SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDED FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

THE SECURITIES EXCHANGE ACT OF 1934

Date of Original Report: October 1, 2007
Date of Amendment: December 17, 2007

       ENERGIZER HOLDINGS, INC.       
 

(Exact name of Registrant as specified in its charter)

MISSOURI 1-15401 No. 43-1863181
  
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of   IdentificationNumber)
Incorporation)    

      533 MARYVILLE UNIVERSITY DRIVE, ST. LOUIS, MO 63141     
 
 
      (Address of Principal Executive Offices) 
(Zip Code)     
 
(314) 985-2000
 
 
(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

1


Item 2.01 Completion of Acquisition or Disposition of Assets.

     On October 1, 2007, Energizer Holdings, Inc. (“Energizer”) acquired all of the issued and outstanding shares of common stock of Playtex Products, Inc. (“Playtex”) pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of July 12, 2007, among Playtex, Energizer and ETKM Inc., a wholly-owned subsidiary of Energizer. Under the terms of the Merger Agreement, ETKM merged with and into Playtex (the “Merger”), all outstanding shares of common stock of Playtex were converted into the right to receive $18.30 per share in cash (the “Merger Consideration”), and Playtex became a wholly-owned subsidiary of Energizer.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired

Audited annual consolidated financial statements of Playtex Products, Inc.:

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Income for the years ended December 30, 2006, December 31, 2005 and December 25, 2004

Consolidated Balance Sheets as of December 30, 2006 and December 31, 2005

Consolidated Statements of Stockholders’ Equity for the years ended December 30, 2006, December 31, 2005 and December 25, 2004

Consolidated Statements of Cash Flows for the years ended December 30, 2006, December 31, 2005 and December 25, 2004

Notes to Consolidated Financial Statements

Unaudited quarterly consolidated financial statements of Playtex Products, Inc.:

Consolidated Statements of Income for the three and six months ended June 30, 2007 and July 1, 2006

Consolidated Balance Sheets as of June 30, 2007 and December 30, 2006

Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and July 1, 2006

Notes to Consolidated Financial Statements

2


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Playtex Products, Inc.:

We have audited the accompanying consolidated balance sheets of Playtex Products, Inc. and subsidiaries (the “Company”) as of December 30, 2006 and December 31, 2005, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years ended December 30, 2006, December 31, 2005 and December 25, 2004. In connection with our audits of the consolidated financial statements, we also have audited the accompanying financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Playtex Products, Inc. and subsidiaries as of December 30, 2006 and December 31, 2005, and the results of their operations and their cash flows for each of the years ended December 30, 2006, December 31, 2005 and December 25, 2004, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Notes 1 and 2 to the accompanying consolidated financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payment.” Also discussed in Note 2 to the accompanying consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 158, “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans” as of December 30, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the internal control over financial reporting of Playtex Products, Inc. and subsidiaries as of December 30, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 13, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP
Stamford, Connecticut
March 13, 2007

3


PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

  Year Ended
  December 30,      December 31,      December 25,
  2006 2005 2004
Net sales $ 636,148   $ 643,806   $ 666,896  
Cost of sales   292,323     300,988     323,157  
     Gross profit 343,825   342,818   343,739  
Operating expenses:      
     Selling, general and administrative 233,898   233,996   241,428  
    Restructuring, net  (357 ) 4,224   9,969  
    Loss on impairment of intangible assets     16,449  
    Amortization of intangibles   2,575     2,822     1,293  
         Total operating expenses      236,116        241,042        269,139  
Gain (loss) on sale of certain assets   2,344     (2,421 )   56,543  
         Operating income 110,053   99,355   131,143  
Interest expense, net 54,796   64,396   69,561  
Expenses related to retirement of debt, net  7,431   11,866   6,432  
Other expenses   69     21     353  
         Income before income taxes 47,757   23,072   54,797  
Provision (benefit) for income taxes   17,553     10,544     (710 )
         Net income $ 30,204   $ 12,528   $ 55,507  
Earnings per share:          
         Basic and diluted $ 0.48   $ 0.20   $ 0.91  
Weighted average shares outstanding:          
         Basic 62,416   61,837   61,216  
         Diluted 63,537   62,552   61,225  

See accompanying notes to consolidated financial statements.

4


PLAYTEX PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

  December 30,      December 31,
  2006 2005
Assets
Current assets:     
     Cash and cash equivalents $ 28,440   $ 94,447  
    Receivables, less allowance for doubtful accounts of $1,365    
          and $1,376 for 2006 and 2005, respectively 88,805   90,776  
     Inventories 60,952   62,109  
    Deferred income taxes, net 13,938   10,518  
    Other current assets   7,595     10,411  
          Total current assets 199,730   268,261  
Net property, plant and equipment 111,383   110,314  
Goodwill 485,610   485,610  
Trademarks, patents and other intangibles, net 122,219   124,753  
Deferred financing costs, net 8,294   12,095  
Other noncurrent assets    394     1,164  
          Total assets $      927,630   $      1,002,197  
Liabilities and Stockholders’ Equity
Current liabilities:     
     Accounts payable $ 30,669   $ 32,509  
    Accrued expenses 79,242   82,654  
    Income taxes payable   4,114     4,440  
          Total current liabilities  114,025   119,603  
Long–term debt  578,926   685,190  
Deferred income taxes, net 69,160   63,671  
Other noncurrent liabilities   23,253     19,616  
        Total liabilities   785,364     888,080  
Stockholders’ equity:     
     Common stock; $0.01 par value; authorized 100,000,000 shares;     
          issued 64,414,272 shares and outstanding 63,380,107 shares at    
        December 30, 2006 and issued and outstanding 63,573,621    
        shares at December 31, 2005  644   636  
Additional paid–in capital 560,451   556,865  
Retained earnings (accumulated deficit) (400,300 ) (430,504 )
Accumulated other comprehensive loss (6,978 ) (3,098 )
Unearned equity compensation     (9,782 )
Treasury stock, at cost, 1,034,165 shares at December 30, 2006   (11,551 )    
        Total stockholders’ equity    142,266     114,117  
        Total liabilities and stockholders’ equity $ 927,630   $ 1,002,197  

See accompanying notes to consolidated financial statements.

5


PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)

  Year Ended
  December 30,      December 31,      December 25,
  2006 2005 2004
Common stock:          
     Balance at beginning of year  $ 636   $ 612   $ 612  
          Stock issued to employees exercising stock options   4     13    
        Restricted stock awards   4     11      
     Balance at end of year  $ 644   $ 636   $ 612  
Additional paid in capital:          
    Balance at beginning of year  $ 556,865   $ 526,233   $ 526,233  
          Stock–based compensation   8,370     17,787    
        Stock issued to employees exercising stock options   4,571     12,135    
        Tax effect of option exercises   427     710    
        Reclassification at adoption of SFAS No. 123 (R)   (9,782 )        
     Balance at end of year  $      560,451   $ 556,865   $ 526,233  
Retained earnings (accumulated deficit):          
    Balance at beginning of year  $ (430,504 ) $ (443,032 ) $ (498,539 )
          Net income   30,204     12,528     55,507  
     Balance at end of year  $ (400,300 ) $      (430,504 ) $      (443,032 )
Accumulated other comprehensive (loss) income:          
    Balance at beginning of year  $ (3,098 ) $ 122   $ (518 )
          Minimum pension and postretirement benefit          
               liabilities adjustments, net of tax   3,468     (3,442 ) (62 )
          Foreign currency translation adjustment, net of tax   (51 )   222   702  
          Net gain on cash flow hedges, net of tax   180          
               Net other comprehensive income adjustments   3,597     (3,220 )   640  
        Pension and postretirement benefit liabilities adjustment          
            from adoption of SFAS No. 158, net of tax   (7,477 )      
    Balance at end of year  $ (6,978 ) $ (3,098 ) $ 122  
Unearned equity compensation:          
    Balance at beginning of year  $ (9,782 ) $   $  
        Restricted stock awards       (9,782 )  
        Reclassification at adoption of SFAS No. 123 (R)   9,782          
    Balance at end of year  $   $ (9,782 ) $  
Treasury stock:          
    Balance at beginning of year  $   $   $  
        Purchases of Company stock for treasury   (11,551 )        
    Balance at end of year  $ (11,551 ) $   $  
Total stockholders’ equity $ 142,266   $ 114,117   $ 83,935  
Comprehensive income:          
    Net income $ 30,204   $ 12,528   $ 55,507  
    Net other comprehensive income adjustments   3,597     (3,220 )   640  
Total comprehensive income $ 33,801   $ 9,308   $ 56,147  
Number of common stock issued:          
    Balance at beginning of year    63,574     61,216   61,216  
        Stock issued to employees exercising stock options   454     1,307    
        Restricted stock awards   386     1,051      
    Balance at end of year    64,414     63,574     61,216  
Number of treasury stock:          
    Balance at beginning of year           
        Forfeited restricted stock   (34 )            
        Purchases of stock for treasury   (1,000 )        
    Balance at end of year    (1,034 )        
Common stock shares outstanding   63,380     63,574     61,216  
See accompanying notes to consolidated financial statements.

6


PLAYTEX PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

  Year Ended
  December 30,      December 31,      December 25,
  2006 2005 2004
Cash flows from operations:      
Net income $ 30,204   $ 12,528   $ 55,507  
     Adjustments to reconcile net income to net cash provided      
          by operations:      
        Depreciation 14,806   15,784   14,768  
        Amortization of intangibles 2,575   2,822   1,293  
        Amortization of deferred financing costs  2,422   2,676   2,574  
        Equity compensation 8,406   8,029    
        Deferred income taxes 4,338   3,774   1,531  
        Premium (discount) on debt repurchases  6,050   9,759   (450 )
        Write–off of deferred fees related to retirement of debt 1,381   2,107   6,882  
        (Gain) loss on sale of certain assets  (2,344 ) 2,421   (56,543 )
        Loss on impairment of intangible assets      16,449  
        Other, net (71 ) 2,124   1,855  
     Changes in operating assets and liabilities, net of dispositions:      
          Receivables and retained interests  2,242   6,802   (8,763 )
        Inventories 1,450   3,880   5,264  
        Accounts payable 1,296   (9,290 ) (130 )
        Accrued expenses (4,433 ) 1,361   29,862  
        Other   3,703     (2,038 )   2,630  
               Net cash provided by operations 72,025   62,739   72,729  
Cash flows from investing activities:       
     Capital expenditures  (16,550 ) (10,372 ) (13,871 )
    Net proceeds from sale of certain assets 2,635   55,732   59,924  
    Payments for intangible assets   (4,587 )   (38,807 )   (3,504 )
               Net cash (used for) provided by investing activities (18,502 ) 6,553   42,549  
Cash flows from financing activities:       
     Long–term debt repurchases      (100,244 ) (120,830 ) (460,750 )
    Long–term debt borrowings     467,500  
    Repayments under revolving credit facilities (9,410 )        (115,800 )
    Borrowings under revolving credit facilities 3,100   6,020   115,800  
    (Premium) discount on debt repurchases (6,050 ) (9,759 ) 450  
    Purchases of Company stock for treasury (11,551 )    
    Proceeds from issuance of stock 4,579   12,159    
    Payment of financing costs       (292 )   (12,850 )
               Net cash used for financing activities (119,576 )      (112,702 ) (5,650 )
Effect of exchange rate changes on cash    46     91     685  
(Decrease) increase in cash and cash equivalents (66,007 ) (43,319 ) 110,313  
Cash and cash equivalents at beginning of period   94,447     137,766     27,453  
Cash and cash equivalents at end of period  $ 28,440     $ 94,447     $ 137,766  
Supplemental disclosure of cash flow information:        
     Interest paid $ 54,083   $ 64,518   $ 60,055  
    Income tax paid (refunded), net $ 13,113   $ 3,730   $ (4,009 )

See accompanying notes to consolidated financial statements.

7


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

     Description of Business— We are a leading manufacturer and marketer of a diversified portfolio of well–recognized branded consumer products. At December 30, 2006, our business segments include Feminine Care, Skin Care and Infant Care products.

     Basis of Presentation— Our Consolidated Financial Statements include the accounts of Playtex Products, Inc. and all of our subsidiaries. All significant intercompany balances have been eliminated in consolidation.

     The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts and classification of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts and timing of revenue and expenses. Actual results could vary from our estimates and assumptions.

     Certain amounts in the prior financial statements have been reclassified to conform with of current year presentation. Our fiscal year end is on the last Saturday in December nearest to December 31 and, as a result, a fifty–third week is added every 5 or 6 years. Fiscal 2005 was a fifty–three week year. Fiscal 2006 and 2004 were fifty–two week years.

     Revenue Recognition— We derive revenue from the sale of consumer products. In accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition,” revenue is recognized when the following conditions are met: a purchase order submitted by a customer has been received; the selling price is fixed or determinable; products have been shipped and title transferred; and there is reasonable assurance of collectibility. Estimated shipping and handling costs are considered in establishing product prices billed to customers.

     Our practice is not to accept returned goods unless authorized by management of the sales organization. Returns result primarily from damage and shipping discrepancies. We accrue for damaged product and shipping discrepancies, and thus reduce net sales, based on historical experience related to these types of returns. Under certain circumstances, we authorize customers to return Sun Care products that have not been sold by the end of the sun care season, which is normal practice in the sun care industry. We record sales at the time the products are shipped and title transfers. The terms of these sales vary but, in all instances, the revenue recognition conditions noted above are met. Simultaneously with the time of the shipment, we reduce sales and cost of sales, and record an accrued liability on our Consolidated Balance Sheet for anticipated returns based upon an estimated return level. Customers are required to pay for the Sun Care product purchased during the season under the required terms. Due to the seasonal nature of sun care, we offer a limited extension of terms to certain qualified customers. This limited extension requires substantial cash payments prior to or during the summer sun care season. We generally receive returns of our Sun Care products from September through March following the summer sun care season.

     We routinely commit to customer trade promotions and consumer coupon programs that require us to estimate and accrue the ultimate costs of such programs. Customer trade promotions include introductory marketing funds (slotting fees), cooperative marketing programs, shelf price reductions on our products, advantageous end of aisle or in–store merchandising, graphics, and other trade promotion activities conducted by the customer. We account for these programs in accordance with Emerging Issues Task Force Issue No. 01–09, “Accounting for Consideration by a Vendor to a Customer (Including a Reseller of a Vendor’s Product).” Costs of trade promotions, cash discounts offered to the trade as a payment incentive and consumer coupons are recorded as a reduction of net sales.

     Research and Development— Research and development costs are expensed in selling, general and administrative (“SG&A”) as incurred and amounted to $16.8 million in fiscal 2006, $15.6 million in fiscal 2005 and $16.9 million in fiscal 2004.

     Advertising and Promotion Expenditures— Costs associated with advertising and promotion, including fees to advertising agencies, costs of consumer promotions, consumer research and the costs of syndicated market share data, are expensed in SG&A as incurred. Media advertising production costs are expensed the first time the advertising takes place. Our advertising and promotion expenditures were $97.0 million in fiscal 2006, $92.7 million in fiscal 2005 and $91.7 million in fiscal 2004.

8


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

     Warehousing and Handling Costs— Costs associated with inventory storage and handling costs at our third-party and in-house distribution centers are included as a component of SG&A. These costs are expensed as incurred and amounted to $15.0 million, $17.8 million and $19.0 million in fiscal 2006, 2005 and 2004, respectively. Warehousing and handling costs exclude inbound and outbound freight, which are included in cost of sales.

     Cash and cash equivalents— Cash equivalents are short–term, highly liquid investments with original maturities of 90 days or less. Outstanding checks are not deducted from reported cash and cash equivalents until presentment. The associated liability is included as a component of accounts payable in the current liability section of the Consolidated Balance Sheets.

     Inventories— Inventories are stated at the lower of cost (first–in, first–out basis) or market. Inventory costs include material, labor and manufacturing overhead.

     Property, Plant and Equipment— Property, plant and equipment are stated at cost. Depreciation and amortization is determined on the straight–line method over the estimated useful life of the respective asset. Our estimated useful lives for our fixed asset classes are as follows:

Ÿ land improvements range from Ÿ furniture and fixtures range from
 15 to 40 years, 5 to 10 years,
 
Ÿ building and improvements range from Ÿ computer hardware and software range from
 20 to 40 years, 3 to 4 years, and
 
Ÿ leasehold improvements vary based on the Ÿ machinery and equipment range from
shorter of asset life or lease term,  4 to 20 years.

     Capitalized Software Costs— We capitalize significant costs incurred in the acquisition and development of software for internal use, including the costs of the software, materials, and consulting costs incurred in developing internal–use computer software once final selection of the software is made. Costs incurred prior to the final selection of software and costs not qualifying for capitalization are charged to expense.

     Goodwill and Indefinite–Lived Assets— We conduct annual testing of our goodwill and indefinite–lived assets in the second quarter of our fiscal year, except for our indefinite-lived intangible assets related to Sun Care distribution rights, which are tested in the fourth quarter of our fiscal year. In addition, an intangible asset that is not subject to amortization will be tested for impairment more frequently if events or changes in circumstances indicate that the asset may be impaired. We measure the fair value of each of our reporting units for purposes of testing the appropriateness of the carrying value of our goodwill. We do this by estimating the discounted cash flows of each reporting unit. We then compare the fair value of the reporting unit to the carrying value of its net assets, including goodwill, to ensure no impairment is indicated. We measure fair value for purposes of testing our trademarks for impairment using the relief from royalty method (a discounted cash flow methodology). Our research indicates that this is the most widely used approach for valuing assets of this type. We consider a number of factors in determining the relevant variables for this calculation, including royalty rates for similar products licensed in the marketplace and the additional rights and obligations inherent in the ownership of a trademark as opposed to a licensing arrangement including product extension, geographical expansion opportunities, exclusivity of use and transferability. In addition, we utilize a discount rate that reflects the rights and obligations of ownership, which results in an inherent premium as compared to a valuation of a licensing agreement since the discount rate of a licensee would reflect the additional risks of a license–only arrangement. Our impairment review for sun care distributor rights is based on a discounted cash flow approach utilizing cash flows specifically related to these unique assets.

     In 2005, we reorganized our business segments as a result of our strategic realignment. As a result, we reallocated goodwill to our new reporting units on a relative fair value basis. As part of the sale of the non–core brand assets in late 2005, $8.1 million of goodwill, which represented the amount of goodwill allocated to our “non–core” reporting unit, was included in the calculation of the net loss on the sale of the non–core brand assets.

9


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Additionally, we reviewed the remaining goodwill for impairment subsequent to the sale of the divested non–core brands, and no impairment was indicated. In the fourth quarter of 2004, we recorded an asset impairment charge of approximately $16.4 million. This non–cash charge was required to write down the value of two trademarks due to a change in the competitive environment and a decision by management to not invest in our non–core brands. Both of these trademarks were sold as part of the divestiture of the non–core brand assets in late 2005.

     Long–Lived Assets— We review long–lived assets, including fixed assets and intangible assets with definitive lives, such as patents, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long–Lived Assets.” The vast majority of our long–lived assets are located in the United States (“U.S.”). Amortization of patents and other intangible assets is expected to be approximately $2.6 million per year in fiscal 2007 and fiscal 2008, $2.2 million in fiscal 2009, $0.9 million in 2010 and $0.6 million in 2011. Intangible assets subject to amortization are amortized on a straight–line basis over their estimated useful lives. Useful lives for patents are the related legal life or the estimated useful life, whichever is shorter, and others are determined by contractual obligations. The weighted average useful life of our long–lived intangible assets is approximately 10 years.

      Deferred Financing Costs— Direct expenses incurred to issue debt are capitalized and amortized on a straight line basis, which approximates the effective yield method, over the life of the related debt agreements, and are included as a component of interest expense in the Consolidated Statements of Income.

     Income Taxes— Deferred tax assets and liabilities are provided using the asset and liability method for temporary differences between financial and tax reporting bases using the enacted tax rates in effect for the period in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that we believe are more likely than not realizable.

     Foreign Currency Translation— Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at period–end exchange rates. Revenues and expenses are translated at average exchange rates during the period. Net foreign currency translation gains or losses are shown as a component of accumulated other comprehensive income (loss) in the equity section of the Consolidated Balance Sheet.

     Derivative Instruments— We account for derivative instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, and related interpretations, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities.

     In accordance with SFAS No. 133, derivative instruments are recognized as assets or liabilities in our Consolidated Balance Sheet and are measured at fair value. The change in the fair value of a derivative designated as a fair value hedge and the change in the fair value of the hedged item attributable to the hedged risk are recognized in earnings. For derivatives, which qualify for designation as cash flow hedges, the effective portion of the changes in fair value is recognized as part of other comprehensive income until the underlying transaction that is being hedged is recognized in earnings. The ineffective portion of the change in fair value of cash flow hedges is recognized in earnings immediately. The change in fair value for other derivatives, which do not qualify as hedges for accounting purposes are recognized in earnings currently. At December 30, 2006, we recognized a $0.4 million asset related to the fair value of our open foreign exchange contracts designated as cash flow hedges, which had maturities of less than one year and required an aggregate purchase of $13.9 million in U.S. dollars by our Canadian subsidiary.

10


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

     Stock–Based Compensation— On January 1, 2006, we adopted the provisions of SFAS No. 123 (revised 2004), “Share–Based Payment,” (“SFAS No. 123 (R)”), using the modified prospective transition method, which requires us to measure all employee stock–based compensation awards using a fair value method and recognize such expense in our consolidated financial statements. Using the modified prospective transition method, compensation cost is recognized beginning January 1, 2006 for all stock–based awards granted on or after that date and for all awards granted to employees prior to January 1, 2006 that remain unvested on that date. In addition, SFAS No. 123 (R) requires additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from stock–based payment arrangements. In accordance with SFAS No. 123 (R), we recorded compensation expense related to equity compensation that reduced income from operations by $8.4 million, resulting in an income tax benefit of $3.1 million, and reduced net income by $5.3 million. Basic and diluted earnings per share were negatively impact by $0.09 and $0.08 per share, respectively. Stock compensation expense is included in SG&A expenses.

     Prior to January 1, 2006, we accounted for stock–based compensation in accordance with SFAS No. 123, “Accounting for Stock Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock–Based Compensation—Transition and Disclosure.” As permitted by SFAS No. 123 and SFAS No. 148, we followed the intrinsic value approach of Accounting Principles Board Opinion (“APB”) No. 25 and Financial Accounting Standards Board (“FASB”) Interpretation No. 44, “Accounting for Certain Transactions Involving Stock–Based Compensation, an Interpretation of APB No. 25” issued for determining compensation expense related to the issuance of stock options. Accordingly, we did not record any compensation expense for our stock options that vested solely on continuous service since the exercise price was equal to the fair market value of our common stock on the grant date. However, in accordance with APB No. 25, in fiscal 2005, we recorded $8.0 million of compensation expense related to the issuance of restricted stock, performance-based restricted stock and performance-based options. The expense for restricted stock awards was based upon the closing price of our stock on the date of the award, amortized over the associated service period. The expense for the performance restricted shares was based on management’s estimation of the performance awards that will vest over the associated service period and the spread between the recipient’s basis in the award, which is par value, and the closing stock price at the end of the fiscal period. The expense for the performance stock options was based on management’s estimation of the performance awards that will vest over the associated service period and the spread between the option grant price and the closing stock price at the end of the fiscal period. There were no charges to income for stock–based compensation plans in fiscal 2004 (see Note 10.)

     The following table illustrates the pro forma effect of stock-based compensation on net income and earnings per share as if we had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148 for fiscal 2005 and 2004 (in thousands, except per share data):

   Year Ended
   December 31,  December 25,
   2005  2004
Net income:       
     As reported  12,528   $ 55,507  
          Add: Stock–based employee compensation expense       
               included in net income, net of tax    5,058    
          Deduct: Total stock–based employee compensation       
               expense determined under the fair value method             
               for stock option awards, net of related tax effect    (4,941 (2,280
     Pro forma — Basic and diluted  12,645   $ 53,227  
Earnings per share:       
     As reported       
          Basic and diluted  0.20   $ 0.91  
     Pro forma       
          Basic and diluted  0.20   $ 0.87  
Pro forma weighted average common shares and       
     common equivalent shares outstanding:       
          Basic    61,837   61,216  
          Diluted    62,617   61,225  

11


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

     The fair value of stock options used to compute the pro forma net income disclosure for the year ended December 31, 2005 and December 25, 2004 is the estimated fair value on the date of grant using the Black–Scholes option–pricing model with the following weighted average assumptions:

   2005  2004
Risk–free interest rates  4.05   4.32
Dividend yield           
Expected option life in years  8   8  
Expected volatility  39 41

2. Impact of New Accounting Pronouncements

     In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 provides guidance on the consideration of effects of the prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. The SEC staff believes registrants must quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 is effective for the first annual period ending after November 15, 2006, which is our fiscal year 2006. At December 30, 2006, the application of SAB 108 had no impact on our Consolidated Financial Statements.

     We adopted SFAS No. 123 (R) on January 1, 2006 using the modified prospective transition method in which compensation cost is recognized beginning January 1, 2006 for all stock–based awards granted on or after that date and for all awards granted to employees prior to January 1, 2006 that remain unvested on that date. See Notes 1 and 10 to our consolidated financial statements in this Annual Report on Form 10–K for a more complete discussion of our accounting policy for Share–Based Payments and the resulting impact on our Consolidated Financial Statements.

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - An Amendment of FASB Statements No. 87, 88, 106, and 132.” SFAS No. 158 requires an employer to recognize in its balance sheet an asset or liability for a plan’s funded status, measure a plan’s assets and obligations as of the end of the employer’s fiscal year and recognize changes in the funded status in the year in which the changes occur. SFAS No. 158 also enhances the current disclosure requirements for pension and other postretirement plans to include disclosure related to certain effects on net periodic benefit cost. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006, as such we adopted SFAS No. 158 as of December 30, 2006, see Note 13. The requirement to measure plan assets and benefit obligations as of the employer’s fiscal year-end is effective for fiscal years ending after December 15, 2008, or our fiscal 2008.

     In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements.” SFAS No. 157 provides guidance for using fair value to measure assets and liabilities and is intended to respond to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on income. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. SFAS No. 157 also requires expanded disclosure of the effect on income for items measured using unobservable data, establishes a fair value hierarchy that prioritizes the information used to develop those assumptions and requires separate disclosure by level within the fair value hierarchy. The provisions of SFAS No. 157 are effective for interim financial statements issued for fiscal years beginning after November 15, 2007, or our fiscal 2008. We are currently evaluating the impact of adopting SFAS No. 157 on the Consolidated Financial Statements.

12


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Impact of New Accounting Pronouncements (Continued)

     In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an Interpretation of SFAS No. 109”. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. We must determine whether it is at least more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently assessing the impact of the adoption of FIN 48 on our Consolidated Financial Statements.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of SFAS 115” (“SFAS No. 159”). The new statement allows entities to choose, at specified election dates, to measure eligible financial instruments and certain other items at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the potential impact of SFAS No. 159 on our Consolidated Financial Statements.

3. Restructuring

     In February 2005, we announced a realignment plan (“2005 Realignment”) to improve focus on our core categories, reduce organizational complexity and obtain a more competitive cost structure. This was a continuation of our operational restructuring that began in late 2003.

     Charges for the 2005 Realignment totaled $16.3 million. The initial charges of $10.1 million in restructuring expenses and $0.4 million of other related expenses (in SG&A) were recorded in the fourth quarter of 2004 and related primarily to severance liabilities under our existing severance policy. In 2005, we recorded $4.2 million in restructuring expenses and $2.0 million of other related expenses ($1.9 million in cost of goods and $0.1 million in SG&A). In 2006, we recorded a net adjustment of $0.4 million to reduce our estimated restructuring reserve. Some of the specific realignment initiatives included:

  • Consolidation of the U.S./International divisional structure in favor of a product category structure,

  • Realignment of the sales and marketing organizations and related support functions, and

  • Rationalization of manufacturing, warehousing and office facilities, including the outsourcing of gloves production to Malaysia, the discontinuation of manufacturing in Canada and a reduction in the corporate headquarters office space.

     As a result, total headcount was reduced by more than 250 positions, or almost 17% of the workforce. The reduction was obtained through a combination of attrition, early retirement and layoffs.

     We expect the majority of the remaining restructuring liability at December 30, 2006 will be paid in cash during 2007.

13


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Restructuring (Continued)

     The following tables summarize the restructuring activities for fiscal 2006, 2005 and 2004 (in thousands):

     Impact to Earnings
     Charged   Adjustments  Utilized,Net      
   Beginning   to  and Changes        Ending 
   Balance   Income   to Estimates  Cash  Non–Cash  Balance 
Fiscal 2006                 
     Realignment Plan                 
Severance and related expenses  $ 3,849 $ 487 $ (795 ) $ (2,981 ) $   $ 560
Early retirement obligations  13     (13 )    
Lease commitments    488     (49 )   (214 )       225
          Total  $ 4,350 $ 487 $ (844 ) $ (3,208 ) $   $ 785
Fiscal 2005                                               
     Realignment Plan                 
Severance and related expenses  $ 10,075 $ 1,608 $   $ (7,834 ) $   $ 3,849
Early retirement obligations  2,072     (344 )   (1,715 ) 13
Lease commitments     544       (56 )       488
          Total $ 10,075  $ 4,224 $   $ (8,234 ) $ (1,715 ) $ 4,350
     Operational Restructuring Plan                 
Severance and related expenses  $ 600 $ $   $ (600 ) $   $  —
Fiscal 2004                 
     Realignment Plan                 
Severance and related expenses  $  — $ 10,075 $   $  —   $   $ 10,075
     Operational Restructuring Plan                 
Severance and related expenses  $ 2,478 $ $ (107 ) $ (1,771 ) $   $ 600

4. Gain (Loss) on Sale of Certain Assets

     In late 2006, we completed the sale of certain real estate properties, consisting of a building and land, which were no longer required as a result of our 2005 Realignment program. The properties were located in Arnprior, Canada and Dover, Delaware. We recorded a gain of $2.3 million ($2.0 million net of tax) which reflects the partial utilization of the capital loss carryover generated in the non-core asset sale in 2005. Gross proceeds received in 2006 from the sale of these real estate assets were $2.6 million. The carrying value of the assets sold was $0.3 million.

     In late 2005, we completed the sale of certain non-core brand assets. The divested brand assets included intellectual property, inventory, molds and equipment for Baby Magic, Mr. Bubble, Ogilvie, Binaca, Dorothy Gray, Dentax, Tek, Tussy, Chubs and Better Off brands. We recorded a loss of $2.4 million as a result of the transaction. Gross proceeds received in 2005 from the sale of these brand assets were $55.7 million. The carrying value of the assets sold was $57.2 million and we incurred net fees and expenses related to the sale of the non–core assets of $1.4 million.

     In late 2004, we completed the sale of the assets of the Woolite rug and upholstery brand. We recorded a gain of $56.5 million as a result of the transaction. Gross proceeds from the Woolite sale were $61.9 million. The carrying value of the assets sold, including inventory, equipment and intellectual property, was $3.4 million and we incurred fees and expenses directly related to the transaction of $2.0 million.

14


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Expenses Related to Retirement of Debt

     In 2006, on varying dates, we repurchased on the open market, and subsequently cancelled, $49.0 million principal amount of our 8% Senior Secured Notes due 2011 (“8% Notes”) and $51.3 million principal amount of our 9⅜% Senior Subordinated Notes due 2011 (the “9⅜% Notes,” together with the 8% Notes, the “Notes”), at a premium of $6.0 million. As a result, we wrote off $1.4 million of unamortized deferred financing fees, representing the pro–rata portion of the unamortized deferred financing fees associated with the repurchased Notes.

     In 2005, on varying dates, we repurchased on the open market, and subsequently cancelled, $120.8 million principal amount of our 8% Notes at a premium of $9.8 million. In addition, we wrote off $2.1 million of unamortized deferred financing fees, representing a pro–rata portion of the unamortized deferred financing fees associated with the repurchased 8% Notes.

15


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Balance Sheet Components

     The components of certain balance sheet accounts are as follows (in thousands):

   December 30,  December 31,
   2006  2005
Inventories:         
     Raw materials  $ 10,137   $ 10,000  
     Work in process  1,132   1,010  
     Finished goods    49,683     51,099  
          Total  $ 60,952   $ 62,109  
Net property, plant and equipment:     
     Land and land improvements  $ 3,976   $ 4,403  
     Building and building improvements  35,349   37,138  
     Leasehold improvements  4,893   4,847  
     Furniture and fixtures  8,244   8,239  
     Information technology    16,970   15,484  
     Machinery and equipment    179,381     170,265  
  248,813   240,376  
     Less accumulated depreciation and amortization    (137,430   (130,062
          Total  $ 111,383   $ 110,314  
Trademarks, patents and other intangibles, net:     
     Trademarks and other indefinite–lived intangible assets  $ 109,849   $ 109,808  
     Patents and other  21,190   21,190  
     Less accumulated amortization    (8,820   (6,245
          Net    12,370     14,945  
          Total  $ 122,219   $ 124,753  
Accrued expenses:     
     Advertising and sales promotion  $ 25,296   $ 24,520  
     Employee compensation and benefits  23,257   21,245  
     Sun Care returns reserve  10,832   8,005  
     Interest  10,101   11,810  
     Restructuring costs–current  654   4,272  
     Other    9,102     12,802  
          Total  $ 79,242   $ 82,654  
Accumulated other comprehensive income (loss):     
     Foreign currency translation, net(1)  $ 1,170   $ 1,221  
     Gain on cash flow hedges, net(2)  180    
     Minimum pension and postretirement benefit liabilities adjustments, net,     
          inclusive of the adoption of SFAS No. 158 (3)    (8,328   (4,319
          Total  $ (6,978 $ (3,098
____________________
 
(1)       Net of tax effect of $0.6 million for each period presented.
 
(2) Net of tax effect of $0.1 million at December 30, 2006.
 
(3) Net of tax effect of $5.2 million at December 30, 2006 and $2.9 million at December 31, 2005.

16


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Long–Term Debt

     Long–term debt consists of the following (in thousands):

December 30,  December 31, 
2006        2005 
Variable rate indebtedness:
     Revolver $ $ 6,020  
Fixed rate indebtedness:
     8% Senior Secured Notes due 2011 290,205 339,170
     9% Senior Subordinated Notes due 2011    288,721   340,000
          Total $ 578,926 $ 685,190

     8% Notes— We pay interest on the 8% Notes semi–annually on March 1 and September 1 of each year. The 8% Notes are secured by a first lien on intellectual property owned by Playtex Products, Inc. and its domestic subsidiaries, the guarantors of the 8% Notes, and by a second lien on substantially all personal property and material owned real property, other than intellectual property, owned by us and the guarantors of the 8% Notes. We do not have the option to redeem the 8% Notes from March 1, 2007 through March 1, 2008. At our option, we may redeem the 8% Notes on or after March 1, 2008 at the redemption prices (expressed as percentages of principal amount) listed below plus accrued and unpaid interest to the redemption date:

12 Months Beginning     Percentage 
March 1, 2008  104.000
March 1, 2009  102.000
March 1, 2010 and thereafter  100.000

     9⅜% Notes— We pay interest on the 9⅜% Notes semi–annually on June 1 and December 1 of each year. At our option, we may redeem the 9⅜% Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) listed below plus accrued and unpaid interest to the redemption date:

12 Months Beginning     Percentage 
June 1, 2006  104.688
June 1, 2007  103.125
June 1, 2008  101.563
June 1, 2009 and thereafter  100.000

     Revolver— Our revolver consists of a $100 million revolver in the U.S. and a $20 million Canadian dollar revolver in Canada, collectively “the Revolver.” Our Revolver expires in February 2009. The rates of interest we pay on the Revolver are, at our option, a function of certain alternative short term borrowing rates such as the London Inter Bank Offer Rate (“LIBOR”) plus an applicable margin, which fluctuates depending on certain financial ratios, or an index rate based upon the prime rate or federal funds rate plus an applicable margin, which fluctuates depending on those same financial ratios. The availability under our Revolver is subject to a borrowing base calculation, which is dependent upon the level of certain assets including eligible receivables, eligible inventory and eligible equipment, as defined in the Revolver. As of December 30, 2006, our availability under the Revolver was $61.9 million as reduced for $3.8 million of open letters of credit. We pay a quarterly commitment fee on the available but unused Revolver balance of 0.375% per annum.

17


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Long–Term Debt (Continued)

     Our Revolver is secured by a first lien on the vast majority of our personal property and a second lien on other assets owned by us and the guarantors, and contains various restrictions and limitations that may impact us. These restrictions and limitations relate to:


 
  • incurrence of indebtedness,
     
  • contingent obligations,
     
  • liens,
     
  • capital expenditures,
     
  • mergers and acquisitions,
     
  • asset sales, dividends and distributions,
     
  • redemption or repurchase of equity interests,
 
  • certain debt payments and modifications,
     
  • loans and investments,
     
  • transactions with affiliates,
     
  • changes of control,
     
  • payment of consulting and management fees, and
     
  • compliance with laws and regulations.

     We amended our Revolver in 2006. The amendments allowed us to repurchase our Common Stock on the open market under certain conditions and allowed us to enter into non-speculative foreign exchange hedge contracts.

     Our Revolver and the indenture for our 8% Notes also grant rights of inspection, access to management, the submission of certain financial reports, and requires us to make prepayments with the proceeds generated by us resulting from the disposition of assets, the receipt of condemnation settlements and insurance settlements from casualty losses and from the sale of equity securities under certain circumstances.

     The indentures to the Notes also contain certain restrictions and requirements. Under the terms of each of these agreements, payment of cash dividends on our common stock is restricted. Our wholly–owned domestic subsidiaries are guarantors of the Notes (see Note 18).

     The Revolver requires us to pay any outstanding principal at the February 2009 maturity date. There are no other scheduled principal repayments for the Revolver or Notes. The Notes require us to pay any outstanding principal at the 2011 maturity dates.

8. Treasury Stock

     At December 30, 2006, treasury stock consisted of 1,034,165 shares of common stock. On April 20, 2006, we announced that our Board of Directors authorized a stock buy–back program to allow for the repurchase of up to a maximum of $15 million of our Common Stock from time to time in open market or privately negotiated transactions in fiscal 2006 to allow us to mitigate the dilutive impact of our equity compensation programs. In 2006, we repurchased one million shares of our common stock on the open market at a cost of $11.6 million as part of the stock buy–back program. The objectives of this program were satisfied and the program expired at December 30, 2006. The remaining shares of treasury stock represent forfeited restricted stock. These forfeited shares may only be used to fund future grants of equity under our Stock Award Plan (see Note 10 for a description of our Stock Award Plan.)

9. Income Taxes

     The provision (benefit) 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 calculated for differences between the financial statement and tax bases of assets and liabilities. These differences will result in taxable or deductible amounts in the future. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts we believe are more likely than not realizable.

     Income before income taxes are as follows (in thousands):

   Year Ended 
  December 30, December 31,  December 25, 
   2006   2005   2004   
U.S  $ 42,181       $ 19,217       $ 51,421
Foreign    5,576   3,855   3,376
     Total $ 47,757 $ 23,072 $ 54,797

18


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Income Taxes (Continued)

     Our provision (benefit) for income taxes are as follows (in thousands):

  Year Ended
  December        
  30, December 31, December 25,
  2006      2005      2004
Current:                      
     Federal $ 10,676 $ 4,379 $ (5,083 )
     State and local 1,085 871 896  
     Foreign   1,454   1,520   1,946  
    13,215   6,770   (2,241 )
Deferred:      
     Federal 2,746 3,501 1,985  
     State and local 1,071 175 250  
     Foreign   521   98   (704 )
    4,338   3,774   1,531  
          Total $ 17,553 $ 10,544 $ (710 )

     Our provision (benefit) for income taxes differed from the amount computed using the federal statutory rate of 35% as follows (in thousands):

  Year Ended
  December 30, December 31,   December 25,
  2006      2005      2004
Expected federal income tax at statutory rates   $ 16,715       $ 8,075       $ 19,179    
State and local income taxes 1,401   680   745  
Deferred tax expense for undistributed foreign earnings 1,327   835   755  
Dividends received deduction, net   (6,806 )  
Change in valuation allowance for capital loss carryforward (605 ) 5,599   (17,793 )
Non–deductible goodwill associated with sale of non–core brands   2,834    
Benefit of favorable tax audits (1,300 )   (2,800 )
Other, net   15     (673 )   (796 )
     Total provision (benefit) for income taxes $ 17,553   $ 10,544   $ (710 )

     In late 2005, we divested certain non–core brand assets (see Note 4) resulting in a $2.4 million loss for financial reporting purposes. This divesture included $8.1 million of non–deductible goodwill and a $16.0 million capital loss for tax reporting purposes. The future tax benefit of the capital loss carryover that expires in 2010 was fully reserved through an increase to the valuation allowance due to the uncertainty of its future utilization. In 2006, we utilized $1.7 million of this capital loss carryover as a result of gains generated from the sale of certain real estate.

     On January 13, 2005, the U.S. Treasury issued Notice 2005–10 that provided initial guidance for the special repatriation provision provided by The American Jobs Creation Act of 2004. In response, we developed and implemented Domestic Reinvestment Plans (the “Plans”) in 2005. The Plans provided for our Canadian and Australian subsidiaries to pay dividends totaling $23.7 million in multiple installments during 2005. The dividends were used to partially fund our 2005 U.S. advertising program. We had fully provided U.S. taxes for the undistributed earnings of our Canadian and Australian subsidiaries at the statutory rate. As a result, we recorded tax benefits of approximately $6.8 million to reflect the reduced tax rate associated with these special repatriations, which is substantially below the statutory rate. At December 30, 2006, the undistributed earnings of our Canadian and Australian subsidiaries, for which we have fully provided U.S. taxes, were $3.5 million and $1.7 million, respectively.

19


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Income Taxes (Continued)

     In 2002, the U.S. Treasury issued new regulations that replaced the loss disallowance rules applicable to the sale of stock of a subsidiary member of a consolidated tax group. These regulations permitted us to utilize a previously disallowed $135.1 million tax capital loss that resulted from the sale of Playtex Beauty Care, Inc. during fiscal 1999. This was utilized on December 15, 2003 in conjunction with the retirement of the then outstanding related party notes. In 2004, we recorded a tax benefit of $17.8 million for an additional utilization of the capital loss carryforward to offset a capital gain resulting from the sale of the Woolite assets (see Note 4). The remaining $44.3 million capital loss carryforward expired on December 25, 2004.

     Taxable and deductible temporary differences and tax credit carryforwards which give rise to our deferred tax assets and liabilities at December 30, 2006 and December 31, 2005 are as follows (in thousands):

  December 30, December 31,
  2006      2005
Deferred tax assets:                    
     Allowances and reserves not currently deductible $ 19,002   $ 14,646  
     Postretirement benefits reserve 6,353   5,987  
     Capital loss carryover 5,028   5,634  
     Tax basis in foreign subsidiaries 1,589   1,589  
     Net operating loss carryforwards 446   608  
     Tax credits and contribution carryforward 367   520  
     Other   1,681     1,298  
          Subtotal 34,466   30,282  
     Less: valuation allowance   (5,028 )   (5,634 )
          Total   29,438     24,648  
Deferred tax liabilities:    
     Trademarks and other intangibles 53,878   48,013  
     Property, plant and equipment 28,154   29,222  
     Undistributed income of foreign subsidiaries 1,995   545  
     Other   633     21  
          Total   84,660     77,801  
Deferred tax liabilities, net $ 55,222   $ 53,153  

     The change in the valuation allowance of $0.6 million during 2006 relates to the partial utilization of the capital loss carryforward resulting from the non–core asset sale discussed previously, for which a valuation allowance was previously established. Deferred tax assets are regularly reviewed to determine their realizability based on management’s consideration of historical taxable income, estimates of future taxable income, and timing and amounts of reversing deferred tax liabilities. A valuation allowance is established to reduce recorded deferred tax assets to amounts considered by management to be more likely than not realizable.

     We have available net operating loss carryforwards (“NOLs”) of $1.3 million at December 30, 2006 that expire in years 2009 through 2012. These NOLs relate to losses generated by Carewell Industries, Inc. prior to our acquisition of them. We can utilize these NOLs, with certain limitations, on our federal, state and local tax returns. We expect to utilize these NOLs prior to their expiration.

20


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stock–Based Compensation Plans

     At December 30, 2006, we had stock–based awards outstanding under two stock–based compensation plans which are described below.

     The Playtex 2003 Stock Option Plan for Directors and Executives and Key Employees of Playtex Products, Inc. (the “2003 Stock Option Plan”) was approved by shareholders at the our annual meeting on May 15, 2003 and permits the granting of non–qualified stock options, incentive stock options and stock appreciation rights (“SARs”) to directors and employees. The 2003 Stock Option Plan will terminate on May 14, 2008. For options awarded prior to 2007, the option award was granted with an exercise price equal to the closing market price of Playtex Products, Inc. common stock on the day prior to the award date. For options awarded subsequent to 2006, the exercise price will be based on the closing stock price on the award date. Except for formula grants to certain non–employee directors, which vest over three, four and five–year periods, stock option awards generally vest annually over three years of continuous service. Starting in late 2004, certain awards vest annually over approximately three years of continuous service and based upon attaining certain annual performance targets as established by the Compensation and Stock Option Committee of the Board of Directors (the “Compensation Committee”). There are two types of performance stock options. The first type is market condition performance stock options, which were granted to certain members of senior management and vest based upon achieving a specified average common stock price target for the fourth quarters of 2005, 2006 and 2007. The average stock price targets increase each year of the vesting period. The 2006 price target was achieved and the eligible options vested in the first quarter of 2007. The second type of performance options generally vest annually over approximately a three–year period of continuous service and upon attaining certain annual performance targets (other than stock price performance) as established annually by the Compensation Committee. If the service period requirements or the annual performance targets are not attained for the non–market condition performance options, the associated vesting tranche is forfeited. Options under this plan expire ten years from the date of the award unless otherwise specified in the award agreement. Under this plan, at December 30, 2006, we had: 7,897,105 options authorized but unissued, 5,388,541 options outstanding (includes both valued and non-valued), and 2,508,564 options available to grant.

     The Stock Award Plan was approved by shareholders at our annual meeting on May 16, 2005, permits the granting of incentive stock options, non-qualified stock options, SARs, restricted stock, restricted stock units and stock bonus and performance compensation awards to employees, directors and consultants. The Stock Award Plan will expire on October 2, 2014. At December 30, 2006, we have awarded restricted stock, performance restricted stock and performance restricted stock units under this plan. The restricted stock awards were granted to certain non–employee directors and vest annually over approximately three years of continuous service. The performance restricted stock and performance restricted stock unit awards were granted to certain employees and generally vest annually over approximately a three year period of continuous service and upon attaining certain annual performance targets as established by the Compensation Committee. If the service period requirements or the annual performance targets are not attained for the performance restricted stock or the performance restricted stock unit awards, the associated vesting tranche is forfeited. Under this plan, at December 30, 2006, we have: 4,000,000 shares authorized, 44,392 restricted shares and 1,025,589 performance restricted shares and units outstanding, 350,317 shares have vested and been distributed free of restrictions and 2,579,702 shares available to grant. Subsequent to December 30, 2006, 284,189 shares of performance restricted stock awards vested.

     Prior to January 1, 2006, we accounted for stock–based compensation in accordance with SFAS No. 123, “Accounting for Stock Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock–Based Compensation—Transition and Disclosure.” As permitted by SFAS No. 123 and SFAS No. 148, we followed the intrinsic value approach of APB No. 25 and FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock–Based Compensation, an Interpretation of APB No. 25” issued for determining compensation expense related to the issuance of stock options. Accordingly, we did not record any compensation expense for our stock options that vested solely on continuous service since the exercise price was equal to the fair market value of our common stock on the grant date. However, in accordance with APB No. 25, in the 12 months ended December 31, 2005, we recorded $8.0 million of compensation expense related to the issuance of restricted stock, performance-based restricted stock and performance-based options.

21


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stock–Based Compensation Plans (Continued)

     On January 1, 2006, we adopted the provisions of SFAS No. 123 (R) which requires us to measure all employee stock–based compensation awards using a fair value method and recognize such expense in our consolidated financial statements. In addition, SFAS No. 123 (R) requires additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from stock–based payment arrangements.

     We adopted SFAS No. 123 (R) using the modified prospective transition method in which compensation cost is recognized beginning January 1, 2006 for all stock–based awards granted on or after that date and for all awards granted to employees prior to January 1, 2006 that remain unvested on that date. Under this transition method, compensation cost recognized in fiscal 2006 includes: (a) compensation cost for all stock–based awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, as adjusted for an estimate of the number of awards that will be forfeited and (b) compensation cost for all stock–based awards granted on or after January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123 (R). Previously, we had recognized the impact of forfeitures as they occurred. The grant date fair value of the awards generally vests over the service period. Total stock compensation expense associated with stock options, restricted stock awards and restricted stock units recognized by the Company for the fiscal year ended December 30, 2006 was $8.4 million, or $5.3 million net of taxes. This expense is included in SG&A expenses.

     In fiscal years prior to 2006, the attribution method used to determine compensation cost varied based on the type of stock–based award. For performance–based options with either a performance or market condition, and restricted stock with a performance condition, all of which vest based on continuous service and the Company’s attainment of the performance or market condition, we used a straight–line method of recognizing compensation cost over the service period when attainment of the performance or market condition was determined to be probable. For stock options and restricted stock awards that vested solely based on continuous service, we used the accelerated method of recognizing compensation costs (for pro forma disclosure purposes only) for awards with graded vesting. The accelerated method treated tranches of a grant as separate awards, amortizing the compensation costs over each vesting period within a grant. For example, for an award vesting ratably over a three-year period, the associated compensation expense was recognized as follows: 61% in the first year, 28% in the second year, and 11% in the third year. Beginning in fiscal 2006, as allowed by SFAS No. 123 (R), we elected to recognize compensation costs for all new awards using the straight–line method, amortizing the expense ratably over the service period for the award, or one–third per year for an award vesting ratably over approximately a three year period.

     In order for options and restricted stock awards to be valued, a grant date must be determined. Those options and restricted stock awards for which a grant date has not been determined are considered “non–valued.” Certain of our performance-based options and performance-based restricted stock awards vest annually over approximately a three year period. For these awards, the annual performance target for each vesting year is determined during the first quarter of that vesting year. The date that the associated annual performance target is set is considered the grant date under SFAS No. 123(R) and is the date we measure the fair value of those previously issued but non–valued awards.

     We estimated the fair value of equity awards granted during the fiscal year ended December 30, 2006 on the date of grant using the Black–Scholes option-pricing formula. The following weighted average assumptions were used to value the 2006 grants: expected life ranging from 5.1 years to 6.1 years; expected stock volatility of 38%; risk–free interest rate range of 4.58% to 5.06%; and expected dividend yield of 0% during the expected term. We estimated the fair value of option awards granted prior to January 1, 2006 using the Black–Scholes option-pricing formula, with the exception of performance-based options that vested based on achievement of targets for the Company’s stock price. These options were valued using a Monte Carlo simulation valuation model. See Note 1 for the Black–Scholes weighted-average assumptions for grants made during the prior two fiscal years.

22


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stock–Based Compensation Plans (Continued)

     The following table summarizes our stock option activity for the year ended December 30, 2006:

          Weighted    
      Average  
  Number Weighted Remaining Aggregate
  of Average Contractual Intrinsic
  Options Exercise Term Value
  (In 000’s)      Price      (Years)      (In 000’s)
Outstanding valued options at December 31, 2005   5,374       $ 9.08                
     Granted 412   $ 10.93    
     Exercised (454 ) $ 10.06    
     Expired (116 ) $ 13.93    
     Forfeited (149 ) $ 9.83    
Outstanding valued options at December 30, 2006 5,067   $ 9.01 6.6 $ 27,485
Outstanding valued vested options and options expected to vest in the future at December 30, 2006 5,000   $ 9.01 6.4 $ 27,134
Outstanding non–valued options expected to vest 277   $ 10.96 8.9   946
Outstanding expected to vest (valued and non–valued) 5,277   $ 9.11 6.5 $ 28,080
 
Exercisable at December 30, 2006 3,204   $ 9.60 5.7 $ 15,593

     The following table summarizes our restricted shares and restricted stock units (“RSU”) activity for the year ended December 30, 2006:

        Weighted
        Average
  Shares Weighted Remaining
  and Average Contractual
  RSU’s Grant Date Life
  (In 000’s)      Fair Value      (In Years)
Outstanding valued at December 31, 2005   365       $ 10.74        
     Granted(1)  499   $ 10.59  
     Vested (350 ) $ 10.74  
     Forfeited (20 ) $ 10.55  
Outstanding valued at December 30, 2006(1)  494   $ 10.60 0.2
Outstanding valued and expected to vest in the future(1)  484   $ 10.78 0.2
Outstanding non–valued and expected to vest(2)  534   N/A 1.3
Outstanding expected to vest (valued and non–valued) 1,018   N/A 0.8
____________________

(1)       Includes 6 thousand valued RSUs granted to international associates.
 
(2) Includes 12 thousand non-valued RSUs awarded to international associates.

     Total intrinsic value of options exercised during the year ended December 30, 2006 amounted to $1.3 million and during the year ended December 31, 2005 amounted to $2.2 million. There were no options exercised during fiscal 2004. As of December 30, 2006, there was approximately $2.6 million of total unrecognized compensation costs related to our valued stock options and restricted shares that are expected to vest, which will be recognized over a weighted-average period of approximately 0.6 years.

23


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stock–Based Compensation Plans (Continued)

     The following table summarizes our stock option activity, and includes all options awarded (i.e. both valued and non-valued option awards) for the years ended December 31, 2005 and December 25, 2004.

  2005 2004
      Weighted     Weighted
      Average   Average
  Options   Exercise Options Exercise
  (In 000’s )      Price      (In 000’s )      Price
Outstanding at beginning of year   7,642       $ 9.44     7,426       $ 10.91
     Granted 1,329     10.34 2,820     6.99
     Exercised (1,307 )   9.30    
     Expired (117 )   7.96 (84 )   13.00
     Forfeited (1,698 )   11.10 (2,520 )   10.88
Outstanding at end of year 5,849     7.43 7,642     9.44
 
Options exercisable at year–end 2,863     10.19 4,156     11.15
Weighted–average fair value          
     of options granted during the year   $ 5.24   $ 2.62

11. Earnings Per Share

     The following table explains how our basic and diluted Earnings Per Share (“EPS”) were calculated for the last three fiscal years (in thousands, except per share data):

  Year Ended
  December 30, December 31, December 25,
  2006      2005      2004
Numerator:                         
     Net income $ 30,204 $ 12,528 $ 55,507
Denominator:       
Weighted average common shares outstanding — Basic 62,416 61,837 61,216
     Effect of Dilutive Securities:       
          Dilutive effect of restricted stock 194 113
          Dilutive effect of performance based stock options 227 58
          Dilutive effect of time based stock options   700   544   9
Weighted average common shares outstanding — Diluted   63,537   62,552   61,225
Earnings Per Share:       
     Basic and diluted $ 0.48 $ 0.20 $ 0.91

     The basic weighted average shares outstanding do not include non–vested shares of restricted stock. The shares of restricted stock are included in our issued and outstanding shares but are considered “contingent shares” for purposes of GAAP and are therefore excluded from basic weighted average shares outstanding.

24


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Earnings Per Share (Continued)

     Basic EPS excludes all potentially dilutive securities. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS includes all dilutive securities. Potentially dilutive securities include stock options and restricted stock granted to our employees and members of our Board of Directors. At December 30, 2006, December 31, 2005, and December 25, 2004, the Company had common stock equivalents totaling 1.6 million shares, 1.9 million shares and 7.6 million shares, respectively, which were not included in the diluted EPS calculation, since their impact would have been anti–dilutive. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period plus the number of additional common shares that would have been outstanding if the dilutive securities were issued. In the event the potentially dilutive securities are anti–dilutive on net income (i.e., have the effect of increasing EPS), the impact of the potentially dilutive securities is not included in the computation.

12. Commitments and Contingencies

     Our leases are primarily for facilities, manufacturing equipment, automobiles and information technology equipment. We lease certain facilities, which have original lease terms ranging from one to fifteen years. The majority of our facility leases provide for a renewal option at our discretion, some of which may require increased rent expense. Some of our facility leases also contain pre–determined rent increases over the lease term, although such increases are not material to our operating results. In addition, certain of our facility leases require payment of operating expenses, such as common area charges and real estate taxes. The majority of our leased equipment contains fair value purchase options at the end of the lease term. Future minimum payments under non–cancelable operating leases, with initial terms exceeding one year, for fiscal years ending after December 30, 2006 are as follows: $6.3 million in 2007, $4.3 million in 2008, $3.8 million in 2009, $3.4 million in 2010, $1.7 million in 2011 and $1.6 million in later years. Sublease rental income commitments are $0.4 million in the next fiscal year.

     Rent expense for operating and month–to–month leases amounted to $8.8 million for fiscal 2006 and 2005 and $9.9 million for fiscal 2004. Sublease rental income was $0.4 million for fiscal 2006, 2005 and 2004. Our two largest rental agreements include a provision for scheduled rent increases. For leases entered into prior to 2005, we have not recorded expense on a straight–line basis over the rental term as described in SFAS No. 13, “Accounting for Leases” and FASB Technical Bulletin 85–3, “Accounting for Operating Leases with Scheduled Rent Increases”. However, we have compared rent expense as recorded to the amount of rent expense using the straight–line method and determined that the difference was immaterial.

     In the ordinary course of our business, we may become involved in legal proceedings concerning contractual and employment relationships, product liability claims, intellectual property rights and a variety of other matters. We do not believe that any pending legal proceedings will have a material impact on our financial position or results of operations.

13. Pension and Other Postretirement Benefits

     Defined Benefit Pension Plans— Substantially all of our U.S. hourly and most of our Canadian employees participate in company–sponsored pension plans. At December 30, 2006, approximately 1,000 participants were covered by these plans and approximately 500 of them were receiving benefits. We use a December 31 measurement date for our plans.

25


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Pension and Other Postretirement Benefits (Continued)

     Changes in pension benefits, which are retroactive to previous service of employees, and gains and losses on pension assets, that occur because actual experience differs from assumptions, are amortized over the estimated average future service period of employees. Actuarial assumptions for the plans include the following and are based on a calendar year–end measurement date:

  Pension Plan Other Benefits
  Year Ended Year Ended
  December 30,   December 31,   December 30,   December 31,
  2006      2005      2006      2005
Assumptions Used to Determine Benefit Obligations:                 
     U.S. Plans:    
          Discount rate 6.00 % 5.75 % 6.00% 5.75%
          Rate of compensation increase 3.50 % 3.50 % N/A N/A
     Canadian Plans:    
          Discount rate 5.25 % 5.25 % N/A N/A
          Rate of compensation increase 3.50 % 3.50 % N/A N/A
Assumptions Used to Determine Net Periodic Benefit Cost:     
     U.S. Plans:    
          Discount rate 5.75 % 6.00 % 5.75% 6.00%
          Expected return on plan assets 8.50 % 8.50 % N/A N/A
          Rate of compensation increase 3.50 % 3.50 % N/A N/A
     Canadian Plans:    
          Discount rate 5.25 % 6.00 % N/A N/A
          Expected return on plan assets 8.00 % 8.00 % N/A N/A
          Rate of compensation increase 3.50 % 3.50 % N/A N/A

     In selecting an assumed discount rate, we consider currently available rates of return on high quality fixed income investments expected to be available during the period to maturity of pension benefits. The selection is made by referencing published bond indices, such as the Moody’s Aa and the Citigroup Pension Liability Index, and adjusting those rates for differences in the term of the bonds and the payment stream of our obligations.

     Net pension expense for fiscal 2006, 2005 and 2004 is included in operating income in the Consolidated Statements of Income and includes the following components (in thousands):

  Year Ended
  December 30,   December 31,   December 25,
Net Pension Expense:  2006      2005      2004
Service cost   $ 1,086       $ 1,523       $ 1,427    
Interest cost 3,444   3,377   3,177  
Expected return on plan assets (4,616 ) (4,487 ) (4,304 )
Loss due to special termination benefits   1,438    
Amortization of prior service cost 12   12   18  
Recognized actuarial loss 451   321   131  
Loss due to curtailments   108   419  
Amortization of transition obligation   23     23     37  
     Net pension expense $ 400   $ 2,315   $ 905  

26


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Pension and Other Postretirement Benefits (Continued)

     Reconciliation of the change in benefit obligations, change in plan assets, and the funded status of the plans for fiscal 2006 and 2005 are as follows (in thousands):

  December 30, December 31,
  2006      2005
Change in Benefit Obligation                   
Benefit obligation at beginning of year   $ 62,785   $ 54,682  
Service cost 1,086   1,523  
Interest cost 3,444   3,377  
Actuarial (gain) loss (1,386 ) 3,848  
Benefits paid (3,233 ) (3,205 )
Loss due to special termination benefits   1,438  
Curtailments   721  
Foreign currency exchange rate changes   (19 )   401  
     Benefit obligation at end of year $ 62,677   $ 62,785  
Change in Plan Assets     
Fair value of plan assets at beginning of year $ 55,875   $ 53,857  
Actual return on plan assets 5,140   3,590  
Benefits and expenses paid (3,233 ) (3,228 )
Employer contributions 1,094   1,367  
Foreign currency exchange rate changes   (15 )   289  
     Fair value of plan assets at end of year $ 58,861   $ 55,875  
Amounts Recognized on the Balance Sheet consist of:     
Before adoption of SFAS No. 158:    
     Prepaid benefit cost $ 4,277   $  —  
     Accrued benefit liability (588 ) (2,457 )
     Intangible asset 343   379  
     Accumulated other comprehensive income   2,091     7,510  
          Net amount recognized before adoption of SFAS No. 158 $ 6,123   $ 5,432  
After adoption of SFAS No. 158:    
     Noncurrent liabilities $ (3,816 )  
          Net amount recognized after adoption of SFAS No. 158 $ (3,816 )  
Amounts Recognized in Accumulated Other Comprehensive Income,    
     Before Tax, consist of:    
     Net actuarial loss $ 9,596    
     Net transition obligation 214    
     Net prior service cost   129    
          Net amount recognized $ 9,939    

     The adoption of the recognition portion of SFAS No. 158 resulted in a charge of $7.8 million, before tax, to accumulated other comprehensive income in fiscal 2006.

Amounts expected to be recognized in net periodic pension expense in fiscal 2007 (in thousands):   
     Actuarial loss recognition $ 294
     Amortization of prior service cost 12
     Actuarial obligation   24
          Total amount expected to be recognized in fiscal 2007 $ 330

27


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Pension and Other Postretirement Benefits (Continued)

     Included in the totals above are our Canadian plans, which have accumulated benefit obligations in excess of plan assets as follows (in thousands):

December 30, December 31,
     2006      2005
Projected benefit obligation   $ 9,065   $ 8,395
Accumulated benefit obligation 8,508 7,665
Fair value of plan assets 7,920 6,571

     Included in the totals above is our U.S. plan, which has accumulated benefit obligations in excess of plan assets, for fiscal 2005 only, as follows (in thousands):

December 30, December 31,
     2006      2005 
Projected benefit obligation   $ 53,612   $ 54,390
Accumulated benefit obligation 50,686 50,667
Fair value of plan assets 50,940 49,304

     The accumulated benefit obligation for all defined benefit pension plans at December 30, 2006 and December 31, 2005 was $59.2 million and $58.3 million, respectively.

     The pension plans assets are invested primarily in fixed income and equity mutual funds, marketable equity securities, insurance contracts, and cash and cash equivalents. The plans do not invest in any Playtex Products, Inc. securities. The weighted average asset allocations at December 30, 2006 and December 31, 2005, by asset category, were as follows:

Plan Asset Allocation at:
December
Target      30,      December 31,
Allocation 2006   2005
Asset Category (U.S. Plan)
Equity 40 %   41 % 41 %
Debt securities 60 % 59 % 59 %
Total 100 % 100 % 100 %

     The Canada pension plan, which constitutes 14% of consolidated fair value of plan assets, at December 30, 2006, has a slightly different target allocation, which was essentially 50% equity and 50% debt securities.

     The main objectives of the plans are to: maintain the purchasing power of the current assets and all future contributions, to have the ability to pay all benefits and expense obligations when due, to achieve a “funding cushion,” to maximize return within prudent levels of risk, and to control the cost of administering the plan and managing investments. The investment horizon is greater than five years and the plan’s strategic asset allocation is based on a long–term perspective.

     In determining the expected return on plan assets, the market related value of plan assets for the pension plan is equal to fair value.

     In selecting the expected long–term rate of return on assets assumption, we considered the average rate of income on the funds invested or to be invested to provide for the benefits of these plans. This included considering the trust’s asset allocation and the expected returns likely to be earned over the life of the plans.

28


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Pension and Other Postretirement Benefits (Continued)

     Postretirement Benefits Other than Pensions— We provide postretirement health care and life insurance benefits to certain U.S. retirees. These plans require employees to share in the costs. Practically all of our U.S. personnel hired prior to January 1, 2004 would become eligible for these postretirement health care and life insurance benefits if they were to retire from the Company. Employees hired on or after January 1, 2004 may participate in the plan; however, they must pay the full cost of the coverage.

     The components of the net periodic postretirement benefit expense, which is included in operating income in the Consolidated Statements of Income for fiscal 2006, 2005, and 2004, are as follows (in thousands):

  Year Ended
  December 30,      December 31,      December 25,
  2006 2005 2004
Net Periodic Postretirement Benefit Expense          
Service cost — benefits earned during the period $ 586     $ 661   $ 676  
Interest cost on accumulated benefit obligation 963     942   1,143  
Amortization of prior service benefit         (2,334 )        (2,334 )          (2,334 )
Recognized actuarial loss   882     886     1,282  
     Net periodic postretirement benefit expense $ 97   $ 155   $ 767  

     Reconciliation of the change in benefit obligations, change in plan assets, and the funded status of the plans for fiscal 2006 and 2005 are as follows (in thousands):

  December 30,       December 31,
  2006 2005
Change in Benefit Obligation        
Benefit obligation at beginning of year $ 16,422   $ 20,282  
Service cost 586   661  
Interest cost 962   942  
Retiree contributions 673   563  
Actuarial loss (gain) 973   (4,166 )
Benefits paid        (2,023 )        (1,860 )
     Benefit obligation at end of year $ 17,593   $ 16,422  
 
Change in Plan Assets                                   
Fair value of plan assets at beginning of year $  —   $  —  
Employer contributions 1,350   1,297  
Employee contributions 673   563  
Benefits paid        (2,023 )        (1,860 )
     Fair value of plan assets at end of year $     $    
 
Amounts Recognized on the Balance Sheet consist of:                                  
Before adoption of SFAS No. 158:    
     Funded status at year-end  $ (17,593 ) $ (16,422 )
     Net actuarial loss 10,229   10,138  
    Net prior service cost    (6,404 )   (8,738 )
          Net amount recognized as a noncurrent liability before adoption of SFAS No. 158 $ (13,768 ) $    (15,022 )
 
After adoption of SFAS No. 158:    
     Current liabilities $ (1,065 )        
     Noncurrent liabilites       (16,528 )  
          Net amount recognized after adoption of SFAS No. 158 $ (17,593 )  

29


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Pension and Other Postretirement Benefits (Continued)

     Amounts Recognized in Accumulated Other Comprehensive Income, Before Tax, consist of (in thousands):

  December 30,
  2006
     Net actuarial loss $ 10,229  
    Net prior service cost    (6,404 )
          Net amount recognized $ 3,825  
 
Amounts Expected to be Recognized in Net Periodic Postretirement Expense in Fiscal 2007 (in thousands):    
     Actuarial loss recognition  $ 847  
    Amortization of prior service credit        (2,334 )
          Total amount expected to be recognized in fiscal 2007 $ (1,487 )

     The adoption of the recognition portion of SFAS No. 158 resulted in a charge of $3.8 million, before tax, to accumulated other comprehensive income in fiscal 2006 for postretirement benefits other than pensions.

     On a combined basis for the pension and other postretirement benefits, the adoption of SFAS No. 158 resulted in a charge of $11.6 million, before tax, to accumulated other comprehensive income at December 30, 2006.

     The components of the $4.2 million actuarial gain for 2005 was the result of certain plan changes ($2.4 million), the impact of the Medicare Part D subsidy ($1.5 million) and the demographic and cost trend assumptions ($0.3 million).

     The assumed health care cost trend rate and discount rate were 8.50% and 6.00% in 2006, respectively, compared to 9.00% and 5.75% in 2005, respectively. The assumed health care cost trend rate is anticipated to trend down until the final trend rate of 5.00% is reached in 2014. A one percentage point increase or decrease in the assumed health care cost trend rate would change the sum of the service and interest cost components of the fiscal 2006 net periodic postretirement benefit expense by less than 1%. A one percentage point increase or decrease in the assumed health care cost trend rate would change the postretirement funded status as of December 30, 2006 by less than 1%.

Cash Flows

     We are required to contribute approximately $0.9 million to our pension plans during the next fiscal year beginning on December 31, 2006 and ending on December 29, 2007. In addition, we estimate that we will be required to pay approximately $1.3 million to fund the current year cost of our postretirement benefit plans for our retirees.

     The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

  Pension      Other
  Benefits Benefits
2007 $ 3,053 $ 1,096
2008        7,033 1,129
2009 3,143        1,126
2010 3,236   1,156
2011 3,350 1,139
Years 2012 through 2016 19,735 5,974

     Defined Contribution Benefit Plans— We also provide four defined contribution plans covering various employee groups, two of which have non–contributory features. The amounts charged to income for the defined contribution plans totaled $6.8 million, $6.6 million and $7.5 million for our last three fiscal years ended 2006, 2005, and 2004, respectively.

30


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Business Segments and Geographic Area Information

     We are organized into three core business segments, Feminine Care, Skin Care and Infant Care, and one non–core business segment, which included all other brands not classified in one of the three core categories. In late 2005, we sold certain assets of the non–core business segment as well as certain assets in the Skin Care segment. In late 2004, we sold certain assets related to the Woolite brand, which was part of the non-core business segment. For comparative purposes, we have included all of these divested assets into a “Divested” business segment to provide a more meaningful comparison of operating results, as impacted by the brand asset sale.

     OurFeminine Caresegment includes a wide range of plastic and cardboard applicator tampons, as well as complementary products, marketed under such brand names as:

     Ÿ Plastic applicator tampons: Ÿ Cardboard applicator tampons:
        – Playtex Gentle Glide, and       – Playtex Beyond.
      – Playtex Sport. Ÿ Personal Cleansing Cloths.

     OurSkin Caresegment includes the following brands:

     Ÿ Banana BoatSun Care products, Ÿ PlaytexGloves.
  Ÿ Wet Onespre–moistened towelettes, and

     Our Skin Care segment previously included Baby Magic baby toiletries and Mr. Bubble children’s bubble bath, which were divested in late 2005. As a result, we have reclassified the results of these brands to the Divested segment for all periods presented.

     OurInfant Caresegment includes the following brands:

     Ÿ Playtexdisposable feeding products, Ÿ Diaper Geniediaper disposal systems,
  Ÿ Playtexreusable hard bottles, Ÿ Playtexbreastfeeding products, and
Ÿ Playtexcups and mealtime products, Ÿ Playtex Hip Hammockchild carrier.
Ÿ Playtexpacifiers,

     OurDivestedsegment includes the non–core brands that were divested in 2005 and 2004.

     Our business segments’ results for the last three fiscal periods are as follows. Corporate includes general and administrative charges not allocated to the business segments as well as all restructuring charges, equity compensation charges and amortization of intangibles (in thousands):

       YearEnded
  December 30, 2006 December 31, 2005 December 25, 2004
  Net      Operating      Net      Operating      Net      Operating
  Sales Income Sales Income Sales Income
Feminine Care $ 229,422 $ 69,469   $ 229,729 $ 73,156   $ 227,057 $ 69,090  
Skin Care 230,796 55,508   195,729   43,121   183,308   33,402  
Infant Care     175,930   43,284     169,793   44,685       165,964   44,837  
     Subtotal   636,148     168,261     595,251   160,962     576,329   147,329  
Divested           48,555   8,361     90,567   11,457  
    Subtotal $      636,148 168,261   $      643,806          169,323   $      666,896     158,786  
Corporate     (58,208 )     (69,968 )     (27,643 )
    Total   $      110,053     $ 99,355     $      131,143  

31


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Business Segments and Geographic Area Information (Continued)

     The amount of depreciation allocated to each business segment is as follows (in thousands):

  Year Ended
  December 30,      December 31,      December 25,
  2006 2005 2004
Feminine Care $ 4,551 $ 4,661 $ 4,430
Skin Care   2,045 2,234 1,920
Infant Care   3,758   3,622   3,397
     Subtotal 10,354 10,517 9,747
Divested     467   659
Depreciation included in segment operating income      10,354        10,984     10,406
Depreciation not allocated to segments   4,452   4,800   4,362
    Consolidated depreciation $ 14,806 $ 15,784 $      14,768

Geographic Area Information

     Net sales and operating income represents sales to unaffiliated customers only. Intergeographic sales are minimal and are not disclosed separately. Net sales and operating income within the U.S. include all 50 states and its territories. Corporate charges that are not allocated to segments (see preceding table) are included in operating income for the U.S. International net sales and operating income represents business activity outside of the U.S. and its territories and export sales to foreign distributors (in thousands):

  YearEnded
  December 30, 2006 December 31, 2005      December 25, 2004
  Net      Operating      Net      Operating Net      Operating
  Sales Income Sales Income Sales Income
United States  $ 559,482 $ 92,697 $ 573,701 $      84,944   $ 599,356   $  116,872
International    76,666     17,356     70,105          14,411   67,540    14,271
     Total $      636,148 $      110,053 $      643,806 $      99,355 $      666,896 $      131,143

32


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Business Segments and Geographic Area Information (Continued)

     Identifiable assets by geographic area represent those assets that are used in our operations in each area. U.S. includes all 50 states and its territories, and International represents assets outside of the U.S. and its territories (in thousands):

  December 30,      December 31,
Identifiable Assets   2006   2005
United States(1)  $      906,078 $  980,024
International(2)    21,552   22,173
     Total $  927,630 $      1,002,197
____________________

(1)      All goodwill and trademarks reside in the United States. Includes other long–lived assets, net of $123.7 million in 2006 and $125.2 million in 2005.
   
(2) The majority of our international identifiable assets are related to our Canadian subsidiary, which includes long–lived assets, net of $0.1 million in 2006 and 2005.

     At December 30, 2006 and December 31, 2005, goodwill by business segment was $246.6 million for Feminine Care, $118.8 million for Skin Care and $120.2 million for Infant Care.

15. Business and Credit Concentrations

     Most of our customers are dispersed throughout the United States and Canada. Wal–Mart Stores, Inc., our largest customer, accounted for approximately 29% of our consolidated net sales in 2006, approximately 28% in 2005 and in 2004. Target Corporation, our second largest customer, accounted for approximately 12% of our consolidated net sales in 2006, approximately 13% in 2005 and approximately 11% in 2004. No other customer accounted for more than 10% of our consolidated net sales in fiscal 2006. Outstanding trade accounts receivable related to transactions with our largest customer were $19.3 million at December 30, 2006 and $19.4 million at December 31, 2005. Outstanding trade accounts receivable related to transactions with our customers ranked second through tenth in net sales, ranged from $11.2 million to $1.8 million at December 30, 2006 and ranged from $12.7 million to $1.4 million at December 31, 2005. Sales to these customers were made from all of our business segments.

16. Disclosure about the Fair Value of Financial Instruments

     Cash, Receivables, and Accounts Payable— The carrying amounts approximate fair value because of the short–term nature of these instruments.

33


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 30, 2006 and December 31, 2005 as follows (in thousands):

December 30, 2006      December 31, 2005
  Carrying      Estimated Carrying      Estimated
  Amount Fair Value Amount Fair Value
8% Senior Secured Notes due 2011(1)   $ 290,205 $ 302,901 $ 339,170 $ 362,064
93/8 % Senior Subordinated Notes due 2011(1)   288,721     300,992     340,000     357,000
Revolver(2)   6,020 6,020

17. Quarterly Data (Unaudited)

     The following is a summary of our quarterly results of operations and market price data for our common stock for fiscal 2006 and 2005 (in thousands, except per share data):

  First      Second      Third

    

Fourth
Fiscal 2006   Quarter Quarter Quarter Quarter
Net sales $ 176,025 $ 180,289 $ 142,401 $ 137,433  
Gross profit  97,201 97,412 76,479 72,733  
Operating income 34,636 31,889 21,447 22,081  
Net income  9,419 10,290 4,011 6,484  
Earnings per share, basic and diluted(3)  $ 0.15 $ 0.16 $ 0.06 $ 0.10  
  
  First Second Third Fourth
Fiscal 2005   Quarter Quarter Quarter Quarter
Net sales $ 186,685 $ 177,014 $ 146,649 $ 133,458  
Gross profit  99,672 92,526 78,550 72,070  
Operating income 40,570 30,407 21,078 7,300  
Net income (loss) 14,969 6,162 3,371 (11,974 )
Earnings per share, basic and diluted(3)  $ 0.24   $ 0.10   $ 0.05   $ (0.19 ) 
____________________
 
(1)       The estimated fair value was based on quotes provided by independent securities dealers.
 
(2) Our Revolver is a variable rate instrument and the carrying amount approximated its fair value because the rate of interest on borrowing under the Revolver is a function of short–term borrowing rates.
 
(3) Earnings per share data are computed independently for each of the periods presented. As a result, the sum of the earnings per share amounts for the quarters may not equal the total for the year.

34


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Condensed Consolidating Financial Information

     The payment obligations of our Notes, which were issued by the parent company, Playtex Products, Inc., are guaranteed by our wholly–owned domestic subsidiaries (the “Guarantors”). The Guarantors are joint and several guarantors of the Notes. Such guarantees are irrevocable, full and unconditional. The guarantees are senior subordinated obligations and are subordinated to all senior obligations including guarantees of our obligations under the Revolver. Our wholly–owned foreign subsidiaries (the “Non–Guarantors”) do not guarantee the payment of our Notes. For a listing of our wholly–owned subsidiaries that are Guarantors and Non–Guarantors, see Exhibit 21(a) filed with this Annual Report on Form 10-K.

     The following information presents our condensed consolidating financial position as of December 30, 2006 and December 31, 2005 and our condensed consolidating statements of income and cash flows for each of the last three fiscal years 2006, 2005 and 2004. The presentation is made as follows:

     Ÿ the Company on a consolidated basis, Ÿ the combined Guarantors, and
  Ÿ the parent company only, Ÿ the combined Non-Guarantors.

Condensed Consolidating Balance Sheet
as of December 30, 2006
(In thousands)

                Parent             Non–
Assets  Consolidated Eliminations Company Guarantors Guarantors
Current assets $ 199,730 $ 73   $ 118,361 $ 62,813 $ 18,483  
Investment in subsidiaries (494,145 ) 487,981 6,164  
Intercompany receivable      (191,283 ) 186,783 4,500  
Net property, plant and equipment 111,383   3 111,320 60  
Intangible assets 607,829   416,942      190,887  
Other noncurrent assets   8,688   (1,202 )   8,189   305   1,396  
     Total assets $      927,630 $ (686,557 ) $      1,031,476 $ 558,272 $      24,439  
Liabilities and Stockholders’ Equity           
Current liabilities $ 114,025 $ (2,414 ) $ 96,978 $ 5,912 $ 13,549  
Intercompany payable   (190,071 ) 161,191 26,579 2,301  
Long–term debt 578,926     578,926        
Other noncurrent liabilities   92,413     73     52,115   40,293   (68 )
     Total liabilities   785,364 (192,412 ) 889,210   72,784 15,782  
Stockholders’ equity   142,266   (494,145 )   142,266   485,488   8,657  
     Total liabilities and stockholders’ equity $ 927,630 $ (686,557 ) $ 1,031,476 $ 558,272 $ 24,439  

35


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Balance Sheet
as of December 31, 2005
(In thousands)

                  Parent             Non–
Assets  Consolidated Eliminations Company Guarantors Guarantors
Current assets $ 268,261   $ 589   $ 181,370   $ 66,437   $ 19,865  
Investment in subsidiaries     (475,783 ) 471,640   4,143      
Intercompany receivable     (174,749 )   174,683     66  
Net property, plant and equipment   110,314     2   110,199     113  
Intangible assets   610,363     418,131   192,232      
Other noncurrent assets   13,259         12,013     952       294  
     Total assets $ 1,002,197     (649,943 ) $ 1,083,156   $ 548,646   $ 20,338  
Liabilities and Stockholders’ Equity               
Current liabilities $ 119,603   $ (668 ) $ 102,983   $ 10,060   $ 7,228  
Intercompany payable     (174,749 ) 137,054   37,241     454  
Long–term debt   685,190     679,170       6,020  
Other noncurrent liabilities   83,287     1,257     49,832     33,237       (1,039 )
    Total liabilities   888,080   (174,160 ) 969,039   80,538     12,663  
Stockholders’ equity   114,117     (475,783 )   114,117     468,108       7,675  
    Total liabilities and stockholders’ equity $      1,002,197   $      (649,943 ) $      1,083,156   $ 548,646   $ 20,338  
 
Condensed Consolidating Statement of Income               
For the Year Ended December 30, 2006               
(In thousands)              
        Parent   Non–
  Consolidated Eliminations Company Guarantors Guarantors
Net revenues $ 636,148   $ (384,305 ) $ 607,065   $ 354,994   $ 58,394  
Cost of sales   292,323     (309,564 )   301,174          266,654      34,059  
          Gross profit   343,825     (74,741 )   305,891     88,340           24,335  
Operating expenses:              
     Selling, general and administrative   233,898   (74,741 ) 224,995   65,018     18,626  
    Restructuring, net   (357 )   (488 )     131  
    Amortization of intangibles    2,575       2,139     436        
          Total operating expenses   236,116   (74,741 ) 226,646   65,454     18,757  
Gain on sale of certain assets   2,344             1,695       649  
        Operating income   110,053     79,245   24,581     6,227  
Interest expense, net   54,796     54,700       96  
Expenses related to retirement of debt, net   7,431     7,431        
Other expenses   69           69  
Equity in net income of subsidiaries       21,702       (17,910 )     (3,792 )       
        Income before income taxes   47,757     (21,702 )   35,024     28,373     6,062  
Provision for income taxes   17,553       4,820     10,885       1,848  
        Net income $ 30,204   $ (21,702 ) $ 30,204   $ 17,488   $ 4,214  

36


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Income
For the Year Ended December 31, 2005
(In thousands)

       Parent  Non–
   Consolidated  Eliminations  Company  Guarantors   Guarantors
Net revenues  $ 643,806   $ (374,673 $ 597,153   $ 367,941   $ 53,385  
Cost of sales    300,988     (313,179         302,103           280,418           31,646  
          Gross profit    342,818     (61,494   295,050     87,523     21,739  
Operating expenses:           
     Selling, general and administrative  233,996   (61,494 209,861   69,207   16,422  
     Restructuring, net  4,224     3,092   374   758  
     Amortization of intangibles    2,822         1,594     1,228      
          Total operating expenses    241,042   (61,494 214,547   70,809   17,180  
(Loss) gain on sale of certain assets    (2,421             (8,592   6,171      
          Operating income  99,355     71,911   22,885     4,559  
Interest expense, net  64,396     68,394   (3,868 (130
Expenses related to retirement of debt, net  11,866     11,866      
Other expenses  21         21  
Equity in net income of subsidiaries        34,945     (32,559   (2,386    
          Income before income taxes  23,072   (34,945 24,210     29,139   4,668  
Provision (benefit) for income taxes    10,544         11,682     (2,607   1,469  
          Net income  $ 12,528   $ (34,945 $ 12,528   $ 31,746   $ 3,199  

Condensed Consolidating Statement of Income
For the Year Ended December 25, 2004
(In thousands)

       Parent    Non–
   Consolidated   Eliminations  Company  Guarantors  Guarantors
Net revenues  $ 666,896         $ (420,182       $ 624,360         $ 411,253         $ 51,465  
Cost of sales    323,157     (314,159   307,288     299,347      30,681  
     Gross profit    343,739     (106,023   317,072     111,906     20,784  
Operating expenses:           
     Selling, general and administrative  241,428   (106,023 249,260   83,534   14,657  
     Restructuring, net  9,969     2,621   5,389   1,959  
     Loss on impairment of assets  16,449     12,683   3,766    
     Amortization of intangibles    1,293         460     833      
          Total operating expenses  269,139   (106,023 265,024   93,522   16,616  
Gain on sale of assets    56,543         56,543          
          Operating income  131,143     108,591   18,384   4,168  
Interest expense, net  69,561     69,833     (272
Expenses related to retirement of debt, net  6,432     6,432      
Other expenses  353     298     55  
Equity in net income of subsidiaries        15,603     (13,333   (2,270    
          Income before income taxes  54,797   (15,603 45,361   20,654   4,385  
Provision (benefit) for income taxes    (710       (10,146   8,331     1,105  
          Net income  $ 55,507   $ (15,603 $ 55,507   $ 12,323   $ 3,280  

37


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 30, 2006
(In thousands)

                         Parent                 Non– 
   Consolidated   Eliminations   Company   Guarantors   Guarantors 
Cash flows from operations:           
Net income (loss)  $ 30,204   $ (21,702 ) $ 30,204   $ 17,488   $ 4,214  
     Adjustments to reconcile net income to net               
          cash provided by operations:             
          Depreciation  14,806     1   14,742   63  
          Amortization of intangibles  2,575     2,139   436    
          Amortization of deferred financing costs  2,422     2,324     98  
          Equity compensation  8,406     8,406      
          Deferred taxes  4,338     (1,008 ) 5,036   310  
          Premium on debt repurchases  6,050     6,050      
          Write–off of deferred fees related to           
               retirement of debt  1,381       1,381      
          Gain on sale of certain assets  (2,344 )     (1,570 ) (774 )
          Other, net  (71 )   21,702   (22,520 ) 1,872   (1,125 )
          Increase in net working capital  4,258     315   (524 ) 4,467  
          Increase in amounts due to Parent            28,154     (22,762 )   (5,392 )
               Net cash provided by operations  72,025         55,446   14,718   1,861  
Cash flows from investing activities:             
          Capital expenditures  (16,550 )    (3 )    (16,538 ) (9 )
          Net proceeds from sale of assets  2,635       1,861   774  
          Payments for intangible assets    (4,587 )       (4,546 )   (41 )    
               Net cash used for investing activities  (18,502 )   (4,549 ) (14,718 ) 765  
Cash flows from financing activities:           
          Long–term debt repurchases  (100,244 )   (100,244 )    
          Repayments under revolving credit           
               facilities    (9,410 )   (3,100 )    (6,310 )
          Borrowings under revolving credit           
               facilities  3,100     3,100      
          Premium on debt repurchases  (6,050 )   (6,050 )    
          Proceeds from issuance of stock  4,579     4,579      
          Purchases of Company stock for treasury    (11,551 )       (11,551 )        
               Net cash used for financing activities  (119,576 )   (113,266 )   (6,310 )
Effect of exchange rate changes on cash    46                 46  
Decrease in cash and cash equivalents  (66,007 )   (62,369 )   (3,638 )
Cash and cash equivalents at           
     beginning of period    94,447         88,362     1     6,084  
Cash and cash equivalents at end of period  $   28,440   $    —   $   25,993   $   1   $    2,446  

38


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2005
(In thousands)

                         Parent                 Non– 
   Consolidated   Eliminations   Company   Guarantors   Guarantors 
Cash flows from operations:           
Net income  $ 12,528   $ (34,945 )  $ 12,528   $ 31,746   $ 3,199  
     Adjustments to reconcile net income to net cash           
          provided by operations:             
          Depreciation  15,784     13   15,243   528  
          Amortization of intangibles  2,822     1,594   1,228    
          Amortization of deferred financing costs  2,676     2,676      
          Amortization of unearned equity compensation  8,029     6,606   1,423    
          Deferred taxes  3,774     12,809   (9,936 )  901  
          Premium on bond repurchases  9,759     9,759      
          Write–off of deferred fees related to retirement           
               of debt  2,107     2,107        
          Loss (gain) on sale of assets  2,421     8,592   (6,171 )   
          Other, net  2,124   34,945   (21,971 )  (10,948 )  98  
          Increase in net working capital  715     (9,356 )  9,432   639  
          Increase in amounts due to Parent            54,856     (55,332 )    476  
               Net cash provided by operations  62,739     80,213   (23,315 )  5,841  
Cash flows from investing activities:           
          Capital expenditures  (10,372 )      (10,160 )  (212 ) 
          Net proceeds from sale of assets  55,732     14,222   41,510    
          Payments for intangible assets    (38,807 )        (6,328 )    (32,479 )     
               Net cash provided by investing activities  6,553     7,894   (1,129 )  (212 ) 
Cash flows from financing activities:           
          Borrowings under revolving credit facilities  6,020         6,020  
          Long–term debt repayments  (120,830 )   (120,830 )     
          Premium on bond repurchases  (9,759 )   (9,759 )     
          Payment of financing costs  (292 )       (292 ) 
          Receipt (payment) of dividends        24,444   (24,444 ) 
          Proceeds from issuance of stock    12,159         12,159          
               Net cash used for financing activities  (112,702 )   (118,430 )  24,444   (18,716 ) 
Effect of exchange rate changes on cash    91                 91  
Decrease in cash and cash equivalents  (43,319 )   (30,323 )    (12,996 ) 
Cash and cash equivalents at beginning of period    137,766         118,685     1     19,080  
Cash and cash equivalents at end of period  $   94,447   $    —   $   88,362   $    1   $    6,084  

39


PLAYTEX PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 25, 2004
(In thousands)

                         Parent                 Non– 
   Consolidated   Eliminations   Company   Guarantors   Guarantors 
Cash flows from operations:           
Net income  $ 55,507   $ (15,603 )  $ 55,507   $ 12,323   $ 3,280  
     Adjustments to reconcile net income to           
          net cash provided by operations:           
          Depreciation  14,768     15   14,545   208  
          Amortization of intangibles  1,293     460   833    
          Amortization of deferred financing           
               costs  2,574     2,574      
          Deferred taxes  1,531     (278 )  2,626   (817 ) 
          Discount on bond repurchases  (450 )    (450 )     
          Write–off of deferred fees related to           
               retirement of debt  6,882     6,882      
          Gain on sale of assets  (56,543 )    (56,543 )     
          Loss on impairment of assets  16,449     12,683   3,766    
          Other, net  1,855   15,595   (16,071 )  1,160   1,171  
          Increase in net working capital  28,863     22,540   5,035   1,288  
          Increase in amounts due to Parent            27,264     (26,636 )    (628 ) 
               Net cash provided by operations  72,729   (8 )  54,583   13,652   4,502  
Cash flows from investing activities:           
          Capital expenditures  (13,871 )    (9 )  (13,652 )  (210 ) 
          Net proceeds from sale of assets  59,924     59,924      
          Intangible assets acquired    (3,504 )        (3,504 )         
               Net cash provided by investing           
                    activities  42,549     56,411   (13,652 )  (210 ) 
Cash flows from financing activities:           
          Borrowings under revolving           
               credit facilities  115,800     115,800      
          Repayments under revolving credit           
               facilities  (115,800 )    (115,800 )     
          Long–term debt borrowings  467,500     467,500      
          Long–term debt repayments  (460,750 )    (460,750 )     
          Discount on bond repurchases  450     450      
          Payment of financing costs    (12,850 )        (12,850 )         
               Net cash used for financing           
                    activities  (5,650 )    (5,650 )     
Effect of exchange rate changes on cash    685                 685  
Increase (decrease) in cash and           
     cash equivalents  110,313   (8 )  105,344     4,977  
Cash and cash equivalents at           
     beginning of period    27,453     8     13,341     1     14,103  
Cash and cash equivalents at           
     end of period  $   137,766   $    —   $   118,685   $   1   $    19,080  

40


PLAYTEX PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except per share data)

       Three Months Ended         Six Months Ended 
 June 30,         July 1,   June 30,         July 1, 
 2007   2006   2007   2006 
Net sales $  235,668 $  180,289 $  416,531 $  356,314
Cost of sales     112,266   82,877   196,654   161,701
     Gross profit 123,402 97,412 219,877   194,613
Operating expenses:    
     Selling, general and administrative 83,231   64,872   145,701 126,800
     Amortization of intangibles   704   651   1,348   1,288
          Total operating expenses 83,935 65,523 147,049 128,088
     Operating income 39,467 31,889 72,828 66,525
Interest expense, net 14,720 14,345 27,857 28,835
Expenses related to retirement of debt 1,162 5,569
Other expenses   11   51   33   68
     Income before income taxes 24,736 16,331 44,938 32,053
Provision for income taxes   9,107   6,041   16,471   12,344
     Net income $ 15,629 $ 10,290 $ 28,467 $ 19,709
 
Earnings per share:
     Basic $ 0.25 $ 0.16 $ 0.45 $ 0.31
     Diluted $ 0.24 $ 0.16 $ 0.44 $ 0.31
Weighted average shares outstanding:
     Basic 62,883 62,637 62,665 62,659
     Diluted 64,428 63,478 64,264 63,514
 
 
 See accompanying notes to unaudited consolidated financial statements. 

41



 PLAYTEX PRODUCTS, INC. 
 
 CONSOLIDATED BALANCE SHEETS 
 
 (Unaudited, in thousands, except share data) 

         June 30,         December 30, 
   2007   2006 
 ASSETS 
Current assets:       
     Cash and cash equivalents  $  11,001   $  28,440  
     Receivables, less allowance for doubtful accounts of $2,856       
          at June 30, 2007 and $1,365 at December 30, 2006    207,552     88,805  
     Inventories    96,023     60,952  
     Deferred income taxes, net    18,555       13,938  
     Other current assets    6,870     7,595  
          Total current assets  340,001     199,730  
 
Net property, plant and equipment  125,185     111,383  
Goodwill  485,610     485,610  
Trademarks, patents and other intangibles, net  151,388     122,219  
Deferred financing costs, net  7,534     8,294  
Other noncurrent assets    344     394  
          Total assets  $  1,110,062   $  927,630  
 
 LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities:       
     Accounts payable  $  42,737   $  30,669  
     Accrued expenses  125,994     79,242  
     Income taxes payable        3,136  
          Total current liabilities  168,731     113,047  
 
Long-term debt  664,026     578,926  
Deferred income taxes, net  76,511     69,160  
Other noncurrent liabilities    23,078     24,231  
          Total liabilities    932,346     785,364  
Stockholders’ equity:       
     Common stock, $0.01 par value, authorized 100,000,000 shares, issued       
          64,710,250 shares and outstanding 64,021,915 shares at June 30, 2007 and issued       
          64,414,272 shares and outstanding 63,380,107 shares at December 30, 2006  647     644  
     Additional paid-in capital  564,006     560,451  
     Retained earnings (accumulated deficit)  (371,833 )    (400,300 ) 
     Accumulated other comprehensive loss  (7,031 )    (6,978 ) 
     Treasury stock, at cost, 688,335 shares at June 30, 2007       
          and 1,034,165 shares at December 30, 2006    (8,073 )    (11,551 ) 
               Total stockholders’ equity    177,716     142,266  
               Total liabilities and stockholders’ equity  $  1,110,062   $  927,630  
 
 
 See accompanying notes to unaudited consolidated financial statements. 

42


PLAYTEX PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

         Six Months Ended 
   June 30,         July 1, 
   2007   2006 
Cash flows from operations:     
     Net income  $ 28,467   $ 19,709  
     Adjustments to reconcile net income to net cash used for operations:     
          Depreciation  7,757   7,331  
          Amortization of intangibles  1,348   1,288  
          Amortization of deferred financing costs  1,200   1,251  
          Equity compensation  5,137   4,073  
          Deferred income taxes  7,548   7,287  
          Premium on debt repurchases    4,561  
          Write-off of deferred fees related to retirement of debt    1,008  
          Other, net  175   20  
          Net changes in operating assets and liabilities:     
               Receivables  (57,117 )  (45,434 ) 
               Inventories  7,715   10,843  
               Accounts payable  3,068   (1,542 ) 
               Accrued expenses  9,778   14,217  
               Other    526     464  
                    Net cash provided by operations  15,602   25,076  
Cash flows from investing activities:     
     Capital expenditures  (10,542 )  (8,933 ) 
     Business acquired net of cash acquired, including transaction related expenses  (107,574 )   
     Payments for intangible assets    (1,000 )    (2,815 ) 
                    Net cash used for investing activities  (119,116 )  (11,748 ) 
Cash flows from financing activities:     
     Repayments under revolving credit facilities  (118,000 )  (6,310 ) 
     Borrowings under revolving credit facilities  203,100    
     Long-term debt repurchases      (68,474 ) 
     Premium on debt repurchases      (4,561 ) 
     Payment of financing costs  (425 )     
     Purchases of Company stock for treasury  (1,845 )  (5,798 ) 
     Proceeds from issuance of stock    2,891     888  
                    Net cash provided by (used for) financing activities  85,721   (84,255 ) 
Effect of exchange rate changes on cash    354     55  
Decrease in cash and cash equivalents  (17,439 )  (70,872 ) 
Cash and cash equivalents at beginning of period    28,440     94,447  
Cash and cash equivalents at end of period  $ 11,001   $ 23,575  
Supplemental disclosures of cash flow information:     
     Interest paid  $ 26,105   $ 29,035  
     Income taxes paid, net  $ 12,212   $ 8,456  
 
 
 See accompanying notes to unaudited consolidated financial statements. 

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PLAYTEX PRODUCTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

     The interim Consolidated Financial Statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information. In preparing our interim financial statements, we make certain adjustments (consisting of normal recurring adjustments) considered necessary in our opinion for a fair presentation of our financial position and results of operations. The results of operations for the six month period ended June 30, 2007 are not necessarily indicative of the results that you may expect for the full year.

     Our results for the three and six months ended June 30, 2007 and July 1, 2006 are for the 13-week periods and 26-week periods then ended, respectively. In addition, our results for the 13-weeks and the 26-weeks ended June 30, 2007 include the operations of Hawaiian Tropic since the April 18, 2007 acquisition date as well as the assets and the liabilities of Hawaiian Tropic at June 30, 2007 (see Note 4).

     The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions. Key areas where assumptions and estimates are used include sun care returns, bad debt reserves, long–lived assets, goodwill and indefinite–lived intangible assets, promotional accruals, restructuring and related charges, pension and postretirement benefits, stock-based compensation, derivative instruments and the valuation of acquired assets and assumed liabilities.

     Our interim financial information and accompanying notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 30, 2006. Certain prior year amounts have been reclassified to conform to our current year presentation.

2. Recently Issued Accounting Pronouncements

     We are currently evaluating the potential impact of adoption of the following two accounting pronouncements on our Consolidated Financial Statements:

     In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of SFAS No. 115.” The new statement allows entities to choose, at specified election dates, to measure eligible financial instruments and certain other items at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, or our fiscal 2008.

     In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements.” SFAS No. 157 provides guidance for using fair value to measure assets and liabilities and is intended to respond to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on income. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. SFAS No. 157 also establishes a fair value hierarchy that prioritizes the type of information used to develop assumptions used to measure fair value and requires separate disclosure by level within the fair value hierarchy. The provisions of SFAS No. 157 are effective for interim financial statements issued for fiscal years beginning after November 15, 2007, or our fiscal 2008.

3. Subsequent Event—Merger Agreement

     On July 12, 2007, we announced the signing of a definitive agreement (the “Energizer Merger Agreement”) with Energizer Holdings, Inc. (“Energizer”) under which Energizer will acquire all of our outstanding shares of common stock, including restricted stock, for $18.30 per share in cash plus the assumption of our debt. In addition, our vested and unvested options, restricted stock units and phantom stock will be cancelled, and the holders of these instruments will receive $18.30 per share underlying option, net of the applicable exercise price, and per restricted stock unit and phantom stock share. The total value of the transaction is expected to be approximately $1.9 billion. The boards of directors of both companies unanimously approved the transaction. The transaction is subject to customary closing conditions, including governmental and regulatory approvals as well as approval of the shareholders of Playtex. This transaction is expected to close in the fall of 2007.

     As part of this merger agreement, as soon as reasonably practicable after receipt of a written request from Energizer, we will take reasonable actions to commence offers to purchase any and all of the outstanding notes (the “Offers”) on price terms and other customary terms and conditions specified by Energizer. The closing of the Offers would be conditioned upon the satisfaction of specified conditions to the closing of the merger between Energizer and Playtex (the “Merger”) and the purchase would occur on the closing date of the Merger. The purchases of the notes pursuant to the Offers will be funded by Energizer.

44


PLAYTEX PRODUCTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. Acquisition

     On April 18, 2007, we completed the acquisition of Tiki Hut Holding Company, Inc., the owner of theHawaiian Tropic brand of sun care products as well as a leading provider of private label sun care products (“Hawaiian Tropic”). This acquisition expands our product offerings in the growing skin care category. The purchase price for the all of the outstanding stock, and our repayment, at the closing, of all outstanding debt of Hawaiian Tropic was approximately $83 million, plus a seasonal working capital adjustment of $22.2 million, which is subject to further adjustment. Fees and expenses related to the transaction were $2.4 million. In the aggregate, we have paid $107.6 million in connection with the Hawaiian Tropic acquisition, subject to further adjustment. There are no contingent payments associated with the transaction. We financed this acquisition under our existing revolver, which was amended in conjunction with the transaction.

     Based on preliminary valuation estimates, we have recorded the acquired assets and assumed liabilities at fair value, including $61.5 million of current assets, net of current liabilities, $4.6 million of deferred tax assets, $11.0 million of property, plant and equipment, $18.7 million in trademarks, which has an indefinite life, $11.7 million in customer and distributor relationships with a 15 year life and $0.1 million of other assets. The purchase price for this acquisition did not exceed the preliminary estimated fair value of the net assets acquired and, therefore, no goodwill has been recorded. The valuations and estimates utilized to determine the purchase price allocation are subject to change. As of June 30, 2007, the purchase price allocation for a number of significant accounts, including property, plant and equipment, trademarks and other intangibles, deferred taxes and pre-acquisition contingencies, has not been finalized because we have not fully completed the accumulation and review of information related to these matters. The final valuation will be completed by the end of fiscal 2007 as we continue to re-evaluate the underlying valuation assumptions.

     Included in the opening balance sheet for the Hawaiian Tropic acquisition was a $5.5 million liability for severance and related costs associated with staff reductions at Hawaiian Tropic of $5.4 million and costs associated with the closure of a leased facility of $0.1 million resulting from the transaction. As of June 30, 2007, total severance payments made to date associated with this liability were $0.1 million. We expect this liability to be paid within the next 12 months.

     The results of operations for the three and six months ended June 30, 2007 include the results for Hawaiian Tropic for the period from April 18, 2007 through June 30, 2007. The Hawaiian Tropic results for the period April 18, 2007 to June 30, 2007, which are part of our fiscal 2007 results for both the three and six months ended June 30, 2007, included $31.3 million in net sales, $11.2 million in gross profit and $2.2 million in operating income. Included in these results for the second quarter of fiscal 2007 was a $1.5 million charge to cost of goods sold for the step-up of inventory to fair value in accordance with SFAS No. 141, “Accounting for Business Combinations” in the Hawaiian Tropic acquisition.

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PLAYTEX PRODUCTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. Restructuring

     In February 2005, we announced a realignment plan (“2005 Realignment”) to improve focus on our core categories, reduce organizational complexity and obtain a more competitive cost structure. Charges for the 2005 Realignment totaled $16.3 million. The initial charges of $10.1 million in restructuring expenses and $0.4 million of other related expenses in selling, general and administrative expenses (“SG&A”) were recorded in the fourth quarter of 2004 and related primarily to severance liabilities under our existing severance policy. In 2005, we recorded $4.2 million in restructuring expenses and $2.0 million of other related expenses ($1.9 million in cost of goods and $0.1 million in SG&A). In the fourth quarter of 2006, we recorded a net adjustment of $0.4 million to reduce our estimated restructuring reserve.

     The following tables summarize the restructuring activities for the six months ended June 30, 2007 and July 1, 2006 (in thousands):

                Adjustments      
 Beginning   Cash   and Changes   Ending 
 Balance   Utilized     to Estimates   Balance 
First Half 2007
     Severance and related expenses $ 560 $ (393 ) $ (50 ) $ 117
     Lease commitments   225   (131 )   (18 )   76
          Total $ 785 $ (524 ) $ (68 ) $ 193
First Half 2006        
     Severance and related expenses $ 3,849   $ (2,248 ) $ $ 1,601
     Early retirement obligations   13 (13 )
     Lease commitments   488   (116 )     372
          Total $ 4,350 $   (2,377 ) $ $ 1,973

6. Balance Sheet Components

     The components of certain balance sheet accounts are as follows (in thousands):

      June 30,        December 30, 
 2007   2006 
Inventories: