
'(B) From the Effective Date until the earlier of (1) the
date upon which the Principal Stockholder holds, in the aggregate, less than
4,628,688 shares of common stock of the Company or (2) the tenth anniversary of
the Effective Date, one of the Non-Purchaser Directors shall be the Target
Director. The "Effective Date" shall have the meaning given that term in the
Merger Agreement. The "Merger Agreement" means the Merger Agreement, dated as of
December 22, 1997 among the Corporation, PCG Acquisition Corp., Personal Care
Holdings, Inc. and J.W. Childs Equity Partners, L.P. (the "Principal
Stockholder"). The "Target Director" means the Director designated by the
Principal Stockholder.'"
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE AMENDMENT
TO THE COMPANY'S BY-LAWS.
STOCK OPTION PLAN AMENDMENT
The Playtex 1994 Stock Option Plan for Directors and Executive and Key
Employees (the "Plan") provides that the aggregate number of shares of Common
Stock ("Shares") which may be issued upon the exercise of Options granted under
the Plan ("Options") and stock appreciation rights granted under the Plan
("SARs") shall not exceed 3,047,785. As of April 8, 1998, the Company had
issued Options and SARs with respect to 3,038,709 Shares.
For the Company to be able to continue to provide its directors, executives
and key employees with equity-based performance incentives under the Plan,
including grants of Options made to new executives who have joined the Company
in connection with the Company's acquisition of Personal Care Holdings, Inc., it
will be necessary to increase the number of Shares available under the Plan.
The Board of Directors believes that it is in the Company's best interest
that Options and/or SARs continue to comprise a meaningful part of the
compensation for directors, officers and key employees of the Company. The
Board of Directors further believes that the proposed increase in the total
number of Shares available under the Plan will provide desirable flexibility in
its ability to properly compensate its directors, officers and key employees.
Pursuant to Section 8.2 of the Plan, the Stock Option Committee of the
Board of Directors of the Company (the "Compensation Committee") may only
increase the number of Shares available under the Plan with shareholder approval
obtained within 12 months before or after such increase. On January 26, 1998,
the Compensation Committee approved an amendment (the "Stock Option Plan
Amendment") of the Plan to increase the number of Shares available under the
Plan to an aggregate of 5,047,785 Shares (an increase of 2,000,000 Shares).
Adoption of the Stock Option Plan Amendment requires the affirmative vote of the
holders of a majority of outstanding Shares. During the first quarter of 1998,
holders of a majority of the outstanding Shares, acting
<PAGE>
by written consent, approved the Stock Option Plan Amendment. The Company is
including the Stock Option Plan Amendment in this Proxy Statement in order to
afford all Shareholders entitled to vote thereon, the opportunity to vote on the
Stock Option Plan Amendment.
DESCRIPTION
The Plan authorizes the grant to directors, executives and other key
employees of the Company of long-term incentive share awards in the form of
Options and SARs. The Plan is administered by the Compensation Committee, which
consists of three non-employee directors of the Company, currently Messrs.
Timothy O. Fisher, Douglas D. Wheat, and Kenneth F. Yontz. Currently, there are
9 directors and 114 officers and other key employees eligible to receive awards
under the Plan. Options to be granted under the Plan may be either Incentive
Stock Options within the meaning of Section 422(b) of the Code, or Non-Qualified
Stock Options. A "Non-Qualified Stock Option" is an Option which is not an
Incentive Stock Option and which is designated a Non-Qualified Stock Option by
the Compensation Committee. SARs may only be granted in tandem with Options,
and will be subject to such terms and conditions not inconsistent with the Plan
as the Compensation Committee shall impose. The aggregate number of Shares,
after the adoption of the Stock Option Plan Amendment, of Common Stock which may
be issued upon exercise of Options and SARs may not exceed 5,047,785 Shares,
provided that the aggregate number of such Shares which may be issued upon the
exercise of Options and SARs granted to any single Executive Officer may not
exceed 1,000,000 Shares. Options and SARs may not be granted under the Plan
after October 2003.
For discretionary grants, the recipients, terms, conditions, number and
type of Options (whether Incentive Stock Options or Non-Qualified Stock Options)
and/or SARs to be granted under the Plan shall be determined by the Compensation
Committee; PROVIDED, HOWEVER, that, for such Options, the exercise price per
Share shall not be less than 100% of the fair market value (as defined in the
Plan) of the Common Stock on the date such Option is granted; and PROVIDED,
FURTHER, that in the case of an Incentive Stock Option, the price per Share
shall not be less than 110% of the fair market value of the Common Stock on the
date such Option is granted in the case of an individual owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company (a "10% Owner"), any
subsidiary of the Company or parent of the Company. In addition, certain
non-employee directors have been granted Non-Qualified Stock Options under the
Plan pursuant to a fixed formula setting forth the number of Options, exercise
price, vesting schedule and period of exercisability.
Except as the Compensation Committee may otherwise provide with respect to
Options granted to non-officer employees, Options under discretionary grants may
not be exercised during the first year after such Options are granted. Subject
to this and certain other conditions, such Options will be exercisable at such
times and in such installments (which may be cumulative) as the Compensation
Committee provides in the terms of each such Option; PROVIDED, HOWEVER, that by
resolution adopted after the Option is granted the Compensation Committee may,
on such terms and conditions as it may determine appropriate (and subject to
certain conditions), accelerate the time at which such Option or portion thereof
may be exercised. To the extent the aggregate fair market value of Shares
(determined at the time of grant) with respect to which Incentive Stock Options
are exercisable for the first time by an optionee during any calendar year
exceeds $100,000, such Options shall be taxed as Non-Qualified Stock Options.
The consideration for the granting of an Option is the optionee's continued
rendering of services to the Company or a subsidiary after the Option is
granted. The Compensation Committee may, in its discretion and on such terms as
it deems appropriate, require as a condition to the grant
<PAGE>
of such Options that the optionee surrender for cancellation some or all of the
unexercised Options which have been previously granted to the optionee.
Shares purchased upon exercise of an Option shall be paid in full at the
time of exercise in cash or, if the Compensation Committee so permits, in whole
or in part in Shares valued at their fair market value on the date of exercise,
or by a promissory note on such terms and conditions as the Compensation
Committee may impose. Unless otherwise approved in writing by the Compensation
Committee, no Shares acquired upon the exercise of any Option by any director or
officer may be sold, assigned or otherwise transferred until at least six months
have elapsed from (but excluding) the date that such Option was granted, and the
Compensation Committee may impose other restrictions on the transferability of
such Shares as it deems appropriate. Options will expire after the first to
occur of: (i) the expiration of ten years from the date the Option was granted;
(ii) with respect to Incentive Stock Options granted to an optionee who was a
10% Owner when the Incentive Stock Options were granted, five years from the
date the Incentive Stock Option was granted; (iii) except in the case of an
employee who is disabled (as defined in Section 22(e)(3) of the Code),
expiration of three months from the date of the optionee's Termination of
Employment (as defined in the Plan), unless such optionee dies in such
three-month period; (iv) in the case of an optionee who is disabled (as defined
in Section 22(e)(3) of the Code), expiration of one year from the date of the
optionee's Termination of Employment, unless the optionee dies in such one-year
period; or (v) the expiration of one year from the date of the optionee's death.
SARs entitle the optionee to surrender the Option in exchange for an
amount, payable in Shares or, in the discretion of the Compensation Committee,
in cash, determined by multiplying (i) the lesser of (a) the difference obtained
by subtracting the Option exercise price per Share subject to the related Option
from the fair market value of a Share on the date of exercise of the SAR and (b)
two times the Option exercise price per Share subject to the related Option, by
(ii) the number of Shares subject to the related Option with respect to which
the SAR is exercised. SARs may be exercised for cash only during prescribed
periods or pursuant to an irrevocable written election made at least six months
prior to the date of exercise.
The Compensation Committee may make equitable adjustments in the terms of
Options under discretionary grants and maximum number of Shares available under
the Plan, and may also provide by the terms of any such Option that such Option
cannot be exercised, upon the occurrence of certain corporate events, including
reorganizations, mergers, acquisitions, liquidation or dissolution. The Plan
may be amended by the Compensation Committee at any time, provided that
stockholder approval is required to approve amendments which (i) increase any
limits on the maximum number of Shares which may be issued up on the exercise of
Options; (ii) materially modify the Plan's eligibility requirements; (iii)
reduce the minimum option price requirements of the Plan; or (iv) extend the
time period during which Options or SARs may be granted. No amendment of the
Plan shall adversely affect any prior rights or obligations under Options or
SARs, without the consent of the optionee.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the Plan may be either Non-Qualified Stock Options
or, if granted to employees of the Company or any of its subsidiaries, Incentive
Stock Options, as determined from time to time by the Compensation Committee.
As to Non-Qualified Stock Options, there will be no federal income tax
consequences to either the optionee or the Company on the grant of the Option.
Upon the exercise of a Non-Qualified Stock Option, the optionee will generally
recognize taxable ordinary income in an amount equal to the difference between
the Option price paid and the then fair market value of the Shares received.
The Company will
<PAGE>
generally be entitled to a tax deduction in an amount equal to the optionee's
taxable ordinary income. In the case of an optionee subject to Section 16(b) of
the Exchange Act, the optionee will recognize ordinary income after exercise
only upon the expiration of six months following the date of grant, unless the
optionee elects pursuant to Section 83(b) of the Code to use the exercise date
for purposes of such calculation. The Company is required to withhold taxes on
the ordinary income recognized by an optionee upon exercise of a Non-Qualified
Stock Option. Upon disposition of the Shares by the optionee, the optionee will
generally recognize gain or loss, as the case may be, equal to the difference
between the amount realized on such disposition and his basis for the Shares,
which will include the amount previously recognized by him or her as ordinary
income.
If an Option granted under the Plan is designated as an Incentive Stock
Option and thereafter continues to qualify as such, the optionee will generally
recognize no income upon grant or exercise of the Incentive Stock Option and the
Company will not be allowed a deduction for Federal income tax purposes (which
it would otherwise receive in the case of an exercise of a Non-Qualified Stock
Option). Upon a subsequent sale or other disposition of Shares received upon
exercise of an Incentive Stock Option, if such sale or other disposition occurs
at least two years after the date of grant and one year after the transfer of
Shares pursuant to the exercise of the Incentive Stock Option, any gain or loss
will be taxed to the optionee at capital gain rates. If either of such
requirements is not satisfied, gain realized upon such sale or other disposition
will generally be subject to ordinary income tax. The Company, in turn will
generally then be entitled to a deduction for Federal income tax purposes in the
amount of such ordinary income recognized by the optionee. Whenever Incentive
Stock Options are exercised, the difference between the exercise price and the
fair market value of the Shares constitutes an adjustment in computing
alternative minimum taxable income. As a result, Section 55 of the Code may
impose an "alternative minimum tax" upon the optionee exercising Incentive Stock
Options.
Finally, Section 162(m) of the Code denies a Federal income tax deduction
for certain compensation in excess of $1 million per year paid to the Chief
Executive Officer and the four other most highly paid executive officers of a
publicly traded corporation. Certain types of performance-based compensation,
including compensation based on attaining pre-established performance goals, are
excluded from this deduction limit. It is intended that compensation paid
pursuant to the Plan will be deductible by the Company notwithstanding the
limitations of Section 162(m) of the Code by reason of the exception for
performance-based compensation.
ACCOUNTING TREATMENT
Generally, the Company's reported earnings will not be affected by the
grant of Options or SARs or the exercise of Options or SARs, since options or
SARs cannot be issued for less than 100% of the fair market value of the common
stock on the date of grant, according to the Plan. Such grants, however, may
impact the calculation of diluted earnings per share.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE STOCK
OPTION PLAN AMENDMENT.
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 26, 1998. 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 26, 1998, and to perform other appropriate
<PAGE>
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.
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 1999 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 24, 1998, or, if the 1999 annual
meeting is changed by more than thirty (30) calendar days from May 19, 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 1999 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
<PAGE>
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
May 15, 1998
<PAGE>
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this proxy will be
voted "FOR" Items 1, 2, 3 and 4.
PLEASE MARK
/X/ YOUR VOTES AS
INDICATED IN
THIS EXAMPLE
1. Election of directors to serve until the election and qualification of
his or her successor.
<TABLE>
<S> <C> <C>
FOR all nominees WITHHOLD INSTRUCTION: To withhold authority to vote for any individual nominee
listed to the right AUTHORITY strike a line through the nominee's name in the list
(Except as marked to vote for all nominees below.
to the contrary) listed to the right Nominee
/ / / / R. Haas M. Gallagher M. Goss T. Lee
K. Yontz T. Fisher D. Wheat W. Walton
M. Eisenson C. Merrifield J. Childs
</TABLE>
2. The ratification of the Amendment to the Company's By-laws requiring
that one Non-Purchaser Director be designated by J.W. Childs Equity
Partners, L.P.
FOR AGAINST ABSTAIN
/ / / / / /
3. The ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for the corporation for fiscal year 1998.
FOR AGAINST ABSTAIN
/ / / / / /
4. The ratification of the amendment to the Playtex 1994 Stock Option Plan
for Directors and Executive and Key Employees.
FOR AGAINST ABSTAIN
/ / / / / /
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Receipt is acknowledged of notice and proxy statement for the foregoing
meeting and of annual report to stockholders for the fiscal year ended
December 27, 1997.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
<PAGE>
_________________________________________
Signature
_________________________________________
Signature if held jointly
Dated _____________________________, 1998
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
<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 June 4, 1998 and at any adjournments thereof.
<PAGE>
APPENDIX A
PLAYTEX PRODUCTS, INC.
1997 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
PLAYTEX PRODUCTS, INC.
1997 ANNUAL REPORT TO STOCKHOLDERS
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PART I--FINANCIAL INFORMATION
Selected Financial Data................................................................................. 3
Management's Discussion and Analysis of Financial Condition and Results of Operations................... 4--9
Consolidated Financial Statements....................................................................... 10--13
Notes to Consolidated Financial Statements.............................................................. 14--45
PART II--OTHER INFORMATION
Independent Auditors' Report............................................................................ 46
Report of Management.................................................................................... 47
Other Information....................................................................................... 48--49
</TABLE>
2
<PAGE>
PLAYTEX PRODUCTS, INC.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
---------------------------------------------------------------------
DEC. 27, DEC. 28, DEC. 30, DEC. 31, DEC. 25,
1997 1996 1995 1994 1993
---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $ 500,632 $ 498,742 $ 483,581 $ 473,275 $ 409,858
Gross profit.......................... 304,652 306,230 295,452 306,674 273,136
Operating expenses, excluding
amortization of intangibles......... 192,056 194,184 195,457 166,799 143,834
Amortization of intangibles........... 12,894 12,846 11,268 10,181 14,529
Write-off of SMILETOTE and Beauty Care
intangible assets--1995 and 1993,
respectively........................ -- -- 6,441 -- 121,620
Operating earnings (loss)............. 99,702 99,200 82,286 129,694 (6,847)
Interest expense, net................. 64,470 64,860 71,361 76,153 115,949
Earnings (loss) available to common
stockholders........................ $ 14,653(1) $ 18,199 $ (5,161)(2) $ 28,384(3) $ (176,107)(4)
Earnings (loss) per share available to
common stockholders (basic and
diluted)............................ $ 0.29 $ 0.36 $ (0.12) $ 0.97 $ (16.21)
Earnings (loss) before extraordinary
loss, cumulative effect of
accounting changes and preferred
stock dividends..................... $ 18,731 $ 18,199 $ 2,774 $ 29,547 $ (124,845)
Earnings (loss) per share before
extraordinary loss, cumulative
effect of accounting changes and
preferred stock dividends (basic and
diluted)............................ $ 0.37 $ 0.36 $ 0.07 $ 0.99 $ (11.49)(5)
Weighted average common shares
outstanding:
Basic............................... 50,923 50,883 42,309 29,212 10,867
Diluted............................. 51,006 50,939 42,342 29,213 10,867
BALANCE SHEET DATA (AT PERIOD END):
Working capital....................... $ 56,402 $ 6,522 $ 28,637 $ 17,623 $ (24,632)
Total assets.......................... 652,558 660,331 682,861 599,400 588,457
Total long-term debt, excluding due to
related party....................... 737,800 739,700 790,050 875,700 915,413
Redeemable preferred stocks........... -- -- -- -- 139,644
Stockholders' equity (deficit)........ $ (268,063) $ (282,727) $(300,976) $ (465,997) $ (723,408)
</TABLE>
- ------------------------
(1) Includes the effect of extraordinary loss of $4.1 million (net of $2.3
million of income tax benefit) related to the early extinguishment of debt
in connection with the 1997 Refinancing. See Note 11 of Notes to
Consolidated Financial Statements.
(2) Includes the effect of extraordinary loss of $7.9 million (net of $5.2
million of income tax benefit) related to the early extinguishment of debt
in connection with the 1995 Transaction. See Note 11 of Notes to
Consolidated Financial Statements.
(3) Includes dividends on preferred stock of $1.2 million.
(4) Includes the effects of the write-off of Beauty Care intangible assets of
$121.6 million, dividends on preferred stock of $12.8 million, extraordinary
loss of $39.4 million (net of $25.4 million of income tax benefit) related
to the early extinguishment of debt and $0.9 million, net of $0.7 million of
income tax benefit, related to changes in accounting.
(5) Basic and diluted loss per share includes the effect of the write-off of
Beauty Care intangible assets ($11.19 loss per share).
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 10
through 45 hereof.
In accordance with Rule 14a-3(c) under the Securities Exchange Act of 1934,
as amended (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 27, 1997.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this document may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. When used in this document, the words "anticipates", "intends",
"plans", "believes", "estimates", "expects", and similar expressions are
intended to identify forward-looking statements. 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: price and product changes and promotional activity by competitors,
timing of technological advances and new product initiatives by the Company and
its competitors, acceptance by consumers of new replacement products, continued
activity in the private label sector, the loss of a significant customer,
product liability litigation, integration of acquisitions and changes in
governmental regulation.
RESULTS OF OPERATIONS
BASIS OF MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company is a leading manufacturer and marketer of a diversified line of
well recognized branded consumer products in a variety of categories. The
Feminine Care product category includes a wide range of plastic and cardboard
applicator tampons marketed under such brand names as
Playtex-Registered Trademark- Gentle Glide-Registered Trademark-, Soft
Comfort-TM-, Slimfits-TM- and Silk Glide-Registered Trademark-. The Company's
second largest product category based on 1997 net sales is Infant Care, which is
comprised of the Playtex-Registered Trademark- disposable nurser system, cups
and mealtime products, reusable hard bottles and pacifiers. The Company's Sun
Care business consists of an extensive line of sun care products marketed under
the Banana Boat-Registered Trademark- and BioSun-Registered Trademark- trade
names. The Household Products category includes Playtex-Registered Trademark-
household latex gloves and Woolite-Registered Trademark- rug and upholstery
cleaning products ("WOOLITE"). The Company's Personal Grooming business consists
of Jhirmack-Registered Trademark- hair care products and
Tek-Registered Trademark- toothbrushes.
In January 1998, the Company acquired Personal Care Holdings, Inc. ("PCH"),
Carewell Industries, Inc. ("Carewell"), and certain tangible and intangible
assets related to the Binky-Registered Trademark- pacifier business from
Binky-Griptight, Inc. ("Binky")(see Note 20 of Notes to Consolidated Financial
Statements). These acquisitions had no impact on the results of operations of
the Company in fiscal 1997. As a result of these acquisitions, revenues from the
Infant Care and Personal Grooming product categories will increase as a percent
of total revenue in the future.
4
<PAGE>
PLAYTEX PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The following table sets forth the Company's principal product lines and
certain related data for 1997 (dollars in millions):
<TABLE>
<CAPTION>
PRIMARY 1997 PERCENT OF
PRODUCT LINE BRAND NAMES NET SALES NET SALES
- ---------------------------------------------------------------- ------------------------- ----------- -------------
<S> <C> <C> <C>
Feminine Care................................................... PLAYTEX $ 201.5 40%
Infant Care..................................................... PLAYTEX 124.0 25
Sun Care........................................................ BANANA BOAT, BIOSUN 95.7 19
Household Products.............................................. PLAYTEX, WOOLITE 55.3 11
Personal Grooming............................................... JHIRMACK, TEK 24.1 5
----------- ---
Total......................................................... $ 500.6 100%
----------- ---
----------- ---
</TABLE>
TWELVE MONTHS ENDED DECEMBER 27, 1997 VERSUS
TWELVE MONTHS ENDED DECEMBER 28, 1996
NET SALES--Net sales in 1997 were $500.6 million, an increase $1.9 million,
or less than 1%, from $498.7 million in 1996.
Net sales of Feminine Care products decreased 11%, or $24.0 million, to
$201.5 million from $225.5 million in 1996. The Company's shipments to retailers
in the first half of 1997 were negatively impacted by high retail inventories
created by earlier price-oriented promotional activity and by management's
strategic decision to reduce these excess inventories by curtailing the
off-price programs. During the first half of 1997, shipments of Feminine Care
products fell 22% versus the prior year. During the same period in 1997, retail
sales of the Company's products exceeded the Company's shipments by 90 million
tampons, indicating that retailers reduced their inventories of Playtex tampons
by approximately six weeks worth of sales. The Company believes that trade
inventories returned to more normal levels by mid-year 1997 given that: 1)
shipments in the second half of 1997 were even with the same period in 1996 and
30% higher than shipments in the first half of 1997, and 2) shipments and retail
sales in the second half of 1997 were in greater balance with one another.
Infant Care net sales increased $14.5 million, or 13%, to $124.0 million in
1997 from $109.5 million in 1996 while net sales of Sun Care products increased
$22.4 million, or 31%, to $95.7 million in 1997 versus $73.3 million in 1996.
The growth in both Infant Care and Sun Care was due to: (i) successful new
product launches, (ii) increased distribution, (iii) continued market share
gains for the Playtex businesses, and (iv) continued growth for the Infant Care
and Sun Care markets overall.
Household Products 1997 net sales decreased $5.2 million, or 9%, to $55.3
million due, in part, to a change in pricing strategy for PLAYTEX GLOVES which
resulted in both lower reported revenue offset by lower trade spending versus
1996. In addition, the introduction of a new competitor in the carpet cleaning
business negatively impacted sales of WOOLITE during the year.
Net sales in Personal Grooming declined by $5.8 million, or 19%, to $24.1
million in fiscal 1997. The decline is attributable to the strategic decision on
the part of the Company to reduce ineffective trade spending associated with the
JHIRMACK brand and to maximize the cash flow generated by the brand.
GROSS PROFIT--Gross profit decreased $1.5 million, or less than 1%, to
$304.7 million for 1997 versus $306.2 million for 1996. The gross profit margin
decreased to 60.9% for the 1997 fiscal year versus 61.4% for the prior fiscal
year. The decrease in gross profit in fiscal 1997 was attributable primarily to
the mix of products sold, offset in part, by marginally higher sales.
5
<PAGE>
PLAYTEX PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OPERATING EARNINGS--Operating earnings increased $0.5 million, or less than
1%, to $99.7 million for 1997 versus $99.2 million for 1996. Contributing to
this increase was lower trade spending in line with the Company's consumer
oriented marketing strategy. For fiscal 1997, trade spending was $8.0 million,
or 12%, lower than in fiscal 1996. The lower trade spending was offset by higher
consumer spending, up $2.9 million versus fiscal 1996, lower gross profit of
$1.6 million as noted above, and increased selling, distribution, research, and
administrative expenses which were collectively $3.0 million higher than fiscal
1996.
INTEREST EXPENSE--Interest expense of $64.5 million for fiscal 1997
decreased $0.4 million, or 1%, from $64.9 million in 1996.
EXTRAORDINARY LOSS--In July 1997, the Company refinanced its senior credit
agreement. The Company recorded an extraordinary loss of $4.1 million (net of
income tax benefit of $2.3 million) for costs and expenses related to the
write-off of the unamortized portion of the deferred financing costs associated
with the previous credit agreement.
NET EARNINGS--As a result of the factors noted above, net earnings were
$14.7 million in 1997 compared to $18.2 million in 1996.
TWELVE MONTHS ENDED DECEMBER 28, 1996 VERSUS
TWELVE MONTHS ENDED DECEMBER 30, 1995
RESULTS OF OPERATIONS
NET SALES--Net sales in 1996 increased to $498.7 million, up $15.1 million,
or 3%, from $483.6 million in 1995.
Net sales for the Feminine Care business were $225.5 million for 1996, down
$18.1 million, or 7%, versus $243.6 million in 1995. These results reflect (i)
the rigorous competitive environment in the tampon category, particularly in the
first half of the year; and (ii) a reduction in the level of inventories carried
by retailers during the year. Although shipments to retailers declined 7% during
the year, retail sales to consumers in units decreased only 1%, and the
Company's unit market share was stable at 23% for the year.
Infant Care net sales increased $21.9 million, or 25%, to $109.5 million in
1996 from $87.5 million in 1995. The increase was due primarily to the continued
growth of the 6-ounce Spill-Proof-TM- cup and the successful introductions in
1996 of the 9-ounce SPILL-PROOF cup and the QuickStraw-TM- cup.
Sun Care net sales increased $23.0 million, or 46%, to $73.3 million in 1996
from $50.3 million in 1995. This increase resulted from a higher market share
for the year, which increased from 18% to 19%, category growth of 2% versus 1995
and, the addition of $10.3 million of revenues as a result of the acquisition of
the remaining portion of the Banana Boat Holding Corporation (see Note 3 of
Notes to Consolidated Financial Statements).
Household Products net sales increased $3.2 million, or 6%, to $60.5 million
in 1996 from $57.3 million in 1995. The WOOLITE brand's net sales increased $4.1
million, or 17%, to $27.8 million in 1996 compared to $23.7 million in 1995,
while Glove net sales decreased $0.8 million, or 2%, to $32.8 million compared
to $33.6 million in the prior year. The increase in the WOOLITE brand's net
sales was attributable to the complete integration of this business after its
acquisition in early 1995. Gloves net sales declined primarily due to a change
in pricing strategy which resulted in lower reported revenue, more than offset
by
6
<PAGE>
PLAYTEX PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
lower trade spending. The Company's market share in the household latex glove
category grew by three percentage points in 1996 from 35% to 38%.
Personal Grooming net sales declined by $14.8 million, or 33%, to $30.0
million, compared to $44.8 million in 1995. 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.
GROSS PROFIT--Gross profit increased $10.7 million, or 4%, to $306.2 million
for 1996 compared to $295.5 million for 1995. For the year, gross margin was
61.4% of net sales compared to 61.1% of net sales in 1995. The increase in
margin was due, in part, to $3.4 million of pre-tax charges having been 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 increased $16.9 million, or 21%, to
$99.2 million for 1996 compared to $82.3 million for the prior year. This
increase was due to the margin impact of the increased net sales described above
and the fact that $15.5 million of one time pre-tax charges were included in the
1995 results. These one time charges consisted of $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 the SMILETOTE business.
Advertising and promotional expenses increased by $1.8 million, or 2%, in
1996 compared to 1995. As part of its consumer oriented marketing strategy, the
Company invested more heavily in advertising and consumer spending and focused
less on trade spending. Excluding the impact of the 1995 one time items, the
remaining operating expenses increased $4.2 million, or 5%, compared to 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
1996 year resulted from both lower debt levels and lower interest rates.
NET EARNINGS--As a result of the factors noted above, net earnings were
$18.2 million in 1996 compared to a net loss of $5.2 million in 1995.
FINANCIAL CONDITION AND LIQUIDITY
At December 27, 1997, the Company's working capital (current assets net of
current liabilities) increased to $56.4 million from $6.5 million at December
28, 1996. The increase resulted primarily from (i) a decrease of $23.5 million
in current maturities of long-term debt, due to the 1997 Refinancing (as defined
below), (ii) a reduction in accounts payable of $11.6 million, due to the timing
of payments, (iii) a reduction in accrued expenses of $10.4 million, primarily
as a result of lower accrued employee compensation and lower accruals for
advertising and sales promotions, and (iv) higher inventory of $4.9 million due
to increased production to support new product launches.
The Company's businesses, with the exception of Sun Care, generally have not
been seasonal. However, Sun Care product sales are highly seasonal, with 85 to
90 percent of sales occurring in the first six months of the year. This
seasonality requires increased inventory to support the selling season and the
extended credit terms which are typical in the sun care industry result in
higher receivables for the Company.
Capital expenditures for equipment and facility improvements were $9.0
million, $9.7 million and $12.4 million for the twelve months ended December 27,
1997, December 28, 1996 and December 30,
7
<PAGE>
PLAYTEX PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1995, respectively. These expenditures were used primarily to upgrade production
equipment and maintain facilities in the ordinary course of business. Capital
expenditures for 1998 are expected to be $18.0 million, mostly for production
related equipment and facility improvements and for projects consistent with
those of the prior years. The 1998 projection includes increased capital
expenditures related to the acquisitions of PCH, Carewell, and Binky.
On July 21, 1997, the Company completed a refinancing of its senior
indebtedness (the "1997 Refinancing") designed to increase its financial and
operational flexibility. The net proceeds from the 1997 Refinancing were used to
retire the indebtedness outstanding under the Company's previous credit
agreement; concurrently, the former agreement was terminated.
The 1997 Refinancing included: (i) the issuance of $150.0 million principal
amount of 8 7/8% unsecured senior notes due July 15, 2004 (the "Senior Notes"),
(ii) a $150.0 million senior secured term loan due September 15, 2003 (the "1997
Term Loan") and (iii) senior secured credit facilities of $170.0 million (the
"1997 Senior Secured Credit Facilities") comprised of a $115.0 million revolving
credit facility (the "1997 Revolving Credit Facility") and a $55.0 million term
loan facility (the "1997 Term A Loan").
At December 27, 1997 long-term debt (including current portion but excluding
obligations due to related party) was $737.8 million versus $739.7 million at
December 28, 1996 a decrease of $1.9 million. The net decrease in long-term
borrowings since December 28, 1996 was the result of favorable cash flow from
operations offset, in part, by fees and expenses associated with the 1997
Refinancing. At December 27, 1997, the Company had unused lines of credit
(giving effect to outstanding letters of credit) under the 1997 Revolving Credit
Facility of $90.4 million.
The credit facilities require the Company 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 Senior Notes and
the 9% Senior Subordinated Notes with an aggregate amount of $360 million due
2003 (the "9% Notes") also contain restrictions and requirements with regard to
similar matters. Under the terms of these debt instruments, payment of cash
dividends on the Common Stock of the Company is restricted.
The Company believes that it will generate sufficient cash flow from
operations for working capital, capital expenditures and to make the scheduled
interest and principal payments under the 1997 Term Loan and the 1997 Senior
Secured Credit Facilities, and interest payments on the 9% Notes and the Senior
Notes. However, the Company does not expect to generate sufficient cash flow
from operations to make the $360 million principal payment due in 2003 on the 9%
Notes nor the $150 million principal payment due in 2004 on the Senior Notes.
Accordingly, the Company will have to either refinance its obligations with
respect to the 9% Notes and Senior Notes prior to their maturity, sell assets or
raise equity capital to repay the principal amounts of the 9% Notes and Senior
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 is, in part,
subject to prevailing economic conditions and to financial, business and other
factors beyond its control. Although the Company's cash flow from 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.
In January 1998, the Company acquired PCH, Carewell, and Binky. The purchase
of Carewell and Binky were financed from available borrowings under the 1997
Revolving Credit Facility. The Company
8
<PAGE>
PLAYTEX PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
increased its borrowings under the 1997 Term Loan by $100 million to fund the
cash portion of the acquisition price of PCH. The Company also issued 9,257,345
shares of its Common Stock as part of the PCH acquisition.
The Company will continue to regularly consider the acquisition of other
companies or businesses engaged in the manufacture and distribution of related
products. Such potential transactions may require substantial capital resources,
which would in certain circumstances require the Company to seek additional debt
or equity financing. As there can be no assurance that such financing will be
available, the Company's ability to expand its operations through acquisition
may be restricted. However, The Company believes that capital will be available
to acheive its acquisition objectives.
Inflation in the United States and Canada has not had a significant effect
on the Company during recent periods.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income"("SFAS No. 130"). SFAS No. 130
establishes requirements for reporting and display of comprehensive income. The
new standard becomes effective for the Company's fiscal year 1998 and requires
reclassification of earlier financial statements for comparative purposes.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information"("SFAS No. 131"). SFAS No. 131
establishes requirements for disclosure about operating segments in the interim
financial reports and annual financial statements. It also establishes standards
for related disclosures about products and services, geographic area and major
customers. This statement supersedes SFAS No. 14, "Financial Reporting for
Segments of Business Enterprises". SFAS No. 131 becomes effective for the
Company's fiscal year 1998 and requires that comparative information from
earlier years be restated to conform to the requirements of the new standard.
The Company is in the process of evaluating the disclosure requirements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits"("SFAS No. 132"), which revises
employers' disclosures about these types of benefits. SFAS No. 132 does not
change the measurement or recognition of those plans, but requires additional
information to facilitate financial analysis and eliminates certain disclosures
which are no longer useful. To the extent practicable, the Statement also
standardizes disclosure for retiree benefits. SFAS No. 132 becomes effective for
the Company's fiscal year 1998 and requires that comparative information from
earlier years be restated to conform to the requirements of the new standard.
YEAR 2000
The Company has assessed and continues to assess the impact of the Year 2000
issue on its operations, including the development and implementation of project
plans and cost estimates required to make its information systems infrastructure
Year 2000 compliant. Based on existing information, the Company believes that
anticipated spending necessary to become Year 2000 compliant will not have a
material effect on the results of operations, financial position, or cash flows
of the Company. However, if appropriate modifications are not made by the
Company's suppliers or customers information infrastructure on a timely basis,
or if the Company's actual costs or timing for the year 2000 date conversion
differ materially from its present estimates, the Company's operations and
financial results could be adversely affected.
9
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................................. $ 500,632 $ 498,742 $ 483,581
Cost of sales......................................................... 195,980 192,512 188,129
------------ ------------ ------------
Gross profit........................................................ 304,652 306,230 295,452
------------ ------------ ------------
Operating expenses:
Advertising and sales promotion..................................... 114,279 119,380 117,581
Selling, distribution and research.................................. 58,657 56,776 54,251
Administrative...................................................... 19,120 18,028 23,625
Amortization of intangibles......................................... 12,894 12,846 11,268
Write-off of SMILETOTE intangible assets............................ -- -- 6,441
------------ ------------ ------------
Total operating expenses.......................................... 204,950 207,030 213,166
------------ ------------ ------------
Operating earnings.............................................. 99,702 99,200 82,286
Interest expense including related party interest expense of $12,150,
net of related party interest income of $12,003 for all periods
presented........................................................... 64,470 64,860 71,361
------------ ------------ ------------
Earnings before income taxes.................................... 35,232 34,340 10,925
Income taxes.......................................................... 16,501 16,141 8,151
------------ ------------ ------------
Earnings before extraordinary loss.............................. 18,731 18,199 2,774
Extraordinary loss on early extinguishment of debt, net of $2,344 and
$5,180 tax benefit in 1997 and 1995, respectfully................... (4,078) -- (7,935)
------------ ------------ ------------
Net earnings (loss)............................................. $ 14,653 $ 18,199 $ (5,161)
------------ ------------ ------------
------------ ------------ ------------
Earnings (loss) per share (basic and diluted):
Before extraordinary loss........................................... $ .37 $ .36 $ .07
Net earnings (loss)................................................. $ .29 $ .36 $ (.12)
Weighted average shares outstanding:
Basic............................................................... 50,923 50,883 42,309
Diluted............................................................. 51,006 50,939 42,342
</TABLE>
See the accompanying notes to consolidated financial statements.
10
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................... $ 3,231 $ 6,205
Receivables, less allowance for doubtful accounts.................................. 66,876 63,982
Inventories........................................................................ 42,500 37,637
Deferred income taxes.............................................................. 7,806 9,702
Other current assets............................................................... 4,949 4,965
------------ ------------
Total current assets............................................................. 125,362 122,491
Net property, plant and equipment.................................................... 54,810 53,408
Intangible assets, net:
Goodwill........................................................................... 337,157 348,449
Patents, trademarks and other...................................................... 34,835 36,405
Deferred financing costs........................................................... 16,751 15,337
Due from related party............................................................... 80,017 80,017
Other noncurrent assets.............................................................. 3,626 4,224
------------ ------------
Total assets..................................................................... $ 652,558 $ 660,331
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 24,512 $ 36,131
Accrued expenses................................................................... 38,827 49,252
Income taxes payable............................................................... 4,121 5,586
Current maturities of long-term debt............................................... 1,500 25,000
------------ ------------
Total current liabilities........................................................ 68,960 115,969
Long-term debt....................................................................... 736,300 714,700
Due to related party................................................................. 78,386 78,386
Other noncurrent liabilities......................................................... 13,563 14,207
Deferred income taxes................................................................ 23,412 19,796
------------ ------------
Total liabilities................................................................ 920,621 943,058
------------ ------------
Stockholders' equity:
Common stock, $0.01 par value, authorized 100,000,000 shares, issued 50,941,812
shares at December 27,1997 and 50,887,200 shares at December 28,1996............. 509 509
Additional paid-in capital......................................................... 424,706 424,277
Retained earnings (deficit)........................................................ (691,065) (705,718)
Foreign currency translation adjustment............................................ (2,213) (1,795)
------------ ------------
Total stockholders' equity....................................................... (268,063) (282,727)
------------ ------------
Total liabilities and stockholders' equity....................................... $ 652,558 $ 660,331
------------ ------------
------------ ------------
</TABLE>
See the accompanying notes to consolidated financial statements.
11
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL RETAINED CURRENCY
COMMON PAID-IN EARNINGS TRANSLATION
STOCK CAPITAL (DEFICIT) ADJUSTMENT
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994....................................... $ 309 $ 254,417 $ (718,756) $ (1,967)
Net loss....................................................... -- -- (5,161) --
Issuance of shares of common stock............................. 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)
Net earnings................................................... -- -- 14,653 --
Issuance of shares of common stock............................. -- 429 -- --
Foreign currency translation adjustment........................ -- -- -- (418)
----- ---------- ----------- -----------
Balance, December 27, 1997....................................... $ 509 $ 424,706 $ (691,065) $ (2,213)
----- ---------- ----------- -----------
----- ---------- ----------- -----------
</TABLE>
See the accompanying notes to consolidated financial statements.
12
<PAGE>
PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------------------
<S> <C> <C> <C>
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
Cash flows from operations:
Net earnings (loss)................................................. $ 14,653 $ 18,199 $ (5,161)
Non-cash items included in earnings:
Extraordinary loss, net of tax benefit............................ 4,078 -- 7,935
Write-off of SMILETOTE intangible assets.......................... -- -- 6,441
Amortization of intangibles....................................... 12,894 12,846 11,268
Amortization of deferred financing costs.......................... 2,163 2,089 2,246
Depreciation...................................................... 7,520 8,929 8,496
Deferred income taxes............................................. 5,493 6,842 (133)
Other, net........................................................ 249 48 (291)
Changes in working capital items,
net of effects of acquisitions:
Increase in receivables......................................... (2,894) (5,963) (4,471)
(Increase) decrease in inventories.............................. (4,863) 11,553 4,629
Increase in other current assets................................ (948) (420) (1,802)
(Decrease) increase in accounts payable......................... (11,619) 16,074 6,967
Decrease in accrued expenses.................................... (14,791) (12,794) (7,076)
Increase (decrease) in income taxes payable..................... 1,843 3,689 (4,207)
Increase (decrease) in accrued interest......................... 3,090 (788) 2,238
------------ ------------ ------------
Net cash flows from operations................................ 16,868 60,304 27,079
Cash flows used for investing activities:
Purchases of property, plant and equipment.......................... (9,004) (9,740) (12,395)
Businesses acquired................................................. -- -- (94,429)
------------ ------------ ------------
Net cash flows used for investing activities.................. (9,004) (9,740) (106,824)
Cash flows (used for) from financing activities:
Net borrowings (repayments) under working capital credit
facilities........................................................ 23,550 (2,850) (42,650)
Long-term debt borrowings........................................... 355,000 -- 425,000
Long-term debt repayments........................................... (380,450) (47,500) (468,000)
Payment of financing costs.......................................... (9,367) -- (9,113)
Issuance of shares of common stock.................................. 429 60 170,000
Other, net.......................................................... -- (9) 75
------------ ------------ ------------
Net cash flows (used for) from financing activities........... (10,838) (50,299) 75,312
(Decrease) increase in cash........................................... (2,974) 265 (4,433)
Cash at beginning of period........................................... 6,205 5,940 10,373
------------ ------------ ------------
Cash at end of period................................................. $ 3,231 $ 6,205 $ 5,940
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash flow information
Cash paid during the periods for:
Interest.......................................................... $ 59,217 $ 63,559 $ 66,884
Income taxes, net of refunds...................................... $ 9,165 $ 5,610 $ 10,748
</TABLE>
See the accompanying notes to consolidated financial statements.
13
<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.
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 ($5.2 million in
1997, $5.5 million in 1996 and $5.1 million in 1995) are expensed; renewals and
betterments are capitalized
INTANGIBLE AND LONG-LIVED ASSETS Intangible assets include goodwill, which
represents costs in excess of net assets of businesses acquired, patents,
trademarks, and organization costs. 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 using certain
financial indicators, such as historical and future ability to generate income
from operations. The Company systematically reviews the recoverability of the
other long-lived assets by comparing their unamortized carrying value to their
related anticipated undiscounted future cash flows. Any impairment related to
goodwill or other long-lived assets is measured by reference to the assets' fair
market value. Impairments are charged to expense when such determination is
made.
DEFERRED FINANCING COSTS Costs incurred in connection with the issuance of
long-term debt have been capitalized and are being amortized over the life of
the related debt agreements. Such costs, net of accumulated amortization,
amounted to $16.8 million and $15.3 million at December 27, 1997 and December
28, 1996, respectively.
INCOME TAXES Deferred tax assets and liabilities are provided using the
asset and liability method for temporary differences between financial and tax
reporting basis 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."
EARNINGS PER SHARE In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
128 ("SFAS 128") "Earnings per Share". This statement establishes and simplifies
standards for computing and presenting earnings per share ("EPS"). SFAS 128
replaces primary and fully diluted EPS with basic and diluted earnings per
share. Basic EPS excludes dilution and is computed by dividing net earnings by
the weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that would then share in the earnings
of the Company. The Company has adopted SFAS 128 with its December 27, 1997
consolidated financial statements. For the periods presented, stock options
outstanding under the Company's 1994 Stock Option Plan are the only potentially
dilutive instrument that caused the diluted weighted average shares outstanding
to increase over the basic
14
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
weighted average shares outstanding. The Company utilizes the treasury stock
method to determine the dilutive impact of potentially exercised stock options.
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.
RECLASSIFICATIONS For comparative purposes, certain amounts have been
reclassified to conform to the current year presentation.
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 constituted approximately 40%
of the Company's then outstanding Common Stock as of June 6, 1995. At the 1995
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 a new credit agreement to refinance all existing
bank debt.
3. ACQUISITION OF 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-Registered Trademark-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%. Concurrently 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 Company's previous
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. The purchase
price was allocated to the assets acquired and the liabilities assumed based on
the fair values at the date of
15
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION OF BANANA BOAT HOLDING CORPORATION ("BBH") (CONTINUED)
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.
The following consolidated unaudited pro forma results of operations assumes
the BBH acquisition occurred as of January 1, 1995. The pro forma financial
information is not necessarily indicative of operating results that would have
occurred had the BBH acquisition been consummated as of December 31, 1994, nor
indicative of future operating results (In millions, except per share data).
<TABLE>
<CAPTION>
TWELVE
MONTHS ENDED
DECEMBER 30,
1995
---------------
<S> <C>
Net sales.......................................................................................... $ 495.6
Earnings before extraordinary loss................................................................. 4.0
Net loss........................................................................................... (4.0)
Earnings (loss) per share (basic and diluted):
Before extraordinary loss.................................................................. $ 0.09
Net loss................................................................................... (0.09)
</TABLE>
4. BALANCE SHEET COMPONENTS
The components of certain balance sheet accounts are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Receivables.......................................................................... $ 68,545 $ 65,740
Less allowance for doubtful accounts................................................. (1,669) (1,758)
------------ ------------
Net................................................................................ $ 66,876 $ 63,982
------------ ------------
------------ ------------
Inventories:
Raw materials...................................................................... $ 14,866 $ 13,854
Work in process.................................................................... 845 1,004
Finished goods..................................................................... 26,789 22,779
------------ ------------
Total............................................................................ $ 42,500 $ 37,637
------------ ------------
------------ ------------
Net property, plant and equipment:
Land............................................................................... $ 1,190 $ 1,190
Buildings.......................................................................... 24,650 24,818
Machinery and equipment............................................................ 103,767 95,938
------------ ------------
129,607 121,946
Less accumulated depreciation...................................................... (74,797) (68,538)
------------ ------------
Net.............................................................................. $ 54,810 $ 53,408
------------ ------------
------------ ------------
</TABLE>
16
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BALANCE SHEET COMPONENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Goodwill............................................................................. $ 446,607 $ 446,602
Less accumulated amortization........................................................ (109,450) (98,153)
------------ ------------
Net.............................................................................. $ 337,157 $ 348,449
------------ ------------
------------ ------------
Patents, trademarks and other........................................................ $ 49,669 $ 49,644
Less accumulated amortization........................................................ (14,834) (13,239)
------------ ------------
Net.............................................................................. $ 34,835 $ 36,405
------------ ------------
------------ ------------
Deferred financing costs............................................................. $ 20,350 $ 19,463
Less accumulated amortization........................................................ (3,599) (4,126)
------------ ------------
Net.............................................................................. $ 16,751 $ 15,337
------------ ------------
------------ ------------
Accrued expenses:
Advertising and sales promotion.................................................... $ 13,480 $ 19,191
Employee compensation and benefits................................................. 7,808 14,167
Interest........................................................................... 8,622 5,532
Insurance.......................................................................... 2,945 2,913
Other.............................................................................. 5,972 7,449
------------ ------------
Total............................................................................ $ 38,827 $ 49,252
------------ ------------
------------ ------------
</TABLE>
5. DUE FROM RELATED PARTY
Playtex Investment Corp., a wholly-owned subsidiary of the Company, is the
holder of $40 million aggregate principal amount of 15% debentures (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
Apparel Debenture 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 Apparel Debenture. For the periods ended after
December 15, 1993, the Apparel Partnership paid in cash the accrued interest.
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 27, 1997 and December
28, 1996 of approximately $8.4 and $7.7 million, respectively, cash of
approximately $0.3 and $0.4 million, respectively, and Playtex's 15 1/2%
Subordinated Notes (see Note 7). Playtex believes that the Apparel Debenture
represents the only material liability of the Apparel Partnership.
17
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
1997 Credit Agreement:
Term A Loan........................................................................ $ 55,000 $ --
Revolving Credit Facility.......................................................... 23,550 --
Term Loan.......................................................................... 149,250 --
1995 Credit Agreement:
Working Capital Facility........................................................... -- 2,200
Term Loan Facility................................................................. -- 367,500
Acquisition Credit Facility........................................................ -- 10,000
8 7/8% Unsecured Senior Notes due 2004............................................... 150,000 --
9% Senior Subordinated Notes due 2003................................................ 360,000 360,000
------------ ------------
737,800 739,700
Less current maturities............................................................ (1,500) (25,000)
------------ ------------
Total long-term debt............................................................. $ 736,300 $ 714,700
------------ ------------
------------ ------------
</TABLE>
On July 21, 1997, the Company completed a refinancing of its senior
indebtedness (the "1997 Refinancing") designed to increase its financial and
operational flexibility. The 1997 Refinancing includes: (i) the issuance of
$150.0 million principal amount of 8 7/8% unsecured senior notes due July 15,
2004 (the "Senior Notes"), (ii) a $150.0 million senior secured term loan due
September 15, 2003 (the "1997 Term Loan"), and (iii) senior secured credit
facilities (the "1997 Senior Secured Credit Facilities") of $170.0 million
comprised of a $115.0 million revolving credit facility (the "1997 Revolving
Credit Facility") and a $55.0 million term loan facility (the "1997 Term A
Loan"). The 1997 Term Loan and the 1997 Senior Secured Credit Facilities are
known collectively as the 1997 Credit Agreement ("1997 Credit Agreement").
The 1997 Term Loan provides for quarterly principal repayments of $375,000
from September 15, 1997 through June 15, 2003 and a payment of $141.0 million on
September 15, 2003. The 1997 Revolving Credit Facility will mature on June 15,
2003 and commitments thereunder are automatically and permanently reduced by (i)
$5.0 million on December 15, 2000 and June 15, 2001, (ii) $7.0 million on
December 15, 2001 and June 15, 2002, and (iii) $8.0 million on December 15, 2002
and June 15, 2003. The 1997 Term A Loan will require a reduction in commitment
amounts of $1.4 million in fiscal 1999, $7.6 million in fiscal 2000, $15.1
million in fiscal 2001, $19.9 million in fiscal 2002, and $11.0 million in
fiscal 2003.
The net proceeds from the 1997 Refinancing were used to retire the
indebtedness outstanding under the Company's prior credit agreement originated
in 1995. Concurrently, this credit agreement was terminated. Fees and expenses
associated with the 1997 Refinancing of $10.0 million are amortized over the
term of the associated financial instruments.
The rates of interest on borrowings under the 1997 Credit Agreement are, at
the Company's option, a function of various alternative short-term borrowing
rates, as defined in the associated credit agreement. Quarterly commitment fees
of three-eighths of one percent on the unutilized portion of the 1997 Revolving
Credit Facility and an agency fee of approximately $0.1 million per annum are
also required. At December 27, 1997 and December 28, 1996 the weighted average
interest rate on the Company's variable
18
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
rate indebtedness was 7.38% and 7.32%, respectively. In addition, the weighted
average interest rates on the Company's variable rate indebtedness were 7.35%,
7.35% and 8.11% for the twelve month periods ended December 27, 1997, December
28, 1996, and December 30, 1995, respectively. At December 27, 1997, aggregate
unused lines of credit (giving effect to outstanding letters of credit) under
the 1997 Revolving Credit Facility amounted to $90.4 million.
The provisions of the 1997 Senior Secured Credit Facilities require the
Company to meet certain financial covenants and ratios and also include
limitations or restrictions on: indebtedness and liens; major acquisitions or
mergers; capital expenditures; disposition of assets; certain dividends and
other distributions; and prepayment and modification of all indebtedness or
equity capitalization. The 9% senior subordinated notes due 2003 in an aggregate
principal amount of $360 million (the "9% Notes"), the Senior Notes and the 1997
Term Loan also contain certain restrictions and requirements. Under the terms of
each of these agreements, payment of cash dividends on the common stock of the
Company is restricted. Certain wholly-owned subsidiaries of the Company are
guarantors of the 9% Notes and the Senior Notes (see Note 19).
In connection with the Company's acquisition of Personal Care Holdings, Inc.
("PCH") on January 28, 1998 (see Note 20), the Company increased its borrowings
under the 1997 Term Loan by $100 million. Quarterly principal repayments on the
incremental borrowings will commence on March 15, 1998, in aggregate annual
amounts equal to $1.0 million through and including December 15, 2002, and in
the amount of $250,000 on March 15, 2003 and June 15, 2003, with a final payment
of $94.5 million on September 15, 2003. Fees and expenses associated with the
incremental borrowings are being amortized over its term.
On February 2, 1994, Playtex issued $360 million aggregate principal of the
9% Notes. The interest on the 9% Notes is payable in cash semi-annually on each
June 15 and December 15. Principal of the 9% Notes is due on December 15, 2003.
The Company selectively enters into interest rate protection agreements to
reduce the impact of interest rate changes on its variable rate indebtedness.
The interest rate protection agreements involve exchanges of floating for fixed
rate interest payments without the exchange of the underlying notional amount.
The Company may also use interest rate caps which limit net interest expense if
interest rates rise above a defined level. The notional amounts of such
agreements are used to measure the interest to be paid or received and do not
represent the amount of exposure to loss.
On August 26 1997, the Company entered into an interest rate cap agreement,
whereby, for a one year period commencing November 28, 1997 the London Interbank
Offered Rate ("LIBOR") with respect to $100 million of its variable rate
outstanding indebtedness will be capped at 6.5% per annum (the "Cap Rate"). The
agreement provides for quarterly payments by the counterparty to the extent that
LIBOR, as determined on the quarterly reset dates, exceeds the Cap Rate. This
agreement effectively caps the rate on $100 million of variable rate
indebtedness at 8.00%, after giving effect to the 1.50% spread as provided for
in the 1997 Term Loan.
Prior to the 1997 Refinancing, the Company was party to three interest rate
protection agreements which hedged substantially all of the Company's
outstanding variable rate debt under the previous credit agreement. On July 7,
1997, an agreement with a notional amount of $125 million expired and in
conjunction with the 1997 Refinancing, the remaining two agreements with a
combined notional amount of
19
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
$250 million were canceled. The net gain associated with the canceled interest
rate protection agreements was $0.3 million.
Aggregate annual maturities of the Company's long-term debt for the next
five years and thereafter as of December 27, 1997 are as follows (in millions):
$1.5 in fiscal 1998, $2.9 in fiscal 1999, $9.1 in fiscal 2000, $16.6 in fiscal
2001, $21.4 in fiscal 2002, and $686.3 thereafter.
7. 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. For the periods ended after December 15, 1993, Playtex paid
in cash the accrued interest. Principal and any unpaid accrued interest on the
15 1/2% Subordinated Notes are payable in cash on December 15, 2003.
8. 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 before income taxes and extraordinary loss are as follows (in
thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------------------
<S> <C> <C> <C>
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
U.S................................................................... $ 35,129 $ 32,650 $ 8,579
Foreign............................................................... 103 1,690 2,346
------------ ------------ ------------
Total............................................................... $ 35,232 $ 34,340 $ 10,925
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
20
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Playtex's provisions for income taxes for the twelve months ended December
27, 1997, December 28, 1996, and December 30, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
-----------------------------------------
<S> <C> <C> <C>
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ -------------
Current:
Federal............................................................. $ 10,197 $ 7,851 $ 9,174
State and local..................................................... 600 553 (2,123)
Foreign............................................................. 211 895 1,233
------------ ------------ ------
11,008 9,299 8,284
------------ ------------ ------
Deferred:
Federal............................................................. 4,939 6,851 (82)
State and local..................................................... 516 311 (26)
Foreign............................................................. 38 (320) (25)
------------ ------------ ------
5,493 6,842 (133)
------------ ------------ ------
Total............................................................. $ 16,501 $ 16,141 $ 8,151
------------ ------------ ------
------------ ------------ ------
</TABLE>
Taxable and deductible temporary differences and tax credit carryforwards
which give rise to Playtex's deferred tax assets and liabilities at December 27,
1997 and December 28, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowances and reserves not currently deductible................................... $ 9,356 $ 12,468
Net operating loss carryforwards................................................... 5,302 6,185
Postretirement benefits reserve.................................................... 2,915 2,256
Capitalized book expenses for tax purposes......................................... 564 675
State tax credits.................................................................. 242 58
------------ ------------
Total............................................................................ $ 18,379 $ 21,642
------------ ------------
------------ ------------
Deferred tax liabilities:
Deferred gain on sale of business.................................................. $ 14,650 $ 14,650
Property, plant and equipment...................................................... 10,126 8,845
Trademarks......................................................................... 5,980 5,139
Undistributed earnings of foreign subsidiary....................................... 2,622 2,622
Other.............................................................................. 607 480
------------ ------------
Total............................................................................ $ 33,985 $ 31,736
------------ ------------
------------ ------------
</TABLE>
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
27, 1997. Such undistributed earnings are expected to be permanently reinvested
in the Canadian subsidiary.
21
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The Company has available net operating loss carryforwards of $13.8 million
at December 27, 1997 that expire in years 2008 through 2010. These net operating
loss carryforwards, primarily related to operations of BBH prior to its
acquisition by the Company, can be utilized by Playtex, with certain
limitations, on its federal, state and local tax returns for tax periods
subsequent to October 31, 1995. Playtex expects to fully utilize these net
operating loss carryforwards prior to their expiration.
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
-----------------------------------------
<S> <C> <C> <C>
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ -------------
Expected federal income tax at statutory rates........................ $ 12,331 $ 12,019 $ 3,824
Amortization and write-off of intangible assets....................... 3,618 3,618 5,647
Settlement of tax examinations........................................ -- -- (2,385)
State and local income taxes.......................................... 725 562 786
Foreign tax rate differential......................................... 179 279 331
Effect on deferred taxes due to change in
Canadian withholding tax rates...................................... -- (214) --
Other, net............................................................ (352) (123) (52)
------------ ------------ ------
Total tax provision................................................. $ 16,501 $ 16,141 $ 8,151
------------ ------------ ------
------------ ------------ ------
</TABLE>
During 1995, several state jurisdictions concluded their examinations of tax
returns filed by the Company 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 tax benefit in the
provision for income taxes for the year ended December 30, 1995.
9. 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.
In February 1998, 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 3,047,785 to 5,047,785.
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As permitted by SFAS 123, the Company continues to
follow the provisions of APB No. 25,
22
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK (CONTINUED)
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for 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 under SFAS 123, the Company's earnings and earnings per
share for the twelve months ended December 27, 1997, December 28, 1996, and
December 30, 1995 would have been reduced to the pro forma amounts listed below
(in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net earnings (loss):
As reported:
Before extraordinary loss..................................... $ 18,731 $ 18,199 $ 2,774
Net earnings (loss)........................................... $ 14,653 $ 18,199 $ (5,161)
Pro forma:
Before extraordinary loss..................................... $ 17,071 $ 15,649 $ 1,324
Net earnings (loss)........................................... $ 12,993 $ 15,649 $ (6,611)
Earnings (loss) per share (basic and diluted):
As reported:
Before extraordinary loss..................................... $ .37 $ .36 $ .07
Net earnings (loss)........................................... $ .29 $ .36 $ (.12)
Pro forma:
Before extraordinary loss..................................... $ .34 $ .31 $ .03
Net earnings (loss)........................................... $ .25 $ .31 $ (.16)
Weighted average shares outstanding:
Basic............................................................... 50,923 50,883 42,309
Diluted............................................................. 51,006 50,939 42,342
</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 6.10%, 6.63% and 6.26% for fiscal
1997, 1996 and 1995, respectively; no dividend yield; expected lives of 5 years;
and volatility of 35%. A summary of the status of the Company's 1994 Stock
Option Plan for fiscal 1997, 1996 and 1995 and the changes during those years is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ---------- ----------- ---------- -----------
Outstanding at beginning of year.................... 2,315,434 $ 9.14 2,240,800 $ 9.17 297,500 $ 12.21
Granted............................................. 636,000 9.59 166,000 8.76 2,080,700 8.82
Exercised........................................... (54,612) 7.88 (7,499) 7.87 -- --
Forfeited........................................... (80,224) 9.13 (83,867) 9.47 (137,400) 10.43
---------- ---------- ----------
Outstanding at end of year........................ 2,816,598 9.27 2,315,434 9.14 2,240,800 9.17
---------- ---------- ----------
---------- ---------- ----------
Options exercisable at year-end..................... 1,334,087 9.26 715,452 9.37 76,348 11.98
Weighted-average fair value of options granted
during the year................................... $ 4.72 $ 4.40 $ 4.43
</TABLE>
23
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 27, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
DECEMBER 27, CONTRACTUAL EXERCISE DECEMBER 27, EXERCISE
RANGE OF EXERCISE PRICES 1997 LIFE PRICES 1997 PRICES
- ------------------------------------------------- ------------ --------------- --------- ------------ ---------
$6.750 to 7.000.................................. 37,500 6.97 $ 6.7500 37,500 $ 6.7500
$7.000 to 8.000.................................. 867,498 7.61 7.8750 570,581 7.8750
$8.000 to 9.000.................................. 66,000 8.44 8.1269 22,601 8.1302
$9.000 to 10.000................................. 1,495,000 8.43 9.6904 435,334 9.8069
$10.000 to 13.000................................ 350,600 7.10 11.3776 268,071 11.7632
------------ ------------
$6.750 to 13.000................................. 2,816,598 7.99 9.2655 1,334,087 9.2594
------------ ------------
------------ ------------
</TABLE>
10. WRITE-OFF OF SMILETOTE-REGISTERED TRADEMARK- 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, 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.
11. EXTRAORDINARY LOSS
In July 1997, in connection with the 1997 Refinancing, the Company recorded
an extraordinary loss of $4.1 million (net of income tax benefit of $2.3
million) for costs and expenses related to the write-off of the unamortized
portion of deferred financing costs associated with the Company's previous
credit agreement (see Note 6).
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 a previous credit agreement (see Note
6).
12. LEASES
Future minimum payments under non-cancelable operating leases for fiscal
years ending after December 27, 1997 are as follows (in thousands): $5,988 in
1998, $5,399 in 1999, $4,667 in 2000, $3,997 in 2001, $3,343 in 2002 and $10,353
in later years.
Rent expense for operating leases amounted to (in thousands): $5,250,
$5,201, and $5,092 for the twelve months ended December 27, 1997, December 28,
1996, and December 30, 1995, respectively.
24
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. PENSION AND OTHER POSTRETIREMENT BENEFITS
Defined Benefit Pension Plans--Substantially all Playtex U.S. hourly and
approximately 90% of all Canadian employees participate in pension plans. At
December 27, 1997, approximately 1,165 employees were covered by these plans, of
which approximately 210 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) 9.0% 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 for the twelve months ended December 27, 1997, December
28, 1996, and December 30, 1995 includes the following components (in
thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
-------------------------------------------
<S> <C> <C> <C>
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------- ------------- -------------
Service cost-benefits earned during the period........................ $ 875 $ 721 $ 616
Interest cost on projected benefit obligation......................... 2,003 1,688 1,559
Actual return on plan assets.......................................... (4,632) (3,711) (6,000)
Amortization of prior service cost.................................... 84 73 73
Amortization of unrecognized net gain................................. (29) (51) (2)
Amortization of transition gain over 10 years......................... (42) (193) (193)
Excess of actual return on plan assets over estimated................. 1,910 1,479 4,190
------ ------ ------
Net pension expense................................................. $ 169 $ 6 $ 243
------ ------ ------
------ ------ ------
</TABLE>
A reconciliation of the projected benefit obligation for the pension plans
to the prepaid pension expense recorded at December 27, 1997 and December 28,
1996 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Projected benefit obligation for service rendered to date............................ $ (29,116) $ (24,347)
Plan assets at fair value, primarily listed stocks, money market funds and guaranteed
investment contracts............................................................... 34,862 31,171
------------ ------------
Plan assets in excess of projected benefit obligation.............................. 5,746 6,824
Unrecognized net gain from past experience different from that assumed and effects of
changes in assumptions............................................................. (3,743) (4,398)
Prior service cost not yet recognized in net periodic pension cost................... 527 365
Unrecognized transition gain......................................................... (335) (395)
------------ ------------
Prepaid pension expense............................................................ $ 2,195 $ 2,396
------------ ------------
------------ ------------
</TABLE>
The portion of the projected benefit obligation at December 27, 1997 and
December 28, 1996 representing the accumulated benefit obligation was $26.4
million, of which $25.6 million was vested, and $22.0 million, of which $21.2
million was vested, respectively.
25
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
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 88% of all U.S. personnel may become eligible for
Company-sponsored postretirement health care and life insurance if they were to
retire from the Company. The components of the postretirement benefit expense
for the twelve months ended December 27, 1997, December 28, 1996, and December
30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
-----------------------------------------------
<S> <C> <C> <C>
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------- --------------- ---------------
Service cost-benefits earned during the period........................ $ 240 $ 218 $ 172
Interest cost on accumulated benefit obligation....................... 621 534 487
Net amortization and deferral......................................... 217 97 114
------ ----- -----
Net periodic expense................................................ $ 1,078 $ 849 $ 773
------ ----- -----
------ ----- -----
</TABLE>
The accumulated benefit obligations recorded on the consolidated balance
sheets as of December 27, 1997 and December 28, 1996 consist of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Retirees............................................................................. $ 3,945 $ 3,745
Fully eligible active employees...................................................... 2,211 2,099
Other active plan participants....................................................... 2,782 2,641
------ ------
Accumulated postretirement benefit obligations..................................... 8,938 8,485
Unrecognized prior service costs..................................................... (1,686) (1,903)
Unrecognized net loss................................................................ (50) (344)
------ ------
Accrued postretirement benefit obligations......................................... $ 7,202 $ 6,238
------ ------
------ ------
</TABLE>
The assumed health care cost trend rate for 1997 was 9.0%. This rate grades
down until the final trend rate of 5.25% is reached in 2005. A one percentage
point increase in the assumed health care costs trend rate increases the sum of
the service and interest costs components of the fiscal 1997 periodic
postretirement benefit cost by 17%, and the accumulated postretirement benefit
obligation as of December 27, 1997 by 15%. The discount rate used to estimate
the accumulated postretirement benefit obligations was 7.5% at December 27, 1997
and December 28, 1996.
Defined Contribution Benefit Plans -- 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 $4.1 million, $4.6 million, and $4.7 million
for the twelve months ended December 27, 1997, December 28, 1996, and December
30, 1995, respectively.
14. RELATED PARTY TRANSACTIONS
Joel E. Smilow and Hercules P. Sotos, both former directors and senior
executive officers of Playtex, are general partners of the Apparel Partnership,
holding beneficial interests of 58.5% and 13.5%, respectively, in the Apparel
Partnership. Under a consulting agreement, which commenced in the third
26
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
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 BBH Acquisition, the distribution
agreement between Sun and Playtex was canceled. For the ten months ended October
31, 1995 Playtex purchased $30.1 million of Banana Boat products from Sun.
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.
15. BUSINESS AND CREDIT CONCENTRATIONS
Most of Playtex's customers are dispersed throughout the United States and
Canada. No single customer accounted for more than 10% of Playtex's net sales in
1997, 1996, or 1995 with the exception of its largest customer (approximately
20% in 1997, 18% in 1996, and 17% in 1995). At December 27, 1997 and December
28, 1996, no account receivable from any customer was significant, except for
the Company's largest customer (approximately $12.6 million in 1997 and $11.9
million in 1996). 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.
16. 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.
1997 CREDIT AGREEMENT The carrying amounts approximate fair value because
the rate of interest on borrowings under the 1997 Credit Agreement is, at
Playtex's option, a function of various alternative short-term borrowing rates,
as defined in the associated Credit Agreement.
27
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG-TERM DEBT AND OTHER FINANCIAL INSTRUMENTS The fair value of the
following financial instruments was estimated at December 27, 1997 and December
28, 1996 as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, 1997 DECEMBER 28, 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
9% Senior Subordinated Notes (a)................................. $ 360,000 $ 369,000 $ 360,000 $ 353,400
8 7/8% Unsecured Senior Notes (a)................................ 150,000 153,750 -- --
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)...................................... 3,626 3,520 4,224 4,100
Noncurrent liabilities (c)....................................... 13,563 12,340 14,207 12,930
</TABLE>
- ------------------------
(a) At December 27, 1997 and December 28, 1996, 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 27,
1997 and December 28, 1996, 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.
28
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. 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 (in thousands).
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------------------
<S> <C> <C> <C>
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
Sales:
United States....................................................... $ 463,910 $ 459,075 $ 445,880
Canada.............................................................. 36,722 39,667 37,701
------------ ------------ ------------
$ 500,632 $ 498,742 $ 483,581
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Operating earnings is defined as total revenue less operating expenses. In
computing operating earnings, interest and income taxes have not been deducted
(in thousands).
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------------------
<S> <C> <C> <C>
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
Operating earnings:
United States....................................................... $ 99,720 $ 97,702 $ 80,085
Canada.............................................................. (18) 1,498 2,201
------------ ------------ ------------
$ 99,702 $ 99,200 $ 82,286
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Identifiable assets by geographic area represent those assets that are used
in Playtex's operations in each area (in thousands).
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Identifiable assets (at period end):
United States...................................................................... $ 642,085 $ 647,629
Canada............................................................................. 10,473 12,702
------------ ------------
$ 652,558 $ 660,331
------------ ------------
------------ ------------
</TABLE>
29
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. 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 27, 1997 and
December 28, 1996 (in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FISCAL 1997
Net sales..................... $136,410 $134,872 $117,675 $111,675
Operating earnings............ 30,679 26,287 24,130 18,606
Earnings before extraordinary
loss........................ 7,848 5,517 4,034 1,332
Net earnings (loss)........... 7,848 5,517 (44) 1,332
Earnings per share (a):
Before extraordinary loss..... $ .15 $ .11 $ .08 $ .03
Net earnings.................. $ .15 $ .11 $ .00 $ .03
Market price--high............ $ 11 3/4 $ 11 1/2 $ 10 1/4 $ 11
--low.............. $ 7 7/8 $ 9 $ 8 13/16 $ 9
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)........ $ .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
</TABLE>
- ------------------------
(a) Earnings 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. Amounts represent basic and
diluted earnings per share.
30
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
8 7/8% UNSECURED SENIOR NOTES DUE 2004
The Senior Notes are guaranteed by certain wholly-owned subsidiaries of the
Company (the "8 7/8% Guarantors"), namely Playtex Sales & Services, Inc.
("PSSI"), Playtex Manufacturing, Inc. ("PMI"), Playtex Beauty Care, Inc.
("PBCI"), Playtex Investment Corp. ("PIC"), Playtex International Corp.
("PINTL"), TH Marketing Corp. ("THMC"), SmileTote, Inc. ("STI") and Sun
Pharmaceuticals Corp. ("Sun"). The remaining first tier and lower tier
subsidiaries of the Company are not guarantors of the 8 7/8% Notes (the " 8 7/8%
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. PBCI is a manufacturer and distributor of JHIRMACK hair
care products. PIC is an investment holding company which holds the Apparel
Debentures (see Note 5). PINTL is sole shareholder of Playtex Limited, a
manufacturer and distributor of Playtex products in Canada. THMC is the sole
shareholder of Playtex Foreign Sales Corporation. STI is owner of certain infant
care related intangible assets. Sun owns the BANANA BOAT trade name and certain
other intangible assets associated with the BANANA BOAT business. Sun
distributes its products 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 8 7/8% Non-Guarantors include Playtex Limited and Playtex Foreign Sales
Corporation("PFSC"), a foreign sales corporation as defined by Internal Revenue
Code Section 922.
The 8 7/8% Guarantors are joint and several guarantors of the 8 7/8% Notes.
Such guarantees are joint and several obligations of the 8 7/8% Guarantors, are
irrevocable, full and unconditional and are limited to the largest amount that
would not render such 8 7/8% 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 8 7/8% Guarantor, and are subordinated to all senior obligations of
such 8 7/8% Guarantor, including guarantees of the Company's obligations under
the 1997 Credit Agreement.
The 8 7/8% 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, issuance 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 8 7/8%
Guarantors.
The information which follows presents the condensed financial position as
of December 27, 1997 and December 28, 1996 and condensed results of operations
and cash flows for each of the fiscal years in the three year period ended
December 27, 1997 of (a) the Company on a consolidated basis, (b) the parent
company only ("Parent Company"), (c) the combined 8 7/8% Guarantors, and (d) the
combined 8 7/8% Non-Guarantors.
31
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET DATA
AS OF DECEMBER 27, 1997
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
ASSETS CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets........................ $ 125,362 $ -- $ 71,923 $ 43,820 $ 9,619
Investment in subsidiaries............ -- (87,940) 77,776 10,164 --
Intercompany receivable............... -- (158,030) 143,647 13,286 1,097
Net property, plant and equipment..... 54,810 -- 235 53,718 857
Intangible assets..................... 388,743 -- 322,216 66,522 5
Other noncurrent assets............... 83,643 (503) 3,629 80,517 --
----------- ----------- --------- ----------- -----------
Total assets........................ $ 652,558 $(246,473) $ 619,426 $ 268,027 $ 11,578
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities................... $ 68,960 $ 22 $ 57,590 $ 8,807 $ 2,541
Intercompany payable.................. -- (158,029) -- 157,641 388
Long-term debt........................ 814,686 -- 814,686 -- --
Other noncurrent liabilities.......... 36,975 (507) 15,213 22,649 (380)
----------- ----------- --------- ----------- -----------
Total liabilities................... 920,621 (158,514) 887,489 189,097 2,549
Stockholders' equity.................. (268,063) (87,959) (268,063) 78,930 9,029
----------- ----------- --------- ----------- -----------
Total liabilities and stockholders'
equity............................ $ 652,558 $(246,473) $ 619,426 $ 268,027 $ 11,578
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
</TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET DATA
AS OF DECEMBER 28, 1996
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
ASSETS CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets........................ $ 122,491 $ -- $ 66,474 $ 44,104 $ 11,913
Investment in subsidiaries............ -- (79,245) 70,924 8,321 --
Intercompany receivable............... -- (126,782) 120,717 6,065 --
Net property, plant and equipment..... 53,408 -- 309 52,310 789
Intangible assets..................... 400,191 -- 331,394 68,797 --
Other noncurrent assets............... 84,241 (504) 4,219 80,526 --
----------- ----------- --------- ----------- -----------
Total assets........................ $ 660,331 $(206,531) $ 594,037 $ 260,123 $ 12,702
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities................... $ 115,969 $ -- $ 69,584 $ 42,348 $ 4,037
Intercompany payable.................. -- (127,281) -- 126,500 781
Long-term debt........................ 793,086 -- 793,086 -- --
Other noncurrent liabilities.......... 34,003 (504) 14,094 20,850 (437)
----------- ----------- --------- ----------- -----------
Total liabilities................... 943,058 (127,785) 876,764 189,698 4,381
Stockholders' equity.................. (282,727) (78,746) (282,727) 70,425 8,321
----------- ----------- --------- ----------- -----------
Total liabilities and stockholders'
equity............................ $ 660,331 $(206,531) $ 594,037 $ 260,123 $ 12,702
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
</TABLE>
32
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 27, 1997
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues................................... $ 500,632 $ (226,874) $ 443,673 $ 245,797 $ 38,036
Cost of sales.................................. 195,980 (177,208) 186,482 168,411 18,295
------------ ------------ ---------- ----------- -----------
Gross profit................................. 304,652 (49,666) 257,191 77,386 19,741
Operating expenses:
Advertising, selling and administrative........ 192,056 (49,666) 160,671 62,606 18,445
Amortization of intangibles.................... 12,894 -- 10,618 2,276 --
------------ ------------ ---------- ----------- -----------
Total operating expenses..................... 204,950 (49,666) 171,289 64,882 18,445
------------ ------------ ---------- ----------- -----------
Operating earnings........................... 99,702 -- 85,902 12,504 1,296
Interest expense, net.......................... 64,470 -- 76,594 (12,003) (121)
Equity in net earnings of subsidiaries......... -- 17,216 (16,110) (1,106) --
------------ ------------ ---------- ----------- -----------
Earnings before income taxes................. 35,232 (17,216) 25,418 25,613 1,417
Income taxes................................... 16,501 -- 6,687 9,503 311
------------ ------------ ---------- ----------- -----------
Earnings before extraordinary loss........... 18,731 (17,216) 18,731 16,110 1,106
Extraordinary loss on early extinguishment of
debt, net.................................... (4,078) -- (4,078) -- --
------------ ------------ ---------- ----------- -----------
Net earnings................................. $ 14,653 $ (17,216) $ 14,653 $ 16,110 $ 1,106
------------ ------------ ---------- ----------- -----------
------------ ------------ ---------- ----------- -----------
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues................................... $ 498,742 $ (167,269) $ 438,127 $ 188,217 $ 39,667
Cost of sales.................................. 192,512 (104,374) 161,849 116,884 18,153
------------ ------------ ---------- ----------- -----------
Gross profit................................. 306,230 (62,895) 276,278 71,333 21,514
Operating expenses:
Advertising, selling and administrative........ 194,184 (62,895) 171,534 65,721 19,824
Amortization of intangibles.................... 12,846 -- 10,570 2,276 --
------------ ------------ ---------- ----------- -----------
Total operating expenses..................... 207,030 (62,895) 182,104 67,997 19,824
------------ ------------ ---------- ----------- -----------
Operating earnings........................... 99,200 -- 94,174 3,336 1,690
Interest expense, net.......................... 64,860 -- 76,864 (12,004) --
Equity in net earnings of subsidiaries......... -- 11,339 (10,456) (883) --
------------ ------------ ---------- ----------- -----------
Earnings before income taxes................. 34,340 (11,339) 27,766 16,223 1,690
Income taxes................................... 16,141 -- 9,567 5,767 807
------------ ------------ ---------- ----------- -----------
Net earnings................................. $ 18,199 $ (11,339) $ 18,199 $ 10,456 $ 883
------------ ------------ ---------- ----------- -----------
------------ ------------ ---------- ----------- -----------
</TABLE>
33
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L9. CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 30, 1995
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues................................... $ 483,581 $ (7,879) $ 417,894 $ 35,865 $ 37,701
Cost of sales.................................. 188,129 (6,817) 163,233 15,196 16,517
------------ ------------ ---------- ----------- -----------
Gross profit................................. 295,452 (1,062) 254,661 20,669 21,184
Operating expenses:
Advertising, selling and administrative........ 195,457 (1,062) 152,975 24,685 18,859
Amortization of intangibles.................... 17,709 -- 10,427 7,282 --
------------ ------------ ---------- ----------- -----------
Total operating expenses..................... 213,166 (1,062) 163,402 31,967 18,859
------------ ------------ ---------- ----------- -----------
Operating earnings........................... 82,286 -- 91,259 (11,298) 2,325
Interest expense, net.......................... 71,361 -- 83,326 (11,944) (21)
Equity in net earnings of subsidiaries......... -- 491 808 (1,299) --
------------ ------------ ---------- ----------- -----------
Earnings before income taxes................. 10,925 (491) 7,125 1,945 2,346
Income taxes................................... 8,151 -- 4,351 2,753 1,047
------------ ------------ ---------- ----------- -----------
Earnings before extraordinary loss........... 2,774 (491) 2,774 (808) 1,299
Extraordinary loss on early extinguishment of
debt, net.................................... (7,935) -- (7,935) -- --
------------ ------------ ---------- ----------- -----------
Net (loss) earnings.......................... $ (5,161) $ (491) $ (5,161) $ (808) $ 1,299
------------ ------------ ---------- ----------- -----------
------------ ------------ ---------- ----------- -----------
</TABLE>
34
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 27, 1997
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net earnings.................................... $ 14,653 $ (17,216) $ 14,653 $ 16,110 $ 1,106
Non-cash items included in earnings:
Extraordinary loss.......................... 4,078 -- 4,078 -- --
Amortization of intangibles................. 12,894 -- 10,618 2,276 --
Amortization of deferred financing costs.... 2,163 -- 2,163 -- --
Depreciation................................ 7,520 -- 94 7,191 235
Deferred taxes.............................. 5,493 -- 3,752 1,798 (57)
Other, net.................................. 249 17,216 (16,742) 42 (267)
Increase in net working capital............... (30,182) -- (15,852) (11,173) (3,157)
------------ ------------ ---------- ----------- -----------
Net cash flows from (used for)
operations.............................. 16,868 -- 2,764 16,244 (2,140)
------------ ------------ ---------- ----------- -----------
Cash flows used for investing activities:
Purchase of property, plant and equipment..... (9,004) -- (82) (8,599) (323)
------------ ------------ ---------- ----------- -----------
Net cash flows used for investing
activities.............................. (9,004) -- (82) (8,599) (323)
------------ ------------ ---------- ----------- -----------
Cash flows used for financing activities:
Net repayments under working capital
facilities and long-term debt obligations... (1,900) -- (1,900) -- --
Payment of financing costs.................... (9,367) -- (9,367) -- --
Issuance of shares of common stock, net....... 429 -- 429 -- --
Receipt (payment) of dividends................ -- -- 7,645 (7,645) --
------------ ------------ ---------- ----------- -----------
Net cash flows used for financing
activities.............................. (10,838) -- (3,193) (7,645) --
------------ ------------ ---------- ----------- -----------
Decrease in cash................................ (2,974) -- (511) -- (2,463)
Cash at beginning of period..................... 6,205 -- 1,179 -- 5,026
------------ ------------ ---------- ----------- -----------
Cash at end of period........................... $ 3,231 $ -- $ 668 $ -- $ 2,563
------------ ------------ ---------- ----------- -----------
------------ ------------ ---------- ----------- -----------
</TABLE>
35
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Condensed Consolidated Financial Information (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 28, 1996
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net earnings..................................... $ 18,199 $ (11,339) $ 18,199 $ 10,456 $ 883
Non-cash items included in earnings:
Amortization of intangibles.................. 12,846 -- 10,570 2,276 --
Amortization of deferred financing costs..... 2,089 -- 2,089 -- --
Depreciation................................. 8,929 -- 72 8,605 252
Deferred taxes............................... 6,842 -- 7,963 (1,130) 9
Other, net................................... 48 11,339 (10,279) (1,003) (9)
Decrease (increase) in net working capital..... 11,351 -- 13,273 (1,976) 54
------------ ------------ ----------- ----------- -----------
Net cash flows from operations............. 60,304 -- 41,887 17,228 1,189
------------ ------------ ----------- ----------- -----------
Cash flows used for investing activities:
Purchase of property, plant and equipment...... (9,740) -- (45) (9,426) (269)
------------ ------------ ----------- ----------- -----------
Net cash flows used for investing
activities............................... (9,740) -- (45) (9,426) (269)
------------ ------------ ----------- ----------- -----------
Cash flows used for financing activities:
Net repayments under working capital facilities
and long-term debt obligations............... (50,350) -- (50,350) -- --
Issuance of shares of common stock, net........ 60 -- 60 -- --
Receipt (payment) 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>
36
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 30, 1995
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net earnings.................................... $ (5,161) $ (491) $ (5,161) $ (808) $ 1,299
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 -- 10,424 844 --
Amortization of deferred financing costs.... 2,246 -- 2,246 -- --
Depreciation................................ 8,496 -- 8,000 295 201
Deferred taxes.............................. (133) -- 1,039 (1,147) (25)
Other, net.................................. (291) 491 268 (1,299) 249
(Increase) decrease in net working capital.... (3,722) -- (6,443) 2,838 (117)
------------ ----- ---------- ----------- -----------
Net cash flows from operations............ 27,079 -- 18,308 7,164 1,607
------------ ----- ---------- ----------- -----------
Cash flows (used for) from 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) from investing
activities.............................. (106,824) 737 (107,462) (99) --
------------ ----- ---------- ----------- -----------
Cash flows from (used for) financing activities:
Net repayments under working capital
facilities and long-term debt obligations... (42,650) -- (42,650) -- --
Long-term debt borrowings..................... 425,000 -- 425,000 -- --
Long-term debt repayments..................... (468,000) -- (468,000) -- --
Payment of financing costs.................... (9,113) -- (9,113) -- --
Issuance of shares of common stock............ 170,000 -- 170,000 -- --
Receipt (payment) of dividends................ -- -- 7,802 (7,802) --
Other, net.................................... 75 -- 75 -- --
------------ ----- ---------- ----------- -----------
Net cash flows from (used for) financing
activities.............................. 75,312 -- 83,114 (7,802) --
------------ ----- ---------- ----------- -----------
(Decrease)increase 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>
37
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
9% SENIOR SUBORDINATED NOTES DUE 2003
The 9% Notes are guaranteed by certain wholly-owned subsidiaries of the
Company (the "9% Guarantors"), PSSI, PMI, THMC, STI, and Sun. The remaining
first tier and lower tier subsidiaries of the Company are not guarantors of the
9% Notes (the "9% Non-Guarantors"). The 9% Non-Guarantors include PBCI, PIC,
PINTL, Playtex Limited and PFSC.
The 9% Guarantors are joint and several guarantors of the 9% Notes. Such
guarantees are joint and several obligations of the 9% Guarantors, are
irrevocable, and full and unconditional and are limited to the largest amount
that would not render such 9% 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 9% Guarantor, and are subordinated to all senior obligations of such
9% Guarantor, including guarantees of the Company's obligations under the 1997
Refinancing.
The 9% 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 9% Guarantors.
The information which follows presents the condensed financial position as
of December 27, 1997 and December 28, 1996 and condensed results of operations
and cash flows for each of the fiscal years in the three year period ended
December 27, 1997 of (a) the Company on a consolidated basis, (b) the parent
company only ("Parent Company"), (c) the combined 9% Guarantors, and (d) the
combined 9% Non-Guarantors. In July 1997, the 9% Notes Indenture was amended
adding THMC and STI as guarantors of the 9% Notes. The 9% Notes Guarantor
financial statements for 1996 and 1995 have been restated to reflect the
addition of THMC and STI as guarantors.
38
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET DATA
AS OF DECEMBER 27, 1997
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets................................. $ 125,362 $ -- $ 71,923 $ 40,293 $ 13,146
Investment in subsidiaries..................... -- (80,084) 77,776 1,154 1,154
Intercompany receivable........................ -- (158,024) 143,647 13,280 1,097
Net property, plant and equipment.............. 54,810 -- 235 53,210 1,365
Intangible assets.............................. 388,743 -- 322,216 64,542 1,985
Other noncurrent assets........................ 83,643 (503) 3,629 -- 80,517
------------ ------------ ---------- ----------- -----------
Total assets................................. $ 652,558 $ (238,611) $ 619,426 $ 172,479 $ 99,264
------------ ------------ ---------- ----------- -----------
------------ ------------ ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities............................ $ 68,960 $ 22 $ 57,590 $ 7,520 $ 3,828
Intercompany payable........................... -- (158,023) -- 29,179 128,844
Long-term debt................................. 814,686 -- 814,686 -- --
Other noncurrent liabilities................... 36,975 (507) 15,213 4,636 17,633
------------ ------------ ---------- ----------- -----------
Total liabilities............................ 920,621 (158,508) 887,489 41,335 150,305
Stockholders' equity........................... (268,063) (80,103) (268,063) 131,144 (51,041)
------------ ------------ ---------- ----------- -----------
Total liabilities and stockholders' equity... $ 652,558 $ (238,611) $ 619,426 $ 172,479 $ 99,264
------------ ------------ ---------- ----------- -----------
------------ ------------ ---------- ----------- -----------
</TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET DATA
AS OF DECEMBER 28, 1996
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets................................. $ 122,491 $ -- $ 66,474 $ 39,436 $ 16,581
Investment in subsidiaries..................... -- (70,209) 70,209 -- --
Intercompany receivable........................ -- (127,497) 122,393 5,103 1
Net property, plant and equipment.............. 53,408 -- 309 51,743 1,356
Intangible assets.............................. 400,191 -- 331,394 66,749 2,048
Other noncurrent assets........................ 84,241 (495) 4,219 -- 80,517
------------ ------------ ---------- ----------- -----------
Total assets................................. $ 660,331 $ (198,201) $ 594,998 $ 163,031 $ 100,503
------------ ------------ ---------- ----------- -----------
------------ ------------ ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities............................ $ 115,969 $ -- $ 70,545 $ 38,762 $ 6,662
Intercompany payable........................... -- (127,272) -- -- 127,272
Long-term debt................................. 793,086 -- 793,086 -- --
Other noncurrent liabilities................... 34,003 (504) 14,094 2,813 17,600
------------ ------------ ---------- ----------- -----------
Total liabilities............................ 943,058 (127,776) 877,725 41,575 151,534
Stockholders' equity........................... (282,727) (70,425) (282,727) 121,456 (51,031)
------------ ------------ ---------- ----------- -----------
Total liabilities and stockholders' equity... $ 660,331 $ (198,201) $ 594,998 $ 163,031 $ 100,503
------------ ------------ ---------- ----------- -----------
------------ ------------ ---------- ----------- -----------
</TABLE>
39
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 27, 1997
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues................................... $ 500,632 $ (226,538) $ 443,673 $ 230,102 $ 53,395
Cost of sales.................................. 195,980 (176,872) 186,482 160,609 25,761
------------ ------------ ---------- ----------- -----------
Gross profit................................. 304,652 (49,666) 257,191 69,493 27,634
Operating expenses:
Advertising, selling and administrative........ 192,056 (49,666) 160,671 51,826 29,225
Amortization of intangibles.................... 12,894 -- 10,618 2,208 68
------------ ------------ ---------- ----------- -----------
Total operating expenses..................... 204,950 (49,666) 171,289 54,034 29,293
------------ ------------ ---------- ----------- -----------
Operating earnings (loss).................... 99,702 -- 85,902 15,459 (1,659)
Interest expense, net.......................... 64,470 -- 76,594 -- (12,124)
Equity in net earnings of subsidiaries......... -- 18,418 (16,110) (1,154) (1,154)
------------ ------------ ---------- ----------- -----------
Earnings before income taxes................. 35,232 (18,418) 25,418 16,613 11,619
Income taxes................................... 16,501 -- 6,687 6,229 3,585
------------ ------------ ---------- ----------- -----------
Earnings before extraordinary loss............. 18,731 (18,418) 18,731 10,384 8,034
Extraordinary loss on early extinguishment of
debt, net.................................... (4,078) -- (4,078) -- --
------------ ------------ ---------- ----------- -----------
Net earnings................................. $ 14,653 $ (18,418) $ 14,653 $ 10,384 $ 8,034
------------ ------------ ---------- ----------- -----------
------------ ------------ ---------- ----------- -----------
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 28, 1996
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues................................... $ 498,742 $ (167,269) $ 438,127 $ 169,020 $ 58,864
Cost of sales.................................. 192,512 (104,374) 161,849 108,699 26,338
------------ ------------ ---------- ----------- -----------
Gross profit................................. 306,230 (62,895) 276,278 60,321 32,526
Operating expenses:
Advertising, selling and administrative........ 194,184 (62,895) 171,534 53,671 31,874
Amortization of intangibles.................... 12,846 -- 10,570 2,208 68
------------ ------------ ---------- ----------- -----------
Total operating expenses..................... 207,030 (62,895) 182,104 55,879 31,942
------------ ------------ ---------- ----------- -----------
Operating earnings........................... 99,200 -- 94,174 4,442 584
Interest expense, net.......................... 64,860 -- 76,864 -- (12,004)
Equity in net earnings of subsidiaries......... -- 10,456 (10,456) -- --
------------ ------------ ---------- ----------- -----------
Earnings before income taxes................. 34,340 (10,456) 27,766 4,442 12,588
Income taxes................................... 16,141 -- 9,567 2,034 4,540
------------ ------------ ---------- ----------- -----------
Net earnings................................. $ 18,199 $ (10,456) $ 18,199 $ 2,408 $ 8,048
------------ ------------ ---------- ----------- -----------
------------ ------------ ---------- ----------- -----------
</TABLE>
40
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 30, 1995
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues................................... $ 483,581 $ (7,427) $ 417,894 $ 1,622 $ 71,492
Cost of sales.................................. 188,129 (6,365) 163,233 1,227 30,034
------------ ------------ ---------- ----------- -----------
Gross profit................................. 295,452 (1,062) 254,661 395 41,458
Operating expenses:
Advertising, selling and administrative........ 195,457 (1,062) 152,975 830 42,714
Amortization of intangibles.................... 17,709 -- 10,427 7,214 68
------------ ------------ ---------- ----------- -----------
Total operating expenses..................... 213,166 (1,062) 163,402 8,044 42,782
------------ ------------ ---------- ----------- -----------
Operating earnings (loss).................... 82,286 -- 91,259 (7,649) (1,324)
Interest expense, net.......................... 71,361 -- 83,326 -- (11,965)
Equity in net earnings of subsidiaries......... -- (808) 808 -- --
------------ ------------ ---------- ----------- -----------
Earnings before income taxes................. 10,925 808 7,125 (7,649) 10,641
Income taxes................................... 8,151 -- 4,351 (150) 3,950
------------ ------------ ---------- ----------- -----------
Earnings before extraordinary loss........... 2,774 808 2,774 (7,499) 6,691
Extraordinary loss on early extinguishment of
debt, net.................................... (7,935) -- (7,935) -- --
------------ ------------ ---------- ----------- -----------
Net (loss) earnings.......................... $ (5,161) $ 808 $ (5,161) $ (7,499) $ 6,691
------------ ------------ ---------- ----------- -----------
------------ ------------ ---------- ----------- -----------
</TABLE>
41
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 27, 1997
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net earnings..................................... $ 14,653 $ (18,418) $ 14,653 $ 10,384 $ 8,034
Non-cash items included in earnings:
Extraordinary loss........................... 4,078 -- 4,078 -- --
Amortization of intangibles.................. 12,894 -- 10,618 2,208 68
Amortization of deferred financing costs..... 2,163 -- 2,163 -- --
Depreciation................................. 7,520 -- 94 7,074 352
Deferred taxes............................... 5,493 -- 3,752 1,823 (82)
Other, net................................... 249 18,418 (16,742) (5) (1,422)
Increase in net working capital................ (30,182) -- (15,852) (12,943) (1,387)
------------ ------------ ----------- ----------- -----------
Net cash flows from operations............. 16,868 -- 2,764 8,541 5,563
------------ ------------ ----------- ----------- -----------
Cash flows used for investing activities:
Purchase of property, plant and equipment...... (9,004) -- (82) (8,541) (381)
------------ ------------ ----------- ----------- -----------
Net cash flows used for investing
activities............................... (9,004) -- (82) (8,541) (381)
------------ ------------ ----------- ----------- -----------
Cash flows used for financing activities:
Net payments under working capital facilities
and long-term debt obligations............... (1,900) -- (1,900) -- --
Payment of financing costs..................... (9,367) -- (9,367) -- --
Issuance of shares of common stock............. 429 -- 429 -- --
Receipt (payment) of dividends................. -- -- 7,645 -- (7,645)
------------ ------------ ----------- ----------- -----------
Net cash flows used for financing
activities............................... (10,838) -- (3,193) -- (7,645)
------------ ------------ ----------- ----------- -----------
Decrease in cash................................. (2,974) -- (511) -- (2,463)
Cash at beginning of period...................... 6,205 -- 1,179 -- 5,026
------------ ------------ ----------- ----------- -----------
Cash at end of period............................ $ 3,231 $ -- $ 668 $ -- $ 2,563
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
</TABLE>
42
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 28, 1996:
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net earnings................................... $ 18,199 $ (10,456) $ 18,199 $ 2,409 $ 8,047
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 (1,437) 316
Other, net................................. 48 10,456 (10,279) (120) (9)
Decrease (increase) in net working capital... 11,351 -- 13,273 (2,074) 152
------------ ------------ ---------- ----------- -----------
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 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........... 60 -- 60 -- --
Receipt (payment) 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>
43
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS DATA
FOR THE TWELVE MONTHS ENDED DECEMBER 30, 1995
(In thousands)
<TABLE>
<CAPTION>
PARENT NON-
CONSOLIDATED ELIMINATIONS COMPANY GUARANTORS GUARANTORS
------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net earnings................................... $ (5,161) $ 808 $ (5,161) $ (7,499) $ 6,691
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 -- 10,424 776 68
Amortization of deferred financing costs... 2,246 -- 2,246 -- --
Depreciation............................... 8,496 -- 8,000 -- 496
Deferred taxes............................. (133) -- 1,039 191 (1,363)
Other, net................................. (291) (808) 268 -- 249
(Increase) decrease in net working capital... (3,722) -- (6,443) (646) 3,367
------------ ----- ----------- ----------- -----------
Net cash flows from operations........... 27,079 -- 18,308 (737) 9,508
------------ ----- ----------- ----------- -----------
Cash flows (used for) from 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) from 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............. (42,650) -- (42,650) -- --
Long-term debt borrowings.................... 425,000 -- 425,000 -- --
Long-term debt payments...................... (468,000) -- (468,000) -- --
Payment of financing costs................... (9,113) -- (9,113) -- --
Issuance of shares of common stock........... 170,000 -- 170,000 -- --
Receipt (payment) of dividends............... -- -- 7,802 -- (7,802)
Other, net................................... 75 -- 75 -- --
------------ ----- ----------- ----------- -----------
Net cash flows from (used for) financing
activities............................. 75,312 -- 83,114 -- (7,802)
------------ ----- ----------- ----------- -----------
(Decrease) increase 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>
44
<PAGE>
PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. SUBSEQUENT EVENTS
On January 6, 1998, the Company acquired Carewell Industries, Inc.
("Carewell") for approximately $9.2 million in cash. Carewell manufactures and
markets the Dentax-Registered Trademark- line of toothbrushes, toothpaste, and
dental floss for distribution through food stores, drug chains, and mass
merchandisers. The acquisition, which was financed through the Company's 1997
Revolving Credit Facility, will be accounted for as a purchase.
On January 26, 1998, the Company acquired certain tangible and intangible
assets related to the Binky-Registered Trademark- pacifier business from
Binky-Griptight, Inc. for approximately $1.2 million cash and $0.5 million in
notes payable due July 27,1998. The acquisition, which was financed through the
Company's 1997 Revolving Credit Facility, will be accounted for as a purchase.
On January 28, 1998, the Company acquired PCH for approximately $91.0
million in cash and 9,257,345 shares of the Company's common stock. PCH
manufactures and markets a number of leading consumer product brands, including
Wet Ones-Registered Trademark- pre-moistened towelettes,
Chubs-Registered Trademark- baby wipes, Ogilvie-Registered Trademark- home
permanent products, Binaca-Registered Trademark- breath spray and drops, Mr.
Bubble-Registered Trademark- children's bubble bath products,
Diaparene-Registered Trademark- infant care products,
Tussy-Registered Trademark- deodorants, Dorothy Gray-Registered Trademark- skin
care products and Better Off-Registered Trademark- depilatories. The cash
portion of the consideration paid for the PCH transaction was financed with
borrowings under the 1997 Term Loan (see Note 6). The acquisition will be
accounted for as a purchase.
45
<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 27, 1997 and December 28, 1996,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the twelve months ended December 27, 1997, December
28, 1996 and December 30, 1995. 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 consolidated financial position of
Playtex Products, Inc. and subsidiaries as of December 27, 1997 and December 28,
1996 and the results of their operations and their cash flows for the twelve
months ended December 27, 1997, December 28, 1996 and December 30, 1995, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
February 5, 1998
Stamford, Connecticut
46
<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 5, 1998
47
<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
www.chasemellon.com
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
3001 Summer Street
Stamford, CT 06905
CORPORATE OFFICES
Playtex Products, Inc.
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 27, 1997 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 copy of Annual
Report on Form 10-K may also be obtained on-line at www.playtexproductsinc.com.
48
<PAGE>
PLAYTEX PRODUCTS, INC.
OTHER INFORMATION (CONTINUED)
<TABLE>
<S> <C>
BOARD OF DIRECTORS
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
Michael F. Goss Executive Vice President and Chief Financial 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
C. Ann Merrifield President of Genzyme Genetics
John W. Childs President of J.W. Childs Associates, L.P.
Wyche H. Walton Senior Vice President of Haas Wheat & Partners Incorporated
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 Senior Vice President, Corporate Sales/International
Paul E. Yestrumskas Vice President, General Counsel and Secretary
Frank M. Sanchez Vice President, Human Resources
Glenn A. Forbes Vice President, Finance
</TABLE>
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