SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NUMBER 1 TO FORM 10-K
[ ] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 [Fee Required]
or
[X] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from April 1, 1996 to December 31, 1996
Commission file number 1-12271
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CARSON, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 06-1428605
(State or other jurisdiction of incorporation
or organization) (I.R.S. Employer Identification
Number)
64 Ross Road, Savannah Industrial Park
Savannah, Georgia 31405
(Address, including zip code, of principal executive offices)
Registrant's telephone number, including area code: (912) 651-3400
Securities Registered Pursuant to Section 12 (b) of the Act:
Title of Each Class: Name of Exchange On Which Registered:
Common Stock - Class A, $0.01 Par Value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X__ No
Securities Registered Pursuant to Section 12 (g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the closing price on The New York Stock
Exchange on February 28, 1997 was: $90,248,064
Indicate the number of shares outstanding of each of the registrant's classes,
as of the latest practicable date.
Title of Each Class: Outstanding at February 28,
1997:
Common Stock - Class A, $0.01 Par Value 4,996,568 shares
Common Stock - Class B, $0.01 Par Value 1,859,677 shares
Common Stock - Class C, $0.01 Par Value 8,127,937 shares
Documents incorporated by reference:
1996 Annual Report to Shareholders -- Part II, Exhibit 13.
Definitive Proxy Statement for the 1997 Annual Meeting of Shareholders on May 9,
1997 -- Part III.
<PAGE>
Part I.
Item 1. Business
Forward Looking Statements
This transition report on Form 10-K/A for the nine months ended December
31, 1996 as well as other public documents of the Company contain
forward-looking statements which involve risks and uncertainties, including (i)
the Company's plans to introduce new products and product enhancements, (ii) the
Company's plans to expand its international operations in Africa, Brazil, and
the Caribbean, (iii) the Company's plans to enter the ethnic cosmetics product
category, (iv) the Company's plans to enter the U.S. professional salon market
for ethnic hair care products, (v) the Company's plans to make selective
acquisitions, and (vi) the Company's marketing, distribution and manufacturing
expansion plans. The Company's actual results may differ materially from those
discussed in such forward-looking statements. When used herein and in the
Company's future filings, the terms "expects", "plans", "intends", "estimates",
"projects", or "anticipates" or similar expressions are intended to identify
forward-looking statements (within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")). In addition to risk
factors that may be described in the Company's filings with the Securities and
Exchange Commission (the "Commission") (including this filing and the Company's
prospectus dated October 14, 1996), actual results could differ materially from
those expressed in any forward-looking statements made by the Company.
Additional risk factors include, but are not limited to, the following: (a) the
Company's success in implementing its growth strategy, including its success in
obtaining financing where required, (b) difficulties or delays in developing and
introducing new products or the failure of consumers to accept new product
offerings, (c) changes in consumer preferences, including reduced consumer
demand for the Company's current products, (d) the nature and extent of future
competition in the Company's principal marketing areas, and (e) political,
economic and demographic developments in the United States, Africa, Brazil, the
Caribbean, Europe and other countries where the Company now does or in the
future may do business.
Organization and Business
Carson, Inc. (formerly DNL Savannah Holding Corp. and also referred to herein as
the "Company") was established in May 1995 and until August 1995 its operations
were de minimus. On August 23, 1995, the Company acquired all of the outstanding
stock of Aminco, Inc. (also referred to as the "Predecessor"). Aminco's
operations were principally conducted by its wholly owned subsidiary, Carson
Products Company. Subsequent to the acquisition of Aminco, Carson Products
Company was merged into Aminco; the surviving entity was renamed Carson Products
Company. The accompanying financial statements of the Company include the
operating results of Carson Products Company ("Carson Products") from the
acquisition date.
The Company's acquisition of the Predecessor for approximately $95 million
in cash (including $6 million for fees and other costs directly associated with
the acquisition) was initially financed with long-term borrowings aggregating
approximately $68.0 million and has been accounted for as a purchase (the
"Acquisition"). Accordingly, the purchase price has been allocated to the
Predecessor's identifiable assets and liabilities based on the fair values at
the acquisition date. The excess of the purchase price over the fair value of
the Predecessor's identifiable net assets has been classified as goodwill.
In July 1996, the Company's South African subsidiary sold 25% of its shares
in an initial public offering on the Johannesburg Stock Exchange. The subsidiary
received net proceeds of approximately $4.2 million from this sale (which
resulted in a gain to the Company of approximately $2.8 million which was
recorded in paid in capital). In conjunction with this public offering, the
Company entered into an amendment to its license agreement with its South
African subsidiary which provides that commencing on April 1, 1998, its South
African subsidiary will pay the Company a royalty in the amount of 3.0% of the
net sales price of all licensed products. The amount of the royalty increases to
3.5% on April 1, 1999 and 4.0% on April 1, 2000 until the termination of the
agreement. The initial term of the agreement expires on April 1, 1999; however,
the agreement continues indefinitely thereafter until terminated by either party
upon 12 months written notice.
<PAGE>
General
Carson, Inc. is a leading manufacturer and marketer in the United States
retail ethnic hair care market for African-Americans. The Company believes that
it is one of the leading global manufacturers and marketers of ethnic hair care
products for persons of African descent. The Company's flagship brand, Dark &
Lovely, is the most widely recognized ethnic brand name in the United States
retail ethnic hair care market. The Company currently sells over 70 different
products under five principal brand names, including Dark & Lovely, Excelle,
Beautiful Beginnings, Dark & Natural and Magic. The majority of the Company's
sales are derived from four categories of the ethnic health and beauty aids
market: hair relaxers and texturizers, which are used to chemically treat and
straighten hair (constituting approximately 50% of the Company's ner sales in
1996), hair color, shaving products and hair care maintenance products. The
Company's products are specifically formulated to address the unique
physiological characteristics of hair of persons of African descent, which
typically include curliness and dryness. The Company believes that it has the
number one United States retail market position in three of the four ethnic hair
care categories in which it competes (hair relaxers and texturizers, hair color
and shaving products). In addition, the Company believes that the strength of
its competitive position in the ethnic hair care industry is attributable, in
part, to its heritage of technological innovation and its focused Research and
Development effort. The Company markets its products in the United States with
its own experienced direct sales force. The Company currently markets its
products in over 60 countries outside of the United States, primarily through
local distributors. In the nine months ended December 31, 1996, approximately
28.5% of the Company's net sales were derived from sales within these countries.
The United States retail ethnic hair care market, principally targeting the
distinct hair care needs of African-Americans, was estimated to be a $1.2
billion retail business in 1995. According to 1995 United States Census Data
("Census Data") published by the United States Department of Commerce, the
African-American population was approximately 34 million and represented 12.7%
of the United States population. This segment of the population is projected by
the United States Department of Commerce to grow significantly faster than the
general population through the middle of the next century. The personal income
of African-Americans doubled from 1980 to 1990 and their combined purchasing
power was estimated to be approximately $260 billion in 1990, according to the
Census Data. Moreover, research indicates that African-American consumers
generally spend up to three times as much of their disposable income on health
and beauty products as Caucasian consumers.
<PAGE>
On a global scale, the Company currently estimates that there are approximately
900 million people of African descent outside the United States, including an
estimated 750 million people on the African continent, 100 million people in
Brazil, 20 million people in the Caribbean, 10-15 million people in Europe and
10-13 million people in Central America. The Company's experience in developing
regions such as South Africa, the Caribbean and Brazil indicates the percentage
of women who patronize salons is dramatically higher in these developing markets
than in developed markets such as the United States. These women tend to
patronize salons because relaxer products are generally unavailable on a retail
basis, professionals have the expertise, as well as ready access to hot water,
which is necessary for effective use of relaxer products, and the local salon is
often a social gathering place for its patrons. Although there is no independent
market data to support the size of the international market, the Company
believes that the international market is significant. For example, the Company
estimates that in Southern Africa, with a Black population of approximately 100
million, manufacturers of ethnic hair care products generated approximately $40
million in sales in 1995.
Ethnic Market Leadership
The Company's resources are focused primarily on satisfying the unique personal
care needs of individuals of African descent worldwide. The Company believes
that it has the number one United States retail market position in three of the
four ethnic hair care categories in which it competes (hair relaxers and
texturizers, hair color and shaving products). The Company attributes its
leading market position to its strong brand names, combined with its direct
sales force, broad distribution, R&D capabilities and experienced management
team. Because of these strengths, the Company believes that it has a competitive
advantage over both the companies specializing in products for the ethnic hair
care market and the few general market companies that compete in the ethnic hair
care market but whose principal resources are targeted to the general health and
beauty aids market.
Strong Brands. The Company currently sells its products under five
principal brand names including Dark & Lovely, Excelle, Beautiful Beginnings,
Dark & Natural and Magic. The Company's flagship brand, Dark & Lovely, is the
most widely recognized ethnic brand name in the United States retail ethnic hair
care market for African-Americans. The Company believes that its brand strength
is based upon product quality, properly targeted advertising, package design,
reputation for innovation and focused commitment to the unique needs of ethnic
consumers.
Experienced Sales Force and Broad Distribution. In April 1995, the Company
established a direct sales force to enhance its ability to further penetrate
existing markets with both current and new products. The sales force has
significant sales experience both with major consumer product companies and
ethnic hair care competitors. The Company believes that it now has the largest
direct sales force serving the United States retail ethnic hair care market.
Historically, the Company used commissioned sales brokers, as is the industry
norm, who tended to have conflicting brand loyalties and provided minimal
marketing and sell-through support. In the United States, the Company benefits
from having its extensive product line distributed broadly through three
principal channels: (i) multi-warehouse chains, including mass merchandisers
(e.g., Wal-Mart, K-Mart), major drug chains (e.g., Walgreens, Revco), food
chains (e.g., Winn Dixie, Kroger) and discount chains (e.g., Family Dollar,
Dollar General), (ii) Beauty and Barber Supply Stores ("B&B's") such as
Alberto-Culver Company's Sally's Beauty Supply stores and members of the
National Beauty Supply Dealers Association, and (iii) ethnic product
distributors.
Research and Development. The Company believes that its heritage of
technological innovation and its focused R&D effort are important to maintaining
its market leadership position. Three of the ethnic hair care industry's most
significant innovations were introduced by the Company: the first hair color
developed exclusively for hair of persons of African descent (1972), the first
no-lye relaxer, which provided a safe relaxer product for home use (1978), and
the recently patented Fail Safe technology for no-lye relaxers, which eliminates
problems associated with imprecise mixing which can make no-lye products too
weak, thereby impacting straightening, or too strong, leading to hair damage.
One of the most significant sources of consumer complaints in the industry is
inconsistent results caused by mixing errors. The Company believes that its R&D
department, led by two industry experienced chemists with Ph.Ds and including
nine other researchers and technicians, represents the largest R&D effort
focused on the ethnic hair care market.
Experienced Management Team. Carson's team of seasoned senior executives
with extensive experience in the ethnic market and consumer products industry
continue to build on the Company's strong position in the global ethnic hair
care market. This management team has focused the Company's strategy to further
develop the ethnic hair care market both in the United States and
internationally.
<PAGE>
Carson's Growth Strategy
The Company believes that it is well positioned to grow both internally and
through acquisitions, in order to enhance its market position in the ethnic
personal care market. The Company intends to achieve its goals by (i) increasing
its share of existing markets, (ii) increasing international expansion, (iii)
leveraging brands into new categories, (iv) targeting the United States
professional salon market and (v) capitalizing on selective acquisition
opportunities.
Increase Share of Existing Markets. Using Carson's 90-year research and
development expertise in male depilatories, the Company expects to launch its
first depilatory for women, Naturally Soft, in 1997. The Company has high
aspirations for this product as we believe the product formulation outperforms
any of the other female depilatories on the market. In addition, we plan to
target the growing children's market with a newly patented texturizer for boys,
a pre-teen female relaxer and a children's bubble bath and body lotion.
The Company plans on supplementing its existing products with new additions
each year, while at the same time challenging R&D to improve existing product
lines. Since the Company has the largest R&D group in the ethnic personal care
industry, the Company believes that it can protect our current position in our
existing markets by constantly upgrading the quality of our products and
simultaneously entering new and developing markets.
Increase International Expansion. The primary targets for Carson's
international expansion are Africa, Brazil and the Caribbean. For the nine-month
period ended December 31, 1996 compared to the nine-month period ended December
31, 1995, international sales were up 31.9%.
Southern Africa has been the largest growth area for the Company. As a
result, the Company is currently doubling the manufacturing and warehouse space
at its South Africa facility after less than one year of operation in order to
support the anticipated growth of the Company. In late 1996, we also purchased a
production facility in Ghana located near the Ghanaian Coca-Cola bottling plant
which will enable the Company to better service the 200 million Black people
located in the region. The plant is projected to be operational by June 1997.
In Kenya, East Africa, the Company anticipates having a similar facility to
the West African Ghanaian plant which should be operational by late 1997 or
early 1998. Since East Africa has over 150 million Black people, we believe the
Company has a similar opportunity for growth in this region.
Brazil is another key international area for Carson. With the magnitude of
the target population in Brazil, estimated at 100 million people of African
descent, which is almost three times the targeted market of the United States,
the Company believes it has a significant opportunity in this region. All of the
Company's products have been approved by the Brazilian authorities. The Company
is in discussions with a number of financial institutions and major Brazilian
corporations to establish a bonded warehouse operation which will ensure
consistent and timely delivery of its products and reduce its overall risk.
In the Caribbean, sales for the nine-month period ended December 31, 1996
increased by more than 120% above the same period in 1995. Our success in the
Caribbean reflects the Company's decision in March 1996 to substantially alter
its distribution strategy and to assign direct responsibility to a Carson sales
manager dedicated exclusively to this region. The Company plans to acquire a
facility in Jamaica, which will enable the Company to produce in a Caribbean
Community and Common Market (CARICOM) nation, and thereby substantially reduce
the taxes and tariffs on its products.
Leverage Brands into New Product Categories. The introduction of the Dark &
Lovely Cosmetic Line is on target for launch in the second quarter of 1997. The
position for the Dark & Lovely Cosmetic Line is "Class to Mass." The Company
plans to leverage the same distribution channels as its core business and offer
a quality line of products at an affordable price. The Company plans to
introduce a complete line of cosmetics with 76 SKU's. Initially, face products,
eye shadows, lipsticks and nail enamels will be introduced. In early 1998, the
Company plans to add accessory products such as pencils and mascaras.
Target the United States Professional Salon Market. Carson is planning to
introduce a specially formulated 50 SKU-line of professional products in the
fourth quarter of calendar 1997. Product formulation and development, along with
packaging and quantitatively based concept testing have been completed. A
Professional Salon Design Council comprised of expert professional
cosmetologists has been assembled to provide input into the development of the
professional product line. Their preliminary responses and evaluation of the
product formulas have been very positive. An experienced management team has
been put in place to direct the expansion into the professional market.
Capitalize on Selective Acquisition Opportunities. Because the ethnic
personal care market is a highly fragmented industry, the Company believes it is
properly positioned for pursuing strategic acquisitions. Carson has entered into
an agreement with a leading Wall Street firm to act as the Company's acquisition
financial advisor. The Company believes it can strengthen its current product
categories or enter certain market segments where it has had little or no
presence, with the correct acquisitions. There can be no assurance that suitable
acquisitions or joint venture candidates can be identified, or if an acquisition
is completed, that the operations will be successfully integrated or otherwise
not have an adverse effect on the Company.
<PAGE>
Key Brands And Products
The Company manufactures and markets a variety of products worldwide. The
following table sets forth the Company's principal products, by brand, as of
December 31, 1996.
<TABLE>
<S> <C>
Brand Products
Dark &Lovely RELAXERS: Cream Relaxer, Regular Strength; Cream Relaxer Plus,
Super Strength Hair Care Maintenance Products: Corrective Leave-in Condition
Therapy; Pro Therapy Protein Intensive Conditioner; Rich & Natural Hair Dress
Conditioner; Silky Set Conditioning Set &Wrap Lotion; Quik Freeze Super Shine
Spritz; 3-N-1 Plus Detangling/Conditioning Shampoo; Deep Conditioning Treatment;
Restore &Repair Reconstructive Hair Therapy; Quick Styling Gel-Regular Hold;
Quick Styling Gel-Super Hold; Ultra Cholesterol Super Strengthening/Conditioning
Treatment; 24-hr. Therapy Moisture &Shine Replenisher; Ultra Strengthener Herbal
& Vitamin Hair Therapy; Restorer Super Strengthening Hot Oil; Healthy Shine Oil
Sheen Spray; Color Care Shampoo; Color Care Conditioner
HAIR COLOR: Permanent: Jet Black; Natural Black; Brown Sable; Rich Auburn; Sunset Auburn; Autumn Red;
Light Brown; Honey Blonde; Golden Bronze; Chestnut Blonde; Spicy Cinnamon;
Midnight Blue; Black Ruby; Light Golden Blonde; Deep Copper
REVIVING COLORS HAIRCOLOR: Semi-Permanent: Radiant Black; Ebone Brown; Spiced Auburn;
Passion Plum; Natural Black; Brown Cinnamon
Excelle RELAXERS: Cream Relaxer,
Regular Strength; Cream Relaxer Plus, Super Strength
HAIR CARE MAINTENANCE PRODUCTS: Silky Sensation Shampoo; 5-Minute Reconstructer;
Leave-In Conditioning Mist
Beautiful Beginnings
RELAXERS: Children's Relaxer
HAIR CARE MAINTENANCE PRODUCTS: Conditioning Shampoo Plus Detangler; Leave-In
Conditioner Plus Detangler; Natural Oil Moisturizer
Plus Detangler; Scalp Conditioner and Hair Dress
Dark & Natural TEXTURIZERS: Texture Enhancer, Regular
Strength; Texture Enhancer, Extra Strength; Texture Enhancer for Short Hair
and Fades
HAIR CARE MAINTENANCE PRODUCTS: Moisturizing Shampoo; Dry Hair &Scalp
Moisturizer Conditioner; Wave Lotion; Wave & Style Gel
HAIR COLOR: Jet Black; Natural Black; Darkest Brown
MOUSTACHE &BEARD COLOR; Jet Black, Natural Black
Magic SHAVING PRODUCTS: Shaving Powders: Gold,
Platinum, Blue and Red; Cream Shave: Regular & Mild and Pre-shave/After-shave
lotion
</TABLE>
<PAGE>
Marketing and Promotions
The Company believes that understanding the consumer, meeting her or his
needs and delivering on product promises are critical in maintaining the
Company's competitive position. The Company spent an average of approximately 1%
of net sales for each of the last two fiscal years on market research, such as
in-home consumer product placements for new products, tracking studies, concept
testing, package testing and advertising testing aimed at improving its
understanding of and effectively targeting its consumer. The Company also
maintains a toll-free telephone number to answer consumer questions and to
gather consumer feedback used to focus the Company's marketing programs.
Over 15% of net sales in the nine months ended December 31, 1996 was
allocated to advertising and consumer promotions. The Company believes that is
the leading advertiser in the ethnic hair care market, with most of its emphasis
on television and print. The Company regularly advertises in magazines aimed at
consumers of African descent, such as Essence, Ebony, Black Enterprise and Jet,
and in targeted spot advertising on television and cable channels such as Black
Entertainment Television (BET) and engages in promotional activities and
in-store displays to introduce new products or attract new consumers. The
Company also uses its kit packaging format to conduct sampling programs for new
products.
In January 1996, the Company's advertising account was awarded to Don
Coleman & Associates, Inc., considered by the Company to be in the forefront of
ethnic advertising. The previous agency had been in place for over 20 years. A
new campaign for the Company's flagship brand, Dark & Lovely, including
television, print, and radio advertising was launched in late autumn of 1996.
The Company is actively involved in numerous public relations and
community relationship events. In 1996, the Company was involved in the Olympics
both in Savannah and Atlanta. In Atlanta, the Company was one of the sponsors of
La Maison Olympique Africaine, The African Olympic House, providing the Company
with an opportunity to highlight its presence in the global African business
community. The Company's commitment to the African-American community is
demonstrated through several support programs including sponsorship of the Black
Family Reunion Program and a Safe Shelter Program for homeless women and
children and the establishment of the Carson Scholarship Program at historically
Black universities such as Dillard, Hampton and Fisk Universities. From October
to December 1996, the Company, in conjunction with several leading
African-American women's organizations and the Celebrating Life Foundation,
promoted awareness of breast cancer among African-American women. In addition,
the Company has committed to donate $0.10 from the sale of every Dark & Lovely
relaxer and hair color unit sold during that period, up to $150,000, to the
Celebrating Life Foundation to help provide education on breast cancer and make
screening available to African-American women unable to afford the examination.
<PAGE>
Distribution and Sales
The Company's customers can be categorized into three principal
distribution channels in the U.S. retail ethnic hair care market, as follows:
Multi-warehouse Chains. Multi-warehouse chains are groups of stores
operating under the same name that have a number of different
distribution points, warehouses or shipping points. Chains which
carry the Company's products include mass merchandisers (e.g.
Wal-Mart, K-Mart), drug chains (e.g., Walgreens, Revco, CVS, Rite
Aid, Duane Reade), food chains (e.g., Winn Dixie, Kroger), and
discount chains (e.g., Family Dollar, Dollar General). The chains
generally are an important part of the Company's retail business
because of their ability to draw ethnic customers from a large
geographic area. The Company's multi-warehouse chain customers may
purchase the Company's products directly from the Company, through an
ethnic product distributor, or both.
Beauty & Barber Supply Stores. The Beauty & Barber Supply Stores
("B&Bs") are dominated by the Sally's Beauty Supply retail chain
(Alberto-Culver Company) and the National Beauty Supply Dealers
Association (the "NBSDA"), a large group of independent
family-controlled retail outlets. B&Bs that are members of the NBSDA
are prevalent in the African-American community, typically in retail
outlets in strip shopping malls. B&Bs generally have convenient
locations, low everyday prices, and a wide selection of ethnic
products relative to retail chains.
Ethnic Product Distributors. Ethnic product distributors are
wholesalers who either place products directly in stores or have a
warehouse-to-warehouse relationship with the major chains. K-Mart is
an example of a chain that has a warehouse-to-warehouse relationship
in which K-Mart obtains the Company's products for certain of its
stores through a major ethnic product distributor in Detroit. The
overall importance of this class of trade has gained increasing
significance in recent years.
The combination of multi-warehouse chains, B&Bs and ethnic product
distributors accounted for approximately 87.0% of the Company's domestic net
sales in the nine months ended December 31, 1996. The balance of the Company's
net sales during this period were generated by general market distributors,
regional chains and military exchanges and commissaries. No single Company
customer accounted for more than approximately 8.6% of the Company's net sales
in the nine months ended December 31, 1996.
As the Company develops new stock keeping units (SKUs) for existing
product lines, launches new products and enters new markets in the U.S. ethnic
health and beauty aids sector, the Company believes that its strong, direct
relationships with multi-warehouse chains, B&Bs and ethnic product distributors
will play an increasingly valuable role in maintaining market share as well as
gaining additional shelf space, promotional/advertising space and store
merchandising coverage. The Company has been selected by one of its
multi-warehouse chain customers to be the ethnic category manager for all ethnic
health and beauty aids products carried by such customer. As ethnic category
manager, the Company assists in the development of the customer's merchandising
program for ethnic health and beauty aids products.
The Company's strong relationships with its customers in the various
distribution channels are enhanced by its direct sales force which totals over
30 and is comprised of two divisional managers, eight regional managers and
between three and six sales merchandisers per region, covering the Northeast,
Mid-Atlantic, Mideast and Midwest regions in the Northern Division and the
Mid-South, Southeast, Southwest and Western regions in the Southern Division.
The sales force in each region sells to all of the distribution channels doing
business in its market.
The Company has established distributor relationships in various countries
in international markets. In South Africa, the Company focuses its direct sales
efforts primarily on hair care salons which are serviced through regional
distributors and specialty cash-and-carry wholesale outlets. Retail product
distribution in South Africa is currently being expanded to include mass
merchandisers and other large retail chains.
<PAGE>
Research and Development and Quality Control
The Company believes that the strength of its competitive position in the
ethnic hair care industry is attributable, in part, to its heritage of
technological innovation and its focused R&D effort. Three of the ethnic hair
care industry's most significant innovations were introduced by the Company: the
first hair color developed exclusively for African-American hair (1972), the
first no-lye relaxer, which provided a safe relaxer product for home use (1978),
and the recently patented Fail Safe technology for no-lye relaxers, which
eliminates problems associated with mixing no-lye relaxer products to obtain the
correct strength. The Company believes that its R&D department, led by two
industry experienced chemists with Ph.D.s and including nine other researchers
and technicians, represents the largest R&D effort focused on the ethnic hair
care market. In 1996, the Company's R&D department finalized the development of
several product innovations, including the Fail Safe and DL2000 hair relaxer
technologies, as well as a full line of hair care maintenance products.
The R&D department pursues an aggressive product development schedule and
intends to maintain its leadership in product innovations and technological
improvements. In particular, the R&D department intends to: (i) facilitate the
Company's entry into the U.S. professional salon market with a line of specially
formulated products; (ii) expand the rapidly growing line of Dark & Natural
products; (iii) develop new and innovative hair care maintenance products; (iv)
strengthen the Company's hair color products; (v) and develop more effective,
milder depilatories for both men and women. The R&D department's agenda also
includes the continued review and evaluation of various packaging alternatives
to ensure that the Company's products are delivered in safe, secure and
cost-effective containers. The Company's R&D costs (principally for new
products) for the years ended March 31, 1994, 1995 and 1996 was $0.4 million,
$0.3 million and $0.4 million, respectively. For the nine months ended December
31, 1996, the Company's R&D costs were $0.3 million. The Company's estimated
budget for R&D costs for 1997 is $0.6 million. These amounts do not include
amounts spent on quality control, analytical chemistry, microbiology, package
testing and consumer products testing.
The R&D department also supervises the Quality Control staff of 13 who
perform extensive safety and quality tests on the Company's products, including
analytical chemistry, microbiology and package testing. The Company tests its
new products with the aid of its four in-house cosmetology technicians at its
on-site salon.
Manufacturing
The Company uses a batching process in its manufacturing operations for
virtually all of its products. The batching process begins with chemical
ingredients being mixed in kettles in batch sizes ranging from 2,000 lbs. to
21,000 lbs. The kettles heat, cool, homogenize and blend each batch of materials
according to standard operating procedures (SOPs). The SOPs for each product are
established by the Company's R&D and Quality Control staff and are periodically
reviewed and improved to ensure uniformity and batch-to-batch conformity with
the manufacturing specifications for the product.
The product is then transferred from the kettles into a holding tank or
another type of storage device until it is pumped into a filling machine that
volumetrically fills the liquid or cream into plastic jars, tubes, bottles or
packets. Each container (i.e., jar, tube, bottle or packet) is coded to identify
or track a specific batch. Hair care maintenance products are then packed in
shipping boxes and sent to the finished goods warehouse ready for shipment to
the Company's customers. Certain other products are filled, capped, labeled,
coded and stored temporarily until they are assembled as components in the
relaxer, texturizer or hair color kits.
The Company emphasizes quality and adherence to Good Manufacturing
Practices (according to FDA guidelines) throughout the production operation.
Each batch of finished product is tested by Quality Control staff before it is
packaged and shipped. The Company's quality control measures and standards
include testing raw materials and packaging materials.
The Company purchases raw materials, packaging, and components throughout
the world and reviews the efficiency and quality of its purchasing contracts.
Except as described below, the Company believes that alternate sources of
supplies exist and does not anticipate any significant shortages of, or
difficulty in obtaining, such supplies.
Guanidine carbonate is an essential raw material used in the manufacturing
of no-lye relaxer products and has been purchased by the Company for over 15
years from the one principal supplier to all manufacturers of no-lye relaxers,
located in Austria. The Company maintains a stock of guanidine carbonate at its
Savannah facility which would satisfy its requirements for approximately four to
six months of future production. The Company believes that guanidine carbonate
of comparable quality could be made available within this time period from other
suppliers on comparable terms.
<PAGE>
Competition
The U.S. retail ethnic hair care market is competitive and highly
fragmented with a number of market participants that focus specifically on this
market. Six companies generated approximately 50% of industry sales in 1995 with
the remainder being generated by a number of smaller companies, according to the
Towne-Oller Report. Some of the larger companies, such as Soft Sheen, Luster
Products and Pro-Line Corp., are privately-owned and compete only in the ethnic
market, as does the Johnson Products subsidiary of IVAX, Inc., a New York Stock
Exchange traded company. However, a few general market companies, such as
Revlon, Inc. and Alberto-Culver Company, also produce a limited line of
specialized products for the ethnic consumer. In certain product categories,
such as shampoos and hair color, competition also arises from general market
manufacturers such as the Procter & Gamble Company and Bristol-Myers Squibb
Company's Clairol division. Such general market companies are larger and have
substantially greater financial and other resources than the Company.
Internationally, the Company's competitors differ from market to market, and
include Revlon, Soft Sheen and several regionally based foreign companies.
The Company primarily competes on the basis of brand recognition, product
quality, performance and price. Advertising, promotions, merchandising,
packaging and the timing of new product introductions and line extensions also
have a significant impact on buying decisions and the structure and quality of
the sales force affect product reception, in-store position, display space and
inventory levels in retail outlets.
Trademarks and Patents
The Company owns all of the trademark rights used in connection with its
principal brands both in the United States and in the other countries in which
its products are principally sold. Significant trademarks include: Dark &
Lovely, Dark & Lovely Excelle, Beautiful Beginnings, Dark & Natural and Magic.
The Company utilizes certain proprietary or patented technologies in the
formulation or manufacture of a number of its products; however, the loss of
such proprietary rights would not have a material adverse effect on the
business, results of operations or financial condition of the Company.
Consumer Laws, Government and Industry Regulations
The Company is subject to the Food, Drug and Cosmetics Act, the Consumer
Product Safety Act, the Federal Hazardous Substance Act and to the jurisdiction
of the Consumer Product Safety Commission as well as product safety laws in
foreign jurisdictions. Such regulations subject the Company to the possibility
of requirements of repurchase or recall of products found to be defective and
the possibility of fines or penalties. The Food and Drug Administration ("FDA")
has promulgated certain regulations concerning product ingredients, product
labeling and product claims. In addition, the FTC regulates product claims. The
Company is subject to consumer laws in foreign countries where its products are
sold, for example, bilingual packaging requirements (Canada) and new product
registration requirements (Brazil). Existing and future FDA, FTC and foreign
regulations could impact distribution and sales of certain of the Company's
products.
The Company operates under the FDA's Good Manufacturing Practices (GMP)
guidelines and is regulated by the FDA, although its product formulas do not
have to be approved in advance by the FDA. Coloring agents used in the Company's
products may be either Food, Drug & Cosmetic (FD&C) or Drug & Cosmetic (D&C)
classified. Additionally, as a member of the Cosmetics, Toiletries and
Fragrances Association ("CTFA"), the Company agrees to adhere to Quality
Assurance Guidelines as promulgated by CTFA. The Company believes that it is
substantially in compliance with such guidelines and uses such guidelines as
standards for its operational activities. The Company is also subject to various
other Federal, state, local and foreign regulations. Federal, State and local
regulations in the United States that are designed to protect customers or the
environment have had an increasing influence on product claims, contents and
packaging. The Company believes that it is in substantial compliance with such
regulations.
<PAGE>
Employees
The Company is organized into seven departments--Marketing, R&D (including
Quality Control), Sales, Operations (Production and Materials Management),
Finance, Administration and Human Resources. As of December 31, 1996, the
Company employed approximately 281 persons in Georgia, an additional 31
elsewhere in the United States and 90 internationally. In the United States, 214
were hourly personnel and 98 were salaried employees. The Company also utilizes
temporary workers as needed, primarily in manufacturing. Approximately 90 such
temporary workers were utilized on a daily basis by the Company during the nine
months ended December 31, 1996. The Company is non-union and believes that its
relationship with employees is good.
Environmental Matters
The Company is subject to various Federal, state, local and foreign
environmental requirements, including those relating to discharges to air, water
and land, the handling and disposal of solid and hazardous waste and the cleanup
of properties affected by hazardous substances. Certain environmental laws, such
as the Comprehensive Environmental Response, Compensation, and Liability Act, as
amended ("CERCLA"), impose strict, retroactive, joint and several liability upon
persons responsible for releases of hazardous substances.
The Company is not aware of any liabilities arising under environmental
requirements, except as would not be expected to have a material adverse effect
on the Company's business, results of operations or financial condition.
However, some risk of environmental liability is inherent in the nature of the
Company's current and former businesses and the Company might in the future
incur material costs to meet current or more stringent compliance, cleanup or
other obligations pursuant to environmental requirements.
The Company has had difficulty meeting its permit levels for various
parameters for its wastewater discharge to the City of Savannah's sewer system
resulting in the issuance of notices of violation to the Company by the City of
Savannah. In response, the Company installed pretreatment equipment, which has
reduced the concentrations of many of the constituents of concern. However, the
Company continues to experience difficulty meeting certain discharge
limitations. If the Company cannot either improve the reliability of its present
treatment system, or obtain modifications to its discharge limits from the sewer
authorities, it may be required to install additional treatment equipment. The
Company is working cooperatively with the City of Savannah to address this issue
and has not been nor does it expect to be fined. However, there can be no
guarantee that the Company will not incur future costs, including but not
limited to, fines in connection with waste water compliance. The costs for
installing additional treatment could be as much as $0.5 million. The Company
does not currently expect the costs of environmental compliance to have a
material adverse effect on its business, results of operations or financial
condition.
Item 2. Properties
The Company owns and occupies six buildings on a 11.6-acre tract in
Savannah. The plant, warehouses and offices encompass approximately 225,000 sq.
ft. on seven acres of the property, with the remaining 4.6 acres undeveloped.
Four of the buildings are used primarily for warehousing and storage. The
largest building (more than 120,000 sq. ft.) houses the manufacturing equipment
for substantially all of the Company's products, shipping, quality control, the
R&D laboratories, customer research and a professional hair salon which tests
new products. The manufacturing and warehousing space has been expanded seven
times since it was originally built in 1954. The Company is in the process of
reconfiguring its production lines and expanding its physical space in order to
increase the capacity of the Savannah facility. Following the planned capacity
increase, the Company believes that the capacity in the Savannah facility will
be adequate for its needs in the reasonably foreseeable future.
The Company's South African subsidiary owns and occupies one building on
4.5 acres in Midrand, South Africa, 15 miles north of Johannesburg in a
developing industrial park located on the major highway between Johannesburg and
Pretoria. The property was previously occupied by Pfizer as a manufacturing
facility and was easily converted to suit the Company's needs. The building
encompasses approximately 40,000 sq. ft. and houses the manufacturing equipment
for all products, shipping and receiving, raw material and finished goods
storage, an R&D laboratory and executive office space. Ample acreage is
available for expansion of the facility. The Company believes that capacity in
the South African facility is adequate for its needs in the reasonably
foreseeable future.
In late 1996, the Company purchased a production facility in Ghana located
near the Ghanaian Coca-Cola bottling plant which will enable the Company to
better service the 200 million Black people located in the region. The plant is
expected to be operational by June 1997. In Kenya, East Africa, the Company
anticipates having a similar facility to the West African Ghanaian plant which
should be operational by late 1997 or early 1998. Since East Africa has over 150
million Black people, the Company believes it has a similar opportunity for
growth in this region.
<PAGE>
Item 3. Legal Proceedings
The Company is involved in various routine legal proceedings incident to
the ordinary course of its business and believes that the outcome of all pending
legal proceedings, in the aggregate, will not have a material adverse effect on
the business, results of operations or financial condition of the Company.
Item 4. Submission of Matters to Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
- --------------------------------------------------------------------------------
Name Age Position
- --------------------------------------------------------------------------------
Dr. LeRoy Keith 57 Chairman of the Board and Chief Executive
Officer
- --------------------------------------------------------------------------------
Joyce M. Roche 49 President and Chief Operating Officer
-------------------------------------------------------------------------------
Dennis E. Smith 49 Executive Vice President, Sales
-------------------------------------------------------------------------------
Bill Bradley 48 Executive Vice President, Worldwide
Operations
-------------------------------------------------------------------------------
Miriam Muley 42 Executive Vice President, Marketing
-------------------------------------------------------------------------------
Bradford N. Creswell 37 Executive Vice President, Finance and Chief
Financial Officer
-------------------------------------------------------------------------------
Officers of the Company are elected annually by the Board of Directors.
Dr. Keith became Chairman and Chief Executive Officer of Carson
Products concurrent with the Acquisition in August 1995 and a Director of the
Company upon its inception in May 1995, and served as Vice President until
1996. Dr. Keith became Chairman and Chief Executive Officer of the Company
in August 1996. Dr. Keith has served as Chairman of the Board of Directors
of AM Cosmetics since June 1996. He served on the Board of Directors of the
Predecessor from June 1994 to August 1995. Prior to that, he served as
President of Morehouse College from 1987 to 1994. Dr. Keith is a member of
the Board of Directors of Keystone Investment Group, the Mutual Funds Board
of Phoenix Home Life Insurance Company, One to One Partnership, Inc. and the
National Committee for the Performing Arts of the John F. Kennedy Center.
Ms. Roche became President and Chief Operating Officer of Carson Products
in July 1996 and President, Chief Operating Officer and Director of the Company
in August 1996. Prior to July 1996, she held the position of Executive Vice
President of Global Marketing and Director since joining Carson Products in
August 1995. Before joining Carson Products, Ms. Roche was employed by Avon,
Inc. for 19 years where she held the titles of Senior Vice President of
Marketing from 1991 to 1993 and Vice President of Global Marketing from 1993 to
1994.
Mr. Smith became Executive Vice President of Sales of Carson Products
concurrent with the Acquisition in August 1995 and of the Company in August
1996. Mr. Smith became a Director of Carson Products in December 1995. Prior to
August 1995, he held the position of Vice President of Sales of Carson Products
from 1990 to 1995.
Ms. Muley became Executive Vice President of Marketing of Carson Products
in July 1996 and of the Company in August 1996. Prior to July 1996, she held the
position of Vice President, Marketing since joining Carson Products in April
1996. She was previously employed by Avon from 1992 to 1996 as General Manager,
African-American Business Unit and by Bristol-Myers Squibb's Clairol division as
Product Manager from 1990 to 1992.
Mr. Creswell became Executive Vice President of Finance and Chief Financial
Officer of Carson Products concurrent with the Acquisition in August 1995 and of
the Company in August 1996. He also served as President of Northwest Capital,
Inc. since 1992. Prior to that time, he was employed as Vice President,
Investment Banking with Bankers Trust Company from 1987 to 1992. Mr. Creswell
resigned from his position with the Company in May 1997.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters
The high and low sales prices for the Company's common stock as reported
by the New York Stock Exchange since the time of the Company's initial public
offering through December 31, 1996 are as follows:
High 16 5/8
Low 13 3/4
At February 28, 1996, there were approximately 1,252 holers of record of
the Company's common stock. Since the Acquisition, the Company has not declared
or paid any cash or other dividends on its Common Stock and does not expect to
pay dividends for the forseeable future. The Company anticipates that for the
forseeable future, earnings will be reinvested in the business to finance its
growth and development. The declaration and payment of dividends by the Company
are subject to the discretion of the Board of Directors of the Company (the
"Board"). The Company entered into a new bank credit facility which restricts
the ability of the Company or any subsidiary of the Company from paying cash
dividends other than dividends or distributions payable in shares of capital
stock. Any future determination to pay dividends will depend on the Company's
results of operations, financial condition, capital requirements, contractual
restrictions and other factors deemed relevant by the Board.
Item 6. Selected Financial Data
Selected Consolidated Historical Financial Data
Carson, Inc.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Combined (1)
Company (3) (Unaudited) Full Fiscal Year
Predecessor
Nine Nine
Months Months Predecessor Company (2)
Ended Ended April 1, 1995 August 23, 1995 Year Ended March 31,
Amounts in 000s except per
share data December 31, December 31, to August 22, to March 31,
1996 1995 1995 1996 (5) 1995 1994(5) 1993 1992
Statement of Operations Data :
Net sales $59,938 $50,527 $26,854 $41,465 $58,126 $50,108 $49,335 $49,947
Income (loss)
from continuing operations (4) (3,256) 4,272 3,934 1,104 5,688 2,697 4,939 5,605
(Loss) earnings per share from
continuing operations (4) $ (0.25) $ 0.09
Weighted average common shares
outstanding 12,715 11,871
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Company Company (2) Predecessor
December 31, March 31, March 31,
Balance Sheet Data: 1996 1996 1995 1994 1993 1992
(5) (5) (5)
Total assets $97,529 $87,980 $ 43,863 $38,609 $37,572 $37,848
Long-term debt (excluding current portion) 24,501 63,778 288 552
Stockholders' equity 54,215 9,775 34,358 29,313 30,473 29,141
Working capital $15,852 $13,855 $ 15,140 $11,267 $14,256 $14,184
</TABLE>
(1) The combined unaudited nine months ended December 31, 1995 includes
results of the Predecessor for the period from April 1, 1995 to August 22, 1995
combined with the Company results of operations for the period from August 23,
1995 to December 31, 1995.
(2) The acquisition of Aminco, Inc. (the Predecessor) was completed on
August 23, 1995. The Company's financial statements include the operating
results from the acquisition date.
(3) Effective December 31, 1996, the Company changed its fiscal year-end
from March 31 to December 31.
(4) Before extraordinary item and cumulative effect of accounting change.
(5) During the second quarter of 1997, the Company changed its method of
valuing inventories in the United States from the lower of last-in, first-out
(LIFO) cost or market to the lower of first-in, first-out (FIFO) cost or market.
If material, the effect of this change has been reflected in all periods
presented in these financial statements. See Note 15 of Notes to Consolidated
Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Carson, Inc. (formerly DNL Savannah Holding Corp. and also referred to
herein as the "Company" or "Carson") is a leading manufacturer and marketer in
the U.S. retail ethnic hair care market for African-Americans. The Company
currently sells over 70 different products in the United States and in over 60
other countries under five principal brand names. The majority of the Company's
net sales are derived from four categories of the ethnic health and beauty aids
market: hair relaxers and texturizers (which constituted approximately 50% of
the Company's net sales in 1996), hair color, shaving products and hair care
maintenance products.
Carson was established in May 1995 and until August 1995 its operations
were de minimus. On August 23, 1995, the Company acquired all of the outstanding
stock of Aminco, Inc. (also referred to as the "Predecessor"). Aminco's
operations were principally conducted by its wholly owned subsidiary, Carson
Products Company. Subsequent to the acquisition of Aminco, Carson Products
Company was merged into Aminco; the surviving entity was renamed Carson Products
Company. The accompanying financial statements include the operating results of
Carson Products Company ("Carson Products") from the acquisition date.
The Company's acquisition of the Predecessor for approximately $95
million in cash (including $6 million for fees and other costs directly
associated with the acquisition) was initially financed with long-term
borrowings aggregating approximately $68.0 million and has been accounted for as
a purchase (the "acquisition"). Accordingly, the purchase price has been
allocated to the Predecessor's identifiable assets and liabilities based on the
fair values at the acquisition date. Liabilities assumed aggregated
approximately $11.4 million. The excess of the purchase price over the fair
value of the Predecessor's identifiable net assets has been classified as
goodwill. In connection with the acquisition, the senior management of the
Predecessor was replaced. The Predecessor had a March 31 fiscal year-end.
Effective December 31, 1996, the Company changed its fiscal year-end from March
31 to December 31. The decision to change the fiscal year-end was made in order
to conform the Company's financial reporting year to the natural business year
of the industry.
On July 3, 1996, the Company's South African subsidiary, Carson
Holdings, Ltd. ("Carson South Africa") sold 25.0% of its shares in an initial
public offering on the Johannesburg Stock Exchange. This offering resulted in
net proceeds of approximately $4.2 million. At the same time, Carson South
Africa issued 1.875% of its shares to certain employees, officers and directors
involved in the Company's South African operations. As a result of the issuance
of these shares, the Company has reflected in its consolidated statement of
operations for periods subsequent to the share issuance a minority interest in
subsidiary earnings. The amount of the charge reflected in this line item equals
Carson South Africa's net income for the applicable period multiplied by the
percentage of the Carson South Africa shares which are not indirectly owned by
the Company. In conjunction with the South African initial public offering, the
Company's U.S. subsidiary, Carson Products entered into an amendment to its
license agreement with Carson Products Proprietary Limited ("Carson Products,
S.A."), a South African registered company wholly owned by Carson South Africa,
which provides that commencing on April 1, 1998, Carson Products S.A. will pay
to Carson Products a royalty in the amount of 3.0% of the net sales of all
licensed products. The amount of the royalty increases to 3.5% on April 1, 1999
and 4.0% on April 1, 2000 until the termination of the agreement. The initial
term of the agreement expires on April 1, 1999; however, the agreement continues
indefinitely thereafter until terminated by either party upon 12 months written
notice.
<PAGE>
With the exception of sales by Carson Products S.A. to South Africa,
Botswana, Lesotho, Namibia and Swaziland, which are denominated in South African
Rand, all of the Company's sales are recorded in U.S. Dollars. The Company does
not view the exposure to Rand exchange rate fluctuations as significant because
the South African subsidiary incurs all of its costs in Rand. Assets and
liabilities of the Company's South African operations are translated for
consolidation purposes from South African Rand into U.S. Dollars at the rate of
currency exchange at the end of the fiscal period. Revenues and expenses are
translated at average monthly prevailing exchange rates. Resulting translation
differences are recognized as a component of stockholders' equity.
On June 26, 1996, Carson made an investment of $3.0 million in
Morningside AM Acquisition Corp., the parent of AM Cosmetics, Inc. ("AM
Cosmetics"), a leading low-cost manufacturer of cosmetics. The investment was
made through the purchase of $3.0 million of 12% cumulative, payment-in-kind
preferred stock. The Company's consolidated statements of operations for periods
subsequent to June 26, 1996 include the dividend income from this investment,
although dividends are anticipated to be paid through the issuance of additional
preferred stock. Therefore, it is anticipated that no cash will be generated
from this investment in the near future. In connection with the investment,
Carson entered into a management agreement and will enter into certain related
sales agreements and manufacturing agreements with AM Cosmetics.
The Company completed the offering (the "Offering") of 4,818,500 shares
of Class A common stock on the New York Stock Exchange on October 18, 1996 at a
price of $14 per share. Of these shares 3,113,000 were sold by the Company with
the balance sold by selling stockholders, none of which included any members of
management or the original buyout group.
Effect of the Acquisition on Results of Operations
The consummation of the Company's acquisition of the stock of the Predecessor
(the "acquisition") affected the Company's results of operations following the
acquisition in certain significant respects. The acquisition was reflected using
purchase accounting with the purchase price being allocated to the Company's
identifiable assets and liabilities based on fair values at the date of the
acquisition, which was August 23, 1995. The excess of the purchase price over
the fair value of the Company's identifiable net assets has been classified as
goodwill. Therefore, the Company's amortization expenses are significantly
higher than the corresponding amounts for the Predecessor. Additionally,
interest expense increased due to debt initially used to finance the
acquisition.
Results of Operations
The acquisition was completed on August 23, 1995. Because of the application of
purchase accounting and the resulting revaluation of the Predecessor's assets
and liabilities and the impact on certain expenses, the financial statements of
the Predecessor for the periods prior to August 23, 1995 are not strictly
comparable to those of subsequent periods. However, the following table combines
historical fiscal 1996 data for the Predecessor and the Company in order to
facilitate discussion of financial results.
<PAGE>
Statement of Operations Data
<TABLE>
<S> <C> <C> <C> <C>
Company Combined (a)
Nine-Month Nine-Month Combined (b) Predecessor
Period Ended Period Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 March 31, 1996 March 31, 1995
(d)
(Unaudited)
Net sales $ 59,938 $ 50,527 $ 68,319 $ 58,126
Cost of sales 26,940 22,336 30,319 25,692
Gross profit 32,998 28,191 38,000 32,434
Selling expenses 15,692 13,596 17,048 17,888
General and
administrative expenses 5,836 4,751 7,337 5,246
Incentive compensation 7,123
Depreciation and
amortization 1,896 1,278 1,833 1,085
Operating income 2,451 8,566 11,782 8,215
Interest expense 4,545 2,696 4,543 136
Other income, net 565 1,172 1,319 783
(Loss) Income before taxes (1,529) 7,042 8,558 8,862
Provision for income taxes 1,727 2,770 3,520 3,174
(Loss) Income before
extraordinary item (3,256) 4,272 5,038 5,688
Extraordinary item, net of tax (3,527)
Net (loss) income (c) $(6,783)$ 4,272 $ 5,038 $ 5,688
Data As A Percentage Of Sales:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 44.9 44.2 44.4 44.2
Gross profit 55.1 55.8 55.6 55.8
Selling expenses 26.2 26.9 25.0 30.8
General and
administrative expenses 9.7 9.4 10.7 9.0
Incentive compensation 11.9
Depreciation and amortization 3.2 2.5 2.7 1.9
Operating income 4.1% 17.0% 17.2% 14.1%
</TABLE>
(a) The combined unaudited statement of operations for the nine-month
period ended December 31, 1995 includes results of Predecessor operations for
the period from April 1, 1995 to August 22, 1995 combined with Company results
of operations for the period from August 23, 1995 to December 31, 1995. Because
of the revaluation of the assets and liabilities acquired and the related impact
to the statement of operations, the financial statements of the Predecessor for
the periods prior to August 23, 1995 are not strictly comparable to those of the
Company subsequent to that date. The combined presentation is not in conformity
with generally accepted accounting principles but is included for comparative
purposes.
(b) The statement of operations of the Predecessor for the period from
April 1, 1995 to August 22, 1995 is combined with the statement of operations of
the Company for the period August 23, 1995 to March 31, 1996.
(c) Before effect of change in accounting principle and dividends on
preferred stock of the Predecessor.
(d) During the second quarter of 1997, the Company changed its method of
valuing inventories in the United States from the lower of last-in, first-out
(LIFO) cost or market to the lower of first-in, first-out (FIFO) cost or market.
If material, the effect of this change has been reflected in all periods
presented in these financial statements. See Note 15 of Notes to Consolidated
Financial Statements.
<PAGE>
Company Nine-Month Period Ended December 31, 1996 Compared to Combined
Nine-Month Period Ended December 31, 1995
Presentation. The Company is comparing its actual historical results of
operations for the nine months ended December 31, 1996 to a Predecessor period
of April 1, 1995 to August 22, 1995 combined with a Company period of August 23,
1995 to December 31, 1995. This combined presentation is not in conformity with
generally accepted accounting principles but is included for comparative
purposes only.
Net Sales. Net sales increased from $50.5 million for the combined
nine-month period ended December 31, 1995 to $59.9 million for the nine-month
period ended December 31, 1996, an increase of 18.6%. In the United States,
relaxers and texturizers, hair color and hair care maintenance products each
generated net sales increases. Carson South Africa continued to demonstrate
strong results with an increase in net sales of 69.2% from $5.2 million for the
combined nine-month period ended December 31, 1995 to $8.8 million for the
nine-month period ended December 31, 1996.
Gross Profit. Gross profit increased from $28.2 million for the combined
nine-month period ended December 31, 1995 to $33.0 million for the nine-month
period ended December 31, 1996, an increase of 17.0%. This increase was almost
entirely due to the increase in net sales. As a percent of net sales, gross
profit decreased from 55.8% for the combined nine-month period ended December
31, 1995 to 55.1% for the nine-month period ended December 31, 1996, primarily
due to an i nventory adjustment related to repackaging and reformulation of
several product lines.
Selling Expenses. Selling expenses increased from $13.6 million for the
combined nine-month period ended December 31, 1995 to $15.7 million for the
nine-month period ended December 31, 1996, an increase of 15.4%. The increase in
selling expense was almost entirely a result of the increase in net sales. As a
percentage of net sales, selling expenses decreased from 26.9% to 26.2% during
this period, primarily as a result of the timing of advertising and promotional
expenses.
General and Administrative Expenses. General and administrative expenses
increased from $4.8 million for the combined nine-month period ended December
31, 1995 to $5.8 million for the nine-month period ended December 31, 1996, an
increase of 20.8%. As a percentage of net sales, general and administrative
expenses increased from 9.4% to 9.7% during this period. This increase in
general and administrative expenses as a percentage of net sales was a function
of several factors relating to the acquisition and the new management structure.
First, the new management team included the addition of several new senior
executives and the promotion of certain key executives that increased personnel
costs which management believed was necessary to support the future growth of
the Company. Second, the Company entered into a management agreement with
Morningside which provides strategic consulting advice to the Company for a fee
of $0.4 million per annum. Third, travel expenses increased significantly due to
the new management's focus on international markets which required extensive
travel. Finally bank fees and professional fees increased due to the new credit
agreements relating to the debt incurred to finance the acquisition.
Incentive Compensation Expenses. The Company recognized $7.1 million of
incent ive compensation expenses during the nine-month period ended December 31,
1996 relating to costs under certain long-term incentive compensation agreements
and the purchase of shares prior to the initial public offering by several
outside directors and certain members of senior management and for the shares of
Carson South Africa awarded to certain members of its management. No similar
costs were previously recorded.
Depreciation and Amortization. Depreciation and amortization expense
increased from $1.3 million for the combined nine-month period ended December
31, 1995 to $1.9 million for the nine-month period ended December 31, 1996. As a
percentage of net sales, depreciation and amortization expense increased from
2.5% to 3.2% during this period. This increase was primarily due to goodwill
amortization which resulted from the application of purchase accounting. The
increase in amortization due to the acquisition was partially offset by a change
in the way the Company accounts for package design costs. Prior to the
acquisition, the Predecessor capitalized package design costs and amortized it
over a four year period. Since the acquisition, the Company has expensed package
design costs as incurred.
Operating Income. As a result of the above changes, operating income
decreased from $8.6 million for the combined nine-month period ended December
31, 1995 to $2.5 million for the nine-month period ended December 31, 1996.
Interest Expense. Interest expense increased substantially from $2.7
million for the combined nine-month period ended December 31, 1995 to $4.5
million for the nine-month period ended December 31, 1996, as a result of the
new debt incurred to finance the acquisition.
<PAGE>
Other Income, net. Other income decreased as a result of the elimination of
royalty income associated with the Caribbean. The Company now handles Caribbean
sales through its in-house sales organization. Investment income decreased
because most of the Predecessor's investments were liquidated in conjunction
with the acquisition. Additionally, in June of 1996, the Company made an
investment and entered into a management contract with AM Cosmetics, a leading
low-cost producer of cosmetics. Under the terms of the investment and the
management agreement, the Company is entitled to a 12% paid in kind dividend on
its $3.0 million investment and an annual management fee of the greater of $.5
million or 1% of net sales.
Provision for Taxes. The provision for taxes decreased from $2.8 million to
$1.7 million during this period. The effective tax rate is not proportionate to
the statutory rates as a result of the majority of the incentive compensation
charge not being deductible for income tax purposes.
Combined Twelve-Months Ended March 31, 1996 Compared to Predecessor
Twelve-Months Ended March 31, 1995
Presentation. The Company is comparing the Predecessor's actual historical
results of operations for the year ended March 31, 1995 to a Predecessor period
of April 1, 1995 to August 22, 1995 combined with a Company period of August 23,
1995 to March 31, 1996. This combined presentation is not in conformity with
generally accepted accounting principles but is included for comparative
purposes only.
The Company changed its method of accounting for inventories from LIFO to
FIFO. See Note 15 of Notes to Consolidated Financial Statements.
Net Sales. Net sales increased from $58.1 million for fiscal 1995 to $68.3
million for fiscal 1996, an increase of 17.6%, as a result of positive market
acceptance of new product formulation and new packaging and the efforts of the
Company's in-house sales organization, which was established in April 1995. In
the United States, relaxers and texturizers, hair color, shaving products and
hair care maintenance products all generated net sales increases. Carson South
Africa continued to show strong growth with an increase in net sales of 80.4%
from $3.6 million recorded for fiscal 1995 to $6.6 million for fiscal 1996, a
function of both the rapid expansion of the African market and increasing market
share. International sales excluding sales by Carson South Africa also
increased, primarily due to European sales where the Company increased its sales
representation.
Gross Profit. Gross profit increased from $32.4 million for fiscal 1995 to
$38.0 million for fiscal 1996, an increase of 17.2%. This increase was almost
entirely due to the increase in net sales. Gross margin increased slightly from
55.8% to 55.6% during this period.
Selling Expenses. Selling expenses decreased from $17.9 million for fiscal
1995 to $17.0 million for fiscal 1996, a decrease of 4.7% despite an increase in
net sales of 17.6%. As a percentage of net sales, selling expenses decreased
from 30.8% to 25.0% during this period. This decrease was due to the Company's
decision to establish an in-house sales organization and terminate the majority
of its sales broker relationships. In fiscal 1995, brokers were paid a
commission which averaged slightly above 5%. The commission expense was almost
entirely eliminated in fiscal 1996. This savings was offset in part by an
increase in sales salaries and other payroll costs related to the new sales
employees.
General and Administrative Expenses. General and administrative expenses
increased from $5.2 million for fiscal 1995 to $7.3 million for fiscal 1996, an
increase of 39.9%. As a percentage of net sales, general and administrative
expenses increased from 9.0% to 10.7% during this period. This increase in
general and administrative expenses as a percentage of net sales was a function
of several factors relating to the acquisition and the new management structure.
First, the new management team included the addition of several new senior
executives and the promotion of certain key executives that increased personnel
costs which management believed were necessary to support the future growth of
the Company. Second, the Company entered into a management agreement with
Morningside which provides strategic consulting advice to the Company for a fee
of $0.4 million per annum. Third, travel expenses increased significantly due to
the new management's focus on international markets which required extensive
travel. Finally, bank fees and professional fees increased due to the new credit
agreements relating to the debt incurred to finance the acquisition.
Depreciation and Amortization. Depreciation and amortization expense
increased from $1.1 million for fiscal 1995 to $1.8 million for fiscal 1996. As
a percentage of net sales, depreciation and amortization expense increased from
1.9% to 2.7% during this period. This increase was due to goodwill amortization
which resulted from the application of purchase accounting. The increase in
amortization due to the acquisition was partially offset by a change in the way
the Company accounts for package design costs. Prior to the acquisition, the
Predecessor capitalized package design costs and amortized it over a four year
period. Since the acquisition, the Company has expensed package design costs as
incurred. The application of purchase accounting related to the acquisition did
not have a material impact on the Company's depreciation expense.
<PAGE>
Operating Income. As a result of the above changes, operating income
increased from approximately $8.2 million for fiscal 1995 to $11.8 million for
fiscal 1996, an increase of 43.4%. As a percentage of net sales, operating
income increased from 14.1% to 17.2% during this period.
Interest Expense. Interest expense increased substantially from $0.1
million for fiscal 1995 to $4.5 million for fiscal 1996 as a result of the new
debt incurred to finance the acquisition.
Other Income; Investment Income. Other income remained approximately the
same for fiscal 1996 as compared to fiscal 1995. Investment income increased
from $0.6 million for fiscal 1995 to $1.1 million for fiscal 1996 as the
Predecessor realized gains on the liquidation of certain investment securities.
Provision for Taxes. The provision for income taxes increased from $3.2
million for fiscal 1995 to $3.5 million for fiscal 1996, an increase of 10.9%.
This increase occurred despite pre-tax income decreasing from $8.9 million in
fiscal 1995 to $8.6 million for fiscal 1996 as a result of goodwill amortization
of $0.7 million for fiscal 1996 that was not deductible for tax purposes.
Accordingly, the effective tax rate increased from 35.8% to 41.1% during this
period.
Liquidity and Capital Resources
The Company used the net proceeds of the Offering to repay indebtedness
incurred in the Acquisition. In conjunction with the Offering, the Company
refinanced the remaining portion of its Bank Credit Facility with borrowings
under a New Senior Bank Facility pursuant to a credit agreement dated as of
October 18, 1996, which included (i) a $15.0 million term loan A, (ii) a $10.0
million term loan B and (iii) a $15.0 million revolving credit facility, which
provides more availability than the previous facility. The term loan A and
revolving credit facility bear interest at the applicable prime rate plus 0.5%
or LIBOR plus 2.0% and have a final maturity of six years . The term loan B
bears interest at the applicable prime rate plus 1.0% or LIB OR plus 2.5% and
has a final maturity of seven years. The New Senior Bank Faci lity contains less
restrictive covenants compared to the previous facility, since the Company is
substantially less leveraged following the Offering.
In the nine months ended December 31, 1996 net cash flow provided by
operations was $2.2 million as a result of an increase in accounts payable of
$3.5 million and a decrease in other current assets of $1.7 million. These items
were offset in part by increases in accounts receivable and inventories of $2.6
million and $2.1 million, respectively. Working capital increased from $14.0
million at March 31, 1996 to $16.0 million at December 31, 1996.
Net cash used in investing activities for the nine months ended December
31, 1996 totaled $6.8 million which included $3.8 million of capital
expenditures and a $3.0 million investment in AM Cosmetics. The three largest
capital projects involved purchasing and equipping the new South African
manufacturing facility, reorganizing the shaving powder production in Savannah
to better optimize capacity and adding production equipment in the Savannah
facility to address short term capacity constraints.
Net cash provided from financing activities for the nine months ended
December 31, 1996 totaled $7.2 million. This included $32.7 million of
borrowings from the New Senior Bank Facility, proceeds from the initial public
offerings of the Company and its South African subsidiary of $42.4 million, less
$69.2 million to repay acquisition indebtedness.
The net cash flow for the nine months ended December 31, 1996 was
$2.6 million, which when combined with beginning cash of $1.6 million results
in a net cash balance of $4.2 million as of December 31, 1996.
Inflation
The Company's manufacturing costs and operating expenses are affected by
price changes. The Company has historically mitigated inflationary effects by
passing price changes along to its customers and by continually developing more
cost-effective manufacturing and operational procedures. The Company's ability
to mitigate the effects of price changes will depend on market factors.
<PAGE>
Outlook
The Company believes that cash flow from operating activities, existing
cash balances and available borrowings under its New Senior Bank Facility will
be sufficient to fund working capital requirements, capital expenditures and
debt service requirements in the foreseeable future.
The preceding statement and certain other statements contained herein
are forward-looking statements. It is important to note that the Company's
actual results could differ materially from those projected in such
forward-looking statements based on a number of factors, some of which are
beyond the Company's control.
Risk factors include, but are not limited to, the Company's ability to
successfully implement its growth strategy, the nature and extent of future
competition in the Company's principal marketing areas and increased costs of
compliance with any developments in the U.S., Brazil, the Caribbean, Europe and
other countries where the Company now does business or in the future may do
business and other factors described in the Company's filings with the
Securities and Exchange Commission.
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS REPORT
Board of Directors and Stockholders of Carson, Inc.:
We have audited the accompanying consolidated balance sheets of Carson,
Inc. and its subsidiaries as of December 31, 1996 and March 31, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the periods from April 1, 1996 to December 31, 1996 and from August
23, 1995 to March 31, 1996. We also audited the accompanying statement of
operations, stockholders' equity, and cash flows of Aminco, Inc. (the
Predecessor) for the period from April 1, 1995 to August 22, 1995. Our audits
also included the financial statement schedule listed in the index at Item 14
for such periods. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects the financial position of Carson, Inc. and its
subsidiaries as of December 31, 1996 and March 31, 1996, and the results of its
operations and its cash flows for the periods from April 1, 1996 to December 31,
1996 and from August 23, 1995 to March 31, 1996, and the results of operations
and cash flows of the Predecessor for the period from April 1, 1995 to August
22, 1995 in conformity with generally accepted accounting principles. Also, in
our opinion, such 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 Note 15 to the Consolidated Financial Statements, effective
June 30, 1997, the Company changed its method of accounting for inventories and,
retroactively, restated the Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1996 and the Consolidated Statements of Operations, Stockholders'
Equity and Cash Flows for the period from August 23, 1995 to March 31, 1996.
Deloitte & Touche LLP
Atlanta, Georgia
March 7, 1997
(June 30, 1997 as to Note 15)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Directors of Aminco, Inc.
and Subsidiaries:
In our opinion, the accompanying consolidated statements of income, of cash
flows and of shareholders' equity present fairly, in all material respects, the
results of operations and cash flows of Aminco, Inc. and its subsidiaries for
the year ended March 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Aminco, Inc.
for any period subsequent to March 31, 1995.
As discussed in Note 15 to the Consolidated Financial Statements, effective
June 30, 1997, the Company changed its method of accounting for inventories and,
retroactively, restated the Consolidated Statement of Operations, Stockholders'
Equity and Cash Flows for the year ended March 31, 1995. The Company also
changed its method of accounting for postretirement benefits other than pensions
during the fiscal year ended March 31, 1995.
Price Waterhouse LLP
Atlanta, Georgia
May 8, 1995, except as to Note 15,
which is as of June 30, 1997
<PAGE>
CARSON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Twelve Month Period
-----------------------------
Nine Month Period
-----------------------------
Company Unaudited Predecessor Company Predecessor
April 1, 1996 August 23, 1995 April 1, 1995 August 23, 1995 Year Ended
to December 31, to December 31, to August 22, to March 31, March 31,
1996 1995 1995 1996 1995
--------------- --------------- ------------- --------------- -----------
(Restated-
see note 15)
Amounts in 000s except per share data
<S> <C> <C> <C> <C> <C>
Net sales..................................... $59,938 $23,673 $26,854 $41,465 $58,126
Cost of sales................................. 26,940 10,823 11,513 18,806 25,692
---------- ------------ ----------- ----------- ---------
Gross profit.................................. 32,998 12,850 15,341 22,659 32,434
---------- ------------ ----------- ----------- ---------
Selling expenses.............................. 15,692 6,129 7,467 9,581 17,888
General and administrative expenses........... 5,603 2,475 2,276 5,061 5,246
General and administrative-fees paid to
Morningside................................... 233
Incentive compensation, directors and
management.................................... 7,123
Depreciation and amortization................. 1,896 776 502 1,331 1,085
----------- ------------ ----------- ----------- ---------
Operating income.............................. 2,451 3,470 5,096 6,686 8,215
----------- ------------ ----------- ----------- ---------
Interest expense.............................. 4,545 2,640 56 4,487 136
Other income, net............................. 121 35 1,137 182 783
Other income, AM Cosmetics management fee
and dividend.................................. 444
---------- ------------ ----------- ----------- ---------
(Loss) income before income tax............... (1,529) 865 6,177 2,381 8,862
Provision for income tax...................... 1,727 527 2,243 1,277 3,174
---------- ------------ ----------- ----------- ---------
(Loss) income before extraordinary item and
change in accounting principle................ (3,256) 338 3,934 1,104 5,688
Extraordinary item, net of tax benefit........ (3,527)
Cumulative effect of change in accounting
principle, net of tax benefit................. (250)
---------- ------------ ----------- ----------- ---------
Net (loss) income............................. (6,783) 338 3,934 1,104 5,438
Dividends on preferred stock.................. 554 1,109
---------- ------------ ----------- ----------- ---------
(Loss) income available to all shareholders... $(6,783) $338 $3,380 $1,104 $4,329
=========== =========== ============ ============ =========
Earnings per common share:
Before extraordinary item..................... $(0.25) $0.03 $0.09
Extraordinary item, net of tax benefit........ (0.28)
---------- ------------ -----------
Net (loss) earnings per share................. $(0.53) $0.03 $0.09
=========== =========== ============
Weighted average common shares
outstanding................................... 12,715 11,871 11,871
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
CARSON, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
December 31, March 31,
1996 1996
(Restated - (Restated-
See Note 15) See Note 15)
------------ ------------
Dollars in 000s except
share and par value data
ASSETS
Current Assets
Cash and cash equivalents............................................................... $ 4,191 $ 1,553
Accounts receivable (less allowance for doubtful accounts of $614 and $531
at December 31, 1996 and March 31, 1996, respectively).................................. 14,855 12,611
Accounts receivable due from AM Cosmetics............................................... 262
Inventories............................................................................. 10,572 8,486
Other current assets.................................................................... 1,421 3,169
------------ ------------
Total current assets.................................................................... 31,301 25,819
------------ ------------
Property, Plant and Equipment, at cost:
Land and improvements................................................................... 545 545
Buildings and improvements.............................................................. 6,689 5,427
Machinery and equipment................................................................. 7,436 5,806
Furniture and fixtures.................................................................. 396 277
Construction-in-progress................................................................ 1,004 282
------------ ------------
16,070 12,337
Less: accumulated depreciation.......................................................... 981 351
------------ ------------
15,089 11,986
------------ ------------
Investment in AM Cosmetics.............................................................. 3,187
Goodwill, net of accumulated amortization of $1,573 and $688 at
December 31, 1996 and March 31, 1996, respectively...................................... 45,801 46,633
Other Assets............................................................................ 2,151 3,542
------------ ------------
Total Assets............................................................................ $ 97,529 $ 87,980
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................................................ $ 7,065 $ 3,600
Accrued expenses........................................................................ 4,451 5,354
Accrued expenses, directors and employees............................................... 1,333
Current maturities of long-term debt.................................................... 2,600 3,010
------------ ------------
Total current liabilities............................................................... 15,449 11,964
------------ ------------
Long-term Debt.......................................................................... 24,501 63,778
Other Liabilities....................................................................... 1,700 1,732
Deferred Income Taxes................................................................... 731
Minority Interest in Subsidiary......................................................... 1,664
Commitments and Contingencies (Notes 11 and 14)
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized, none outstanding
Common stock:
Class A, voting, $.01 par value, 150,000,000 shares authorized, 4,996,568 shares issued
and outstanding as of December 31, 1996................................................. 50
Class B, nonvoting, $.01 par value, 2,000,000 shares authorized, 1,859,677 shares issued
and outstanding......................................................................... 19 19
Class C, voting, $.01 par value, 13,000,000 shares authorized, 8,127,937
and 9,510,323 shares issued and outstanding at December 31, 1996
and March 31, 1996, respectively........................................................ 81 95
Paid-in capital......................................................................... 62,418 8,557
Notes receivable from employee shareholders, net of discount............................ (1,365)
(Accumulated deficit) Retained earnings................................................. (5,679) 1,104
Foreign currency translation adjustment................................................. (1,309)
------------ ------------
Total stockholders' equity.............................................................. 54,215 9,775
------------ ------------
Total Liabilities and Stockholders' Equity.............................................. $ 97,529 $ 87,980
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
CARSON, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Preferred Stock
-------------- ---------------
Total
Paid-in Retained Valuation ESOP Debt Treasury Stockholders'
Shares Amount Shares Amount Capital Earnings Adjustment Guarantee Stock Equity
------- ------ -------- ------ ------- -------- ---------- --------- --------- --------------
Amounts in 000s
PREDECESSOR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994............ 406,699 $1,220 606,752 $6,068 $214 $28,858 $ $(288) $(6,373) $29,699
Net income......................... 5,438 5,438
Cash dividends, preferred stock.... (1,109) (1,109)
Reduction in ESOP debt guarantee... 288 288
Issuance of treasury stock......... 94 232 326
Purchase of treasury stock......... (567) (567)
Unrealized gains on investments
available for sale, net of taxes... 283 283
------- ------ -------- ------ ------- -------- ---------- --------- --------- -------------
Balance, March 31, 1995............ 406,699 1,220 606,752 6,068 308 33,187 283 (6,708) 34,358
Net income......................... 3,934 3,934
Cash dividends, preferred stock.... (554) (554)
Issuance of treasury stock......... 296 296
------- ------ -------- ------ ------- -------- ---------- --------- --------- -------------
Balance, August 22, 1995........... 406,699 $1,220 606,752 $6,068 $308 $36,567 $283 - $(6,412) $38,034
======= ====== ======== ====== ======= ======== ========== ========= ========= =============
</TABLE>
<PAGE>
<TABLE>
CARSON. INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Class A Class B Class C
------------- ------------- ---------------
Retained
Earnings
(Accumulated Total
Deficit) Notes Stockholders'
Paid-in (Restated- Translation Receivable Equity
Shares Amount Shares Amount Shares Amount Capital See Note 15) Adjustment from Officers (Restated
-See Note 15)
------ ------ ------ ------ -------- ------ -------- ------------ ----------- ------------- -----------
Amounts in 000s
COMPANY,
beginning August 23, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of common stock................ $ 569 $ 6 5,799 $58 $11,936 $ $ $ $12,000
Issuance of common stock in
connection with acquisition......... 1,291 13 2,006 20 2,717 2,750
Carryover of predecessor basis...... 1,705 17 (6,096) (6,079)
Net income, as restated............. 1,104 1,104
------ ------ ------ ------ -------- ------ -------- ---------- -------- --------- ----------
Balance, March 31, 1996............. 1,860 19 9,510 95 8,557 1,104 9,775
Gain on sale of South African stock,
net................................. 2,808 2,808
Sale of common stock, net........... 3,113 31 38,162 38,193
Conversion of Class C shares to
Class A shares...................... 1,884 19 (1,884) (19)
Reduction of debt from
shareholders........................ 5,530 5,530
Net loss............................ (6,783) (6,783)
Translation adjustment.............. (1,309) (1,309)
Employee shareholder loans, less
discount............................ (1,365) (1,365)
Incentive compensation and other.... 502 5 7,361 7,366
------ ------ ------ ------ -------- ------ -------- ---------- -------- --------- ----------
Balance, December 31, 1996.......... 4,997 $50 1,860 $19 8,128 $81 $62,418 $(5,679) $(1,309) $(1,365) $54,215
====== ====== ====== ====== ======== ====== ======== ========== ======== ========= ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CARSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
Nine-Month Period
------------------------------
Twelve-Month Period
-------------------------------
Company
August 23, 1995 to
Company Company Unaudited Predecessor March 31, Predecessor
April 1, 1996 to August 23, 1995 to April 1, 1995 to 1996 Year ended
December 31, December 31, August 22, (Restated-See March 31,
1996 1995 1995 Note 15) 1995
---------------- ------------------ ---------------- -------------- --------
Dollars in 000s
Operating Activities:
Net (loss) income...................................... $(6,783) $338 $3,934 $1,104 $5,438
---------------- ------------------ ------------ -------------- -----------
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization.......................... 1,896 776 502 1,331 1,085
Extraordinary item, net of tax benefit................. 3,527
Incentive compensation................................. 6,163
Provision for doubtful accounts........................ 112 110
Deferred income taxes.................................. (957) 805 25
Other, net............................................. (1,363) (2,238) (1,367) 701 394
Prepayment penalty on long-term debt................... (1,328)
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable.................................... (2,356) (446) (588) (2,385) (1,275)
Accounts receivable, related party..................... (262)
Inventories............................................ (2,086) (1,579) 190 (1,409) 467
Other current assets................................... 1,748 (89) (546) (970) 313
Accounts payable....................................... 3,465 366 (732) 1,285 755
Accrued liabilities.................................... (903) (985) 1,688 (1,677) 479
Accrued liabilities, related party..................... 1,333
---------------- ------------------ ------------ -------------- -----------
Total adjustments...................................... 8,989 (4,085) (853) (2,319) 2,243
---------------- ------------------ ------------ -------------- -----------
Net cash provided by (used in) operating
activities............................................. 2,206 (3,747) 3,081 (1,215) 7,681
---------------- ------------------ ------------ -------------- -----------
Investing Activities:
Additions to property, plant and equipment............. (3,805) (624) (375) (1,470) (974)
Long-term investments.................................. (3,000)
Proceeds from sales and maturities of investments...... 21,428 12,498
Package design costs................................... (244) (356)
Acquisitions of business assets, net of cash
acquired............................................... (65,300) (65,300)
Purchases of investments............................... (6,760) (15,704)
Other.................................................. 299
---------------- ------------------ ------------ -------------- -----------
Net cash (used in) provided by investing
activities............................................. (6,805) (65,924) 14,049 (66,770) (4,237)
---------------- ------------------ ------------ -------------- -----------
Financing Activities:
Proceeds from long-term borrowings..................... 32,704 58,550 58,550
Principal payments on long-term debt................... (67,876) (500) (1,012)
Dividends paid, preferred stock........................ (554) (1,109)
Purchases of treasury stock............................ (296) (567)
Checks outstanding..................................... (1,043)
Proceeds from sale of common stock..................... 38,193 12,000 12,000
Proceeds from sale of subsidiary stock................. 4,216
---------------- ------------------ ------------ -------------- -----------
Net cash provided by (used in) financing
activities............................................. 7,237 70,050 (850) 69,538 (2,719)
---------------- ------------------ ------------ -------------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents... 2,638 379 16,280 1,553 725
Cash and Cash Equivalents at Beginning of Period....... 1,553 1,620 895
---------------- ------------------ ------------ -------------- -----------
Cash and Cash Equivalents at End of Period............. $4,191 $379 $17,900 $1,553 $1,620
================ ================== ============ ============== ===========
Cash paid during the period for:
Interest............................................... $4,178 $3,034 $56 $3,991 $136
Income taxes........................................... $2,421 $1,276 $457 $2,497 $2,654
Non-cash financing activities:
Long-term debt issued in Acquisition................... $ $11,753 $ $11,753 $
Reduction of debt from shareholders.................... $5,530 $ $ $ $
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Business
Carson, Inc. (formerly DNL Savannah Holding Corp. and also referred to herein
as the "Company") was established in May 1995 and until August 1995 its
operations were de minimus. On August 23, 1995, the Company acquired all of the
outstanding stock of Aminco, Inc. (also referred to as the "Predecessor").
Aminco's operations were principally conducted by its wholly owned subsidiary,
Carson Products Company. Subsequent to the acquisition of Aminco, Carson
Products Company was merged into Aminco; the surviving entity was renamed
Carson Products Company. The accompanying financial statements of the Company
include the operating results of Carson Products Company ("Carson Products")
from the acquisition date.
The Company is a leading manufacturer and marketer in the United States of
selected personal care products for both the ethnic market and the mass market.
The Company believes that it is one of the leading global manufacturers and
marketers of ethnic hair care products for persons of African descent. The
Company's more than 60 products are marketed under five principal brand names.
Certain of the Company's international activities are conducted by its South
African subsidiary.
The Company's acquisition of the Predecessor for approximately $95 million in
cash (including $6 million for fees and other costs directly associated with
the acquisition) was initially financed with long-term borrowings aggregating
approximately $68.0 million and has been accounted for as a purchase (the
"Acquisition"). Accordingly, the purchase price has been allocated to the
Predecessor's identifiable assets and liabilities based on the fair values at
the acquisition date. The excess of the purchase price over the fair value of
the Predecessor's identifiable net assets has been classified as goodwill.
Certain previous shareholders of the Predecessor received 1,705,500 shares of
Class A Common Stock in the acquisition. Such share interest has been carried
over at such shareholders' proportionate equity in the book value of Aminco
(predecessor basis in accordance with Emerging Issues Task Force Issue No.
88-16, "Basis in Leveraged Buyout Transactions."
The purchase price of the Predecessor (net of carryover of negative
predecessor basis of approximately $6.1 million) has been allocated as follows
(in millions):
Current assets (including $17.9 of cash acquired)... $37.9
Property, plant and equipment....................... 10.8
Goodwill............................................ 47.2
Other assets........................................ 4.5
Liabilities assumed................................. (11.4)
--------
$89.0
========
In July 1996, the Company's South African subsidiary sold 25% of its shares
in an initial public offering on the Johannesburg Stock Exchange. The
subsidiary received net proceeds of approximately $4.2 million from this sale
(which resulted in a gain to the Company of approximately $2.8 million which
was recorded in paid in capital). In conjunction with this public offering, the
Company entered into an amendment to its license agreement with its South
African subsidiary which provides that commencing on April 1, 1998, its South
African subsidiary will pay the Company a royalty in the amount of 3.0% of the
net sales price of all licensed products. The amount of the royalty increases
to 3.5% on April 1, 1999 and 4.0% on April 1, 2000 until the termination of the
agreement. The initial term of the agreement expires on April 1, 1999; however,
the agreement continues indefinitely thereafter until terminated by either
party upon 12 months written notice.
The Company completed an initial public offering of 4,818,500 shares of its
common stock on October 18, 1996. The Company used the proceeds of such
offering to repay certain indebtedness (see Note 7). This repayment resulted in
an extraordinary loss recorded at that time of approximately $3.5 million (net
of tax) for prepayment penalties and the write-off of unamortized debt discount
and deferred financing costs.
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In October 1996, the Company amended its Certificate of Incorporation to
change the authorized capital stock to Class A Common Stock, Class B Common
Stock, Class C Common Stock and Preferred Stock (each with a par value of $.01
per share). Each share of the Company's former Class A Common Stock was
converted into 11,370 shares of newly created Class C Common Stock, and each
share of former Class B Common Stock was converted into 11,370 shares of newly
created Class B Common Stock. These stock conversions have been given
retroactive recognition in the accompanying financial statements.
Note 2. Significant Accounting Policies
Change in Fiscal Year
Effective December 31, 1996, the Company changed its fiscal year-end from
March 31 to December 31 in order to conform the Company's financial reporting
year to the natural business year of its industry.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company and
its wholly owned subsidiaries and the Predecessor. All significant intercompany
transactions and accounts have been eliminated.
Inventories
Inventories are valued at the lower of First-In, First-Out (FIFO) cost or
market. See Note 15.
Property, Plant and Equipment
Property, plant and equipment is recorded at assigned values or cost less an
allowance for depreciation. The Company capitalizes eligible expenditures with
a cost greater than $1,000. Depreciation is computed using the straight-line
method over the following estimated useful lives:
Buildings................. 42 years
Land improvements......... 20 years
Machinery and equipment... 12 years
Furniture and fixtures.... 10 years
Office equipment.......... 8 years
Vehicles.................. 5 years
Information systems....... 5 years
Intangible Assets
Goodwill is amortized over 40 years using the straight-line method. Debt
issue costs are amortized on the interest method over the life of the related
debt. Patents are amortized using the straight-line method over 17 years.
Trademarks are amortized using the straight-line method over 40 years. The
Company periodically assesses the recoverability of intangible assets based on
judgments as to future undiscounted cash flows from operations.
Income Taxes
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying currently enacted statutory rates to differences
between financial statement carrying amounts and the tax basis of existing
assets and liabilities. The effect on deferred taxes of a change in tax rates
is recognized in the results of operations in the period that includes the
enactment date.
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Revenue Recognition
Revenue from sales of manufactured goods is recognized upon shipment to
customers.
Research and Development Costs
Research and development costs (principally for new products) are expensed as
incurred and aggregated $349,000 for the nine-month period ended December 31,
1996, $250,000 for the period August 23, 1995 to March 31, 1996, $160,000 for
the period from April 1, 1995 to August 22, 1995 and $323,000 for the year
ended March 31, 1995. These costs are included in general and administrative
expenses in the accompanying statements of operations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Foreign Currency Translation
Assets and liabilities of the Company's South African operations are
translated from South African Rand into U.S. dollars at the rate of currency
exchange at the end of the fiscal period. Revenues and expenses are translated
at average monthly exchange rates prevailing during the period. Resulting
translation differences are recognized as a component of stockholders' equity.
Net (Loss) Earnings Per Share
Net (loss) earnings per share is computed by dividing net income by weighted
average common shares outstanding. In accordance with the rules of the
Securities and Exchange Commission, all shares of common stock issued prior to
the Company's initial public offering are included in weighted average shares
outstanding as if they were issued at the Company's formation.
Supplementary Net (Loss) Earnings Per Share
Supplementary net (loss) earnings per share is computed as if the Company's
shares issued in its initial public offering of 3,113,000 were issued at the
beginning of the Company's formation and interest related to debt that was paid
off with proceeds is added back. Supplementary net (loss) earnings per share
was $(0.33), $0.13 and $0.26 for the periods April 1, 1996 to December 31,
1996, August 23, 1995 to December 31, 1995 and August 23, 1995 to March 31,
1996, respectively.
Cash and Cash Equivalents
Cash and investments with maturities of three months or less when purchased
are considered cash equivalents.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable,
inventories, investment in AM Cosmetics preferred stock, accounts payable and
accrued liabilities approximate fair values due to the short-term maturities of
the instruments. The carrying value of long-term debt approximates fair value.
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Reclassification
Certain prior period balances have been reclassified to conform with current
year presentation.
Note 3. Inventories
Inventories at December 31, 1996 and March 31, 1996 are summarized as follows
(in 000s):
(Restated - See Note 15)
December 31, March 31,
1996 1996
------------ ---------
Raw materials..... $7,017 $4,562
Work-in-process... 1,236 1,002
Finished goods.... 2,319 2,922
------------ ---------
Total............. $10,572 $8,486
============ =========
Note 4. Other Current Assets
Other current assets at December 31, 1996 and March 31, 1996 consist of the
following (in 000s):
December 31, March 31,
1996 1996
------------ ---------
Deferred income taxes (as restated- see note 15).. $203 $860
Income tax receivable... 872
Prepaid interest........ 1,090
Prepaid other........... 346 1,219
------------ ----------
Total................... $1,421 $3,169
============ =========
Note 5. Property, Plant and Equipment
Depreciation expense for the nine months ended December 31, 1996 and December
31, 1995 was $672,000 and $586,000, respectively. For the periods from August
23, 1995 to March 31, 1996, April 1, 1995 to August 22, 1995 and April 1, 1994
to March 31, 1995, depreciation expense was $351,000, $322,000 and $679,000,
respectively.
Note 6. Other Assets
Other assets at December 31, 1996 and March 31, 1996 are summarized as
follows (in 000s):
December 31, March 31,
1996 1996
------------ ---------
Deferred financing costs......... $ 937 $3,275
Deferred tax asset............... 935
Prepaid interest................. 433
Patents.......................... 184 152
Trademarks and other............. 128
------------ ---------
2,184 3,860
Less: accumulated amortization... 33 318
------------ ---------
Total............................ $2,151 $3,542
============ =========
<PAGE>
Note 7. Long-Term Debt
Long-term debt at December 31, 1996 and March 31, 1996 is summarized as
follows (in 000s):
December 31, March 31,
1996 1996
------------ ---------
Term Loans..................................... $24,350 $29,000
Revolving line of credit....................... 2,052 7,500
Senior subordinated notes, interest at 12.5%... 16,693
Subordinated notes, interest at 15%............ 2,004
Junior subordinated notes, interest at 10%..... 11,544
Other.......................................... 699 47
------------ ---------
27,101 66,788
Less: current portion.......................... 2,600 3,010
------------ ---------
$24,501 $63,778
============ =========
Annual maturities of outstanding indebtedness at December 31, 1996 are as
follows (in 000s):
December 31,
1996
------------
1997....................... $2,600
1998....................... 2,840
1999....................... 2,891
2000....................... 2,745
2001....................... 2,623
Thereafter................. 13,402
------------
27,101
Less: Current maturities... 2,600
------------
Long-term portion.......... $24,501
============
The Company used the proceeds from its initial public offering to retire the
senior subordinated notes, subordinated notes and junior subordinated notes. As
a result, during the nine months ended December 31, 1996, the Company incurred
$3.5 million (net of the related tax benefit of $2.4 million) of debt-related
charges and write-offs reflected in the accompanying Statements of Operations
as an extraordinary item. In addition, as a result of negotiation with
shareholders, the Company reduced a portion of the junior subordinated notes
held by such shareholders totaling $5.5 million which is reflected as a capital
addition in the Statement of Shareholders' Equity.
In October 1996, the Company replaced its credit agreement with a new
facility (the "New Senior Bank Facility") that includes (i) a $15.0 million
term loan A, (ii) a $10.0 million term loan B and (iii) a $15.0 million
revolving credit facility, including up to $5.0 million of letters of credit.
Aggregate borrowings under the revolving credit facility and outstanding
letters of credit may not exceed the Borrowing Base, which equals the sum of
(i) 80% of Eligible Accounts Receivable and (ii) 50% of Eligible Inventory. The
amount available for borrowing under the revolver at December 31, 1996 was
$12.9 million. Term loan A, term loan B and the revolving credit facility
mature in September 2002, 2003 and 2002, respectively. Term loan A amortizes in
quarterly installments of $625,000, term loan B amortizes in quarterly
installments of $25,000 through September 2002 and in quarterly installments of
$2,350,000 beginning in December 2002.
The term loan A and revolving credit facility bear interest at the applicable
prime rate plus 0.5% or LIBOR plus 2.0% and have a final maturity of six years.
The term loan B bears interest at the applicable prime rate plus 1.0% or LIBOR
plus 2.5% and has a final maturity of seven years. The New Senior Bank Facility
contains less restrictive covenants compared to the previous facility, since
the Company is substantially less leveraged following the Offering.
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Credit Agreement provides for (i) a commitment fee of 0.5% per annum on
the unutilized portion of the revolving credit facility, (ii) a fee of 2.0% per
annum on the maximum amount available to be drawn under letters of credit, and
(iii) a letter of credit issuance fee.
The obligations of Carson Products under the New Senior Bank Facility are
secured by substantially all of Carson Products' (and its subsidiaries) assets,
as well as by a pledge of the capital stock of Carson Products. The New Senior
Bank Facility is guaranteed by the Company and each present and future
subsidiary of Carson Products (other than Carson South Africa and its
subsidiaries). The New Senior Bank Facility contains covenants with respect to,
among other things, (i) maintenance by Carson Products of certain total
interest coverage ratios, fixed charge coverage ratios and leverage ratios, and
(ii) restrictions on the incurrence of additional liens or indebtedness. The
New Senior Bank Facility contains restrictions on the payment of any cash
dividends except for dividends or distributions payable in shares of capital
stock.
Note 8. Accrued Liabilities
Accrued liabilities at December 31, 1996 and March 31, 1996 consisted of the
following (in 000s):
December 31, March 31,
1996 1996
------------ ---------
Compensation and benefits... $1,587 $2,227
Advertising................. 1,070 1,340
Self-insurance.............. 719 927
Interest.................... 240 384
Income tax payable.......... 493 -
Other....................... 342 476
------------
- ---------
$4,451 $5,354
============ =========
Note 9. Income Taxes
The following is a reconciliation of the statutory tax rate on (loss) income
from continuing operations to the Company's effective tax rate for the periods
noted:
<TABLE>
Company Predecessor Company Predecessor
--------------------------------- ---------------- ---------------------- --------------
Unaudited Aug. 23, 1995 to
April 1, 1996 to Aug. 23, 1995 to April 1, 1995 to March 31, 1996 Year Ended
Dec. 31, 1996 Dec. 31, 1995 Aug. 22, 1995 (Restated-See note 15) March 31, 1995
------------- ------------------- ---------------- ---------------------- --------------
<S> <C> <C> <C> <C> <C>
Statutory rate............. (34.0)% 34.0 % 34.0 % 34.0 % 34.0 %
State income taxes
(net of federal benefit)... (2.6)% 2.6 % 4.0 % 4.0 % 4.0 %
Foreign taxes.............. 33.8 % 21.5 % 21.5 %
Foreign tax credit......... (33.8)% (21.5)% (21.5)%
Permanent differences:
Incentive Compensation..... 93.9 %
Goodwill................... 21.8 % 24.3 % 16.0 %
Other taxes................ 33.8 % (1.7)% (2.2)%
Effective rate............. 112.9 % 60.9 % 36.3 % 54.0 % 35.8 %
</TABLE>
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note 9. Income Taxes (continued)
Income tax expense (benefit) for the periods noted include the following (in
000s):
<TABLE>
Twelve-Months
----------------------------
Nine-Months
---------------------------
Company Predecessor Company Predecessor
--------------------------- ------------- -------------- --------------
Aug. 23, 1995
Aug. 23, 1995 to
April 1, 1996 to April 1, 1995 March 31, 1996
to Dec. 31, 1995 to (Restated-See Year ended
Dec. 31, 1996 Unaudited Aug. 22, 1995 Note 15) March 31, 1995
------------- ------------- ------------- -------------- --------------
Current:
<S> <C> <C> <C> <C> <C>
Federal.......................... $1,685 $117 $ 1,744 $204 $ 2,760
State............................ 405 19 333 33 294
Foreign.......................... 594 177 104 310 95
------------- ------------- ------------- -------------- --------------
Total current provision.......... 2,684 313 2,181 547 3,149
Deferred:
Federal.......................... (749) 102 52 546 23
State............................ (269) 65 10 102 2
Foreign.......................... 61 47 82
------------- ------------- ------------- -------------- --------------
Total deferred provision......... (957) 214 62 730 25
Total provision for continuing
operations....................... 1,727 527 2,243 1,277 3,174
------------- ------------- ------------- -------------- --------------
Benefit for extraordinary item... (2,351)
Benefit for accounting change.... (147)
Total income tax (benefit)
expense.......................... $ (624) $ 527 $ 2,243 $ 1,277 $ 3,027
============= ============= ============= ============== ==============
</TABLE>
The effects of temporary differences which gave rise to the deferred tax
asset and liability at December 31, 1996 and at March 31, 1996 are as follows
(in 000s):
<TABLE>
Restated (See Note 15)
December 31, 1996 March 31, 1996
------------------------------ -------------------------------
Current Long-term Current Long-term
----------- ---------------- --------------- --------------
Deferred domestic tax assets related to:
<S> <C> <C> <C> <C>
Deferred compensation........................ $ $ 643 $ $638
Accrued expenses............................. 813 522 188
Package design costs......................... 533 412
Allowance for doubtful accounts.............. 219 199
Foreign tax credit carryforward.............. 702
NOLcarryforward.............................. 241
Inventories.................................. 14 125
Other........................................ 116 14
-------- ------------- ------- ----------------------
1,046 2,235 860 1,238
Deferred domestic tax liabilities related to:
Inventories.................................. (752) (-) (801)
Property, plant and equipment................ (1,300) (1,168)
Other........................................ (91)
-------- ------------- ------- ----------------------
(843) (1,300) (-) (1,969)
-------- ------------- ------- ----------------------
Deferred domestic tax asset (liability)...... $ 203 $ 935 $860 $ (731)
-------- ------------- ------- ----------------------
Deferred foreign tax liability............... $ $ (106) $ $(54)
-------- ------------- ------- ----------------------
</TABLE>
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Deferred income taxes were not provided on undistributed earnings of certain
foreign subsidiaries ($5.7 million at December 31, 1996 and $1.0 million at
March 31, 1996) because such undistributed earnings are expected to be
reinvested indefinitely overseas. If these amounts were not considered
permanently invested, an additional deferred tax liability of approximately
$712,500 and $125,000 would have been provided as of December 31, 1996 and
March 31, 1996, respectively. The foreign tax credit and NOL carryforward of
$0.7 million and $0.5 million expire at December 31, 2001 and December 31,
2011, respectively.
Note 10. Employee Benefit Plans
The Company has a profit sharing plan which covers substantially all its U.S.
employees. Contributions to the plan are discretionary, as determined by the
Board of Directors. Contributions are made on an annual basis. The Company
contributed $401,000 to the plan for the period from April 1, 1996 to December
31, 1996 and $246,000 to the plan for the period from August 23, 1995 to March
31, 1996.
The Company is obligated for retirement benefits to a former employee for the
remainder of his (and his spouse's) life. The expected present value of this
obligation ($1.6 million at December 31, 1996 and $1.7 million at March 31,
1996) is classified in other liabilities in the accompanying balance sheets.
The Company provides postretirement health care benefits to a limited number
of key executives. The accumulated postretirement benefit obligation ("APBO")
was $517,000 at December 31, 1996 and $499,000 at March 31, 1996. For
measurement purposes, the cost of providing medical benefits was assumed to
increase by 10% in the fiscal year ended December 31, 1996, decreasing to an
annual rate of 8% after December 31, 1999. The medical cost trend rate
assumption could have an effect on amounts reported. For example, an increase
of 1% in the assumed rate of increase would have an effect of increasing the
APBO by $63,000 and the net periodic postretirement benefit cost by $23,000.
The weighted average discount rate used in determining the APBO was 8%. Net
periodic postretirement benefit cost for the period from August 23, 1995 to
March 31, 1996 was $9,000. Net periodic postretirement benefit cost for the
period from April 1, 1996 to December 31, 1996 was $18,000.
The Company recognized $0.8 million of compensation expense during the
quarter ended June 30, 1996 relating to anticipated costs under certain
equity-based long-term incentive compensation arrangements (such awards and
compensation expense are based upon the fair market value of the Company at the
time of the initial public offering). Such arrangements were awarded originally
as stock appreciation rights ("SARs"). During 1996, the SARs were amended and
converted to immediately exercisable stock purchase rights, on a complete or
partial basis, as agreed to by the Company and the awardee.The SARs entitled
the holder to a specified value (determined as a percentage of the Company's
equity value) over a fixed base value subject to five year vesting requirements
(or earlier upon a public offering or sale of the Company). Upon amendment and
conversion, the SAR rights were cancelled (and replaced with accelerated,
immediately exercisable stock purchase rights). These rights have a fixed
purchase price equal in amount to the canceled SARs fixed base value.
During August 1996, pursuant to the terms of the accelerated, immediately
exercisable stock purchase rights, several outside directors purchased 115,373
shares of Common Stock at approximately $2.17 per share for an aggregate
purchase price of $250,000 and members of senior management purchased 385,818
shares of Common Stock at approximately $4.21 per share for an aggregate
purchase price of $1.6 million. The purchase of such shares by senior
management was financed with $1.4 million (net of discount) in noninterest
bearing long-term full recourse loans from the Company. The incentive
compensation expense represents the excess of the initial public offering price
over the actual purchase price of these shares plus certain cash payments. In
connection with the South African offering, the Company also issued shares of
the subsidiary to certain members of its management; the Company recorded
compensation expense of approximately $0.3 million for these share awards.
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note 11. Contingencies
The Company is a party to lawsuits incidental to its business. Management
believes that the ultimate resolution of these matters will not have a material
adverse impact on the business or financial condition and operations of the
Company.
Note 12. U.S. and Foreign Operations
The Company's operations are located in the United States and South Africa.
Financial information by geographic area is as follows (in 000s):
<TABLE>
Twelve Months
---------------------------------------
Nine Months
--------------------------------
(UNAUDITED) Company Predecessor Company Predecessor
-------------------------------- ---------------- ---------------------------------
April 1, 1996 to August 23, 1995 April 1, 1995 to August 23, 1995 YearEnded
December 31, to December 31, August 22, March 31, 1996 March 31,
1996 1995 1995 (Restated-See Note 15) 1995
---------------- --------------- ---------------- ---------------------------------
Net sales:
United States:
<S> <C> <C> <C> <C> <C>
Domestic............................... $42,855 $17,386 $20,189 $30,676 $47,111
Export................................. 8,274 3,304 4,407 6,494 7,382
South Africa........................... 8,809 2,983 2,258 4,295 3,633
---------------- --------------- ---------------- ---------------------------------
....................................... $59,938 $23,673 $26,854 $41,465 $58,126
Operating income:
United States.......................... $723 $3,096 $4,733 $5,713 $7,852
South Africa........................... 1,728 374 363 973 363
---------------- --------------- ---------------- ---------------------------------
....................................... $2,451 $3,470 $5,096 $6,686 $8,215
Identifiable assets (at end of period):
United States.......................... $95,283 $82,109 $ 84,886 $42,585
South Africa........................... 11,529 2,953 4,404 2,113
Eliminations........................... (9,283) (971) (1,310) (835)
---------------- --------------- ---------------------------------
....................................... $97,529 $84,091 $87,980 $43,863
</TABLE>
Transfers of products from the United States to South Africa were not
material during the periods presented above. Export sales from the United
States include sales to customers in Europe, the Caribbean and Africa.
Note 13. Financial Information of Carson, Inc. (Parent Company)
The assets of Carson, Inc. on an unconsolidated basis consist solely of its
investment in Carson Products Company. During the period from April 1, 1996 to
December 31, 1996, and for the period from August 23, 1995 to March 31, 1996,
the results of operations of Carson, Inc. consisted solely of its equity in the
earnings of Carson Products Company and its cash flows consisted solely of the
cash provided by financing activities of $42.4 million and $12.0 million,
respectively, from the sale of its common stock and cash used in investing
activities of $42.4 million and $12.0 million, respectively, for its investment
in Carson Products Company.
Note 14. Certain Relationships and Related Transactions
Morningside
Carson Products and Morningside Capital Group, L.L.C., ("Morningside")
entered into a Management Assistance Agreement dated August 23, 1995 (the
"Management Agreement"), pursuant to which Morningside
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
agreed to supply the services of a principal member of Morningside to the
Company to provide certain advice and assistance. Such services are provided for
a fee of $350,000 per year, payable on a monthly basis in advance plus
reimbursement for out-of-pocket expenses. The termination date of the Management
Agreement is August 23, 1998; however, the term of the agreement shall continue
after such termination date until terminated by not less than 30 days' advance
notice by either party.
In connection with the Acquisition, Morningside received fees of $500,000
from the Company for arranging and negotiating the financing for the
Acquisition and performing other consulting and financial advisory services and
was reimbursed by the Company for certain related expenses. Under the
Management Agreement, the Company paid Morningside approximately $25,000 in
fiscal 1996 for reimbursement of out-of-pocket expenses. Morningside received a
fee of $100,000 for arranging and negotiating the terms of the New Senior Bank
Facility and performing other consulting and financial advisory services. In
addition, the Company reimbursed Morningside for approximately $35,000 of
out-of-pocket expenses incurred in connection with the initial public offering.
From time to time Morningside may provide additional financial advisory
services to the Company, for which Morningside will receive usual and customary
compensation.
Fees Related to the Acquisition
A corporation in which the Company's former chief financial officer serves as
President and is a principal stockholder, was paid $290,000 and received
159,180 shares of the Company's Class C Common Stock from the Company in
connection with financial advisory services related to the Acquisition. A law
firm in which a director and shareholder of the Company serves as President and
Chief Executive Officer was paid approximately $690,000 for services rendered
in arranging the equity investment in the Company in connection with the
Acquisition. A principal lender and a shareholder of the Company received fees
and reimbursement of out-of-pocket expenses totalling $1,783,000 in connection
with the Acquisition.
AM Cosmetics
Morningside AM Acquisition Corp. ("AM Acquisition"), entered into a
Subscription Agreement dated as of June 26, 1996 (the "Subscription Agreement")
with Carson Products, providing for the purchase by Carson Products of 300
shares of cumulative Payment in Kind Preferred Shares (the "PIK Preferred
Shares") issued by AM Acquisition, at a price of $10,000 per share. AM
Acquisition was formed by Morningside on behalf of an investor group to acquire
the assets of Arthur Matney Co., Inc. Certain key management personnel and
shareholders of the Company are also key management and shareholders of AM
Cosmetics. AMCosmetics sells three brands of "budget" cosmetics, one of which
is targeted at the African-American consumer. The PIK Preferred Shares are
non-voting and are entitled to cumulative dividends payable quarterly in
additional PIK Preferred Shares at a rate of 12% per annum. Additionally, the
PIK Preferred Shares are subject to redemption in whole at the option of Carson
Products on or after July 1, 2005, at the stated value per share (which is
$10,000 per share) plus an amount in cash equal to all accrued and unpaid
dividends on the PIK Preferred Shares.
Concurrent with its investment in AM Acquisition, Carson Products entered
into a Management Agreement (the "Carson-AM Management Agreement") with AM
Cosmetics, pursuant to which Carson Products agreed to manage the business
operations of, and provide certain other services to AM Cosmetics. In return for
the management and other services it will provide, Carson Products is entitled
to fees equal to 1%of AM Cosmetics' annual net sales subject to a minimum of
$500,000 per annum. The Carson-AM Management Agreement expires on June 26, 2004
unless terminated earlier, or renewed for an additional three-year period at AM
Cosmetics' option by giving Carson Products written notice thereof at least 180
days prior to the expiration date. Either
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
party may terminate the AM Management Agreement by providing the other party
with written notice, at least 360 days in advance if terminated by Carson
Products and 60 days in advance if terminated by AM Cosmetics.
Note 15. Change in Accounting Method
Effective June 30 1997, the Company changed its method of valuing inventories
in the United States from the lower of last-in, first-out (LIFO) cost or market
to the lower of first-in, first-out (FIFO) cost or market. The effect of this
change has been reflected in all periods presented in these financial
statements. This change in valuing inventories was made in order to provide
conformity among all of the Company's subsidiaries as well as to conform with
general industry practices. As a result of this change in accounting method,
cost of goods sold increased and net income decreased for the period ended
March 31, 1996 by $177,000 and $102,000, respectively. In addition, inventories
decreased by $177,000, retained earnings decreased by $102,000 and deferred
income taxes decreased by $75,000 as of March 31, 1996 and December 31, 1996.
The effect on all other periods presented was not significant.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors is incorporated by reference to "Proposal
Number 1 - Election of Directors" on pages 8-10 of the Company's Proxy Statement
to be filed for its 1997 Annual Meeting of Stockholders. Reference is also made
to Item 4, Part I of this report, "Executive Officers of the Registrant," which
information is incorporated herein.
Section 16(a) of the Exchange act requires the directors, executive
officers and persons who own beneficially more than 10% of certain equity
securites of the Company to file reports of ownership with the Commission.
Copies of all such reports are required to be furnished to the Company.
Based on the reports received by the Company (and on written representations
from the reporting persons), the Company believes that each of the Company's
directors, officers and 10% beneficial owners of its Class A Common Stock
failed to file on a timely basis the required Form 3 at the time the
Company's registration statement for its initial public offering was declared
effective by the Commission. In addition, the following insider filings were
delinquent: Lawrence Bathgate, Form 4 and 5 with respect to one transaction
not filed on a timely basis; Bradford N. Creswell, Form 4 with respect to one
transaction not filed on a timely basis; Arthur P. Gnann, III, Form 4 with
respect to one transaction not filed on a timely basis; James L. Hudson,
Form 4 with respect to one transaction not filed on a timely basis; Joyce M.
Roche, Form 4 with respect to one transaction not filed on a timely basis;
Vincent A. Wasik, Form 4 with respect to one transaction not filed on a
timely basis.
Item 11. Executive Compensation
This information is incorporated herein by reference to "Compensation and
Other Transactions with Executive Officers and Directors - Executive Officer
Compensation" on pages 14-22 of the Company's Proxy Statement to be
filed for its 1997 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is incorporated herein by reference to "Principal
Stockholders" and "Stock Ownership of Directors and Executive Officers" on pages
2-4 and 14, respectively, of the Company's Proxy Statement to be filed for its
1997 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
This information is incorporated herein by reference to "Certain
Relationships and Related Transactions" on pages 5-7 of the Proxy Statement to
be filed for its 1997 Annual Meeting of Shareholders.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) The following documents are incorporated by reference herein:
1. Financial Statements
Item 8 filed with this Form 10-K/A, contains the Balance Sheet as of
December 31, 1996 (as restated) and March 31, 1996 (as restated), the related
statements of operations, shareholders' investment and cash flows for the
following periods: Company April 1, 1996 through December 31, 1996, Unaudited
Company August 23, 1995 to December 31, 1995, Predecessor April 1, 1995 to
August 22, 1995, Company August 23, 1995 to March 31, 1996 (as restated) and
Predecessor year ended March 31, 1995 and the related reports of Deloitte Touche
LLP and Price Waterhouse LLP. The financial statements included herein include
the following:
Balance Sheets (as restated)-- December 31, 1996 and March 31, 1996
Statements of Operations for the following periods: April 1, 1996 to
December 31, 1996; August 23, 1995 to December 31, 1995 (unaudited); April 1,
1995 to August 22, 1995; August 23, 1995 to March 31, 1996 (as restated); and
April 1, 1994 to March 31, 1995
Statement of Shareholders' Equity for the following periods: April 1, 1996
to December 31, 1996 (as restated); August 23, 1995 to March 31, 1996 (as
restated); April 1, 1995 to August 22, 1995; and April 1, 1994 to March 31, 1995
Statements of Cash Flows for the following periods: April 1, 1996 to
December 31, 1996; August 23, 1995 to December 31, 1995 (unaudited); April 1,
1995 to August 22, 1995; August 23, 1995 to March 31, 1996 (as restated); and
April 1, 1994 to March 31, 1995
2. Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts for the following periods:
Nine months ended December 31, 1996, August 23, 1995 to March 31, 1996, April 1,
1995 to August 22, 1995 and April 1, 1994 to March 31, 1995.
3. Exhibits incorporated by reference or filed with this report
- --------------------------------------------------------------------------------
Number Description
- --------------------------------------------------------------------------------
*3.1 ........... Amended and Restated Articles of Incorporation
- --------------------------------------------------------------------------------
*3.2 ........... By-laws of Registrant
- --------------------------------------------------------------------------------
*4 ............. Form of Commnon Stock Certificate
- --------------------------------------------------------------------------------
*9 ............. Voting Trust Agreement
- --------------------------------------------------------------------------------
*10.1 .......... Employment Agreement dated as of August 23, 1995, as amended
as of July 31, 1996, between Carson Products Company and Dr.
Leroy Keith
- --------------------------------------------------------------------------------
*10.2 .......... Employment Agreement dated as of July 7, 1995, as amended as
of July 31, 1996, between Carson Products Company and Joyce
M. Roche
- --------------------------------------------------------------------------------
*10.3 .......... Employment Agreement dated as of June 7, 1995, as amended as
of July 31, 1996, between Carson Products Company and Dennis
E. Smith
- --------------------------------------------------------------------------------
*10.4 .......... Employment Agreement dated as of April 1, 1996, as amended as
of July 31, 1996, between Carson Products Company and Sharon
A. Davis
- --------------------------------------------------------------------------------
*10.5 .......... Employment Agreement dated as of June 7, 1995, as amended as
of July 31, 1996, between Carson Products Company and John
P. Brown, Jr.
- --------------------------------------------------------------------------------
*10.6 .......... Employment Agreement dated as of June 22, 1995, as amended as
of July 31, 1996, between Carson Products Company and Dr.
Donald Cowser
- --------------------------------------------------------------------------------
*10.7 .......... Employment Agreement dated as of September 1, 1995, as amended
as of July 31, 1996, between Carson Products Company and
Arthur P. Gnann III
- --------------------------------------------------------------------------------
*10.8 .......... Employment Agreement dated as of September 1, 1995, as amended
as of July 31, 1996, between Carson Products Company and
Allena Lee-Brown
- --------------------------------------------------------------------------------
*10.9 .......... Employment Agreement dated as of March 11, 1996, as amended as
of July 31, 1996, between Carson Products Company and Miriam
Muley
- --------------------------------------------------------------------------------
*10.10 ......... Management Assistance Agreement dated as of August 23, 1995
between Carson Products Company and Morningside Captial
Group L.L.C.
- --------------------------------------------------------------------------------
*10.11 ......... Management Agreement dated as of June 26, 1996 between
Carson Products Company and AM Cosmetics, Inc.
- --------------------------------------------------------------------------------
*10.12 ......... Subscription Agreement dated as of June 26, 1996 between
Carson Products Company and Morningside AM Acquisition Corp.
- --------------------------------------------------------------------------------
*10.13 ......... Carson, Inc. 1996 Long-term Incentive Plan
- --------------------------------------------------------------------------------
*10.14 ......... Carson, Inc. 1996 Non-Employee Directors Equity Incentive
Program
- --------------------------------------------------------------------------------
*10.15 ......... Subscription Agreement dated as of August 23, 1995 by and
among the Registrant and Investors set forth in Schedule I
- --------------------------------------------------------------------------------
*10.16 ......... Subscription Agreement dated as of August 23, 1995 by and
among the Registrant and DNL Partners,Limited Partnership
- --------------------------------------------------------------------------------
*10.17 ......... Subscription Agreement dated as of August 23, 1995 by and
among the Registrant, Indosuez Carson Partners and Indosuez CM
II, Inc.
- --------------------------------------------------------------------------------
*10.18 ......... Subscription Agreement dated as of August 15, 1996 by and
among the Registrant and the indivudials (outside directors)
named therein
- --------------------------------------------------------------------------------
*10.19 ......... Subscription Agreement dated as of August 15, 1995 by and
among the Registrant and the individuals (members of
senior management) named therein
- --------------------------------------------------------------------------------
*10.20 ......... Licensing Agreement dated April 7, 1994, as amended May 14,
1996, between Carson Products Company and Carson Products
Company S.A. (Proprietary) Limited
- --------------------------------------------------------------------------------
*10.21 ......... Distribution Agreement dated May 14, 1996 between Carson
Products Company and Carson Products Company S.A.
(Proprietary) Limited
- --------------------------------------------------------------------------------
*10.22 ......... Promissory note between Joyce Roche and the Registrant
- --------------------------------------------------------------------------------
*10.23 ......... Promissory note between John P. Brown and the Registrant
- --------------------------------------------------------------------------------
*10.24 ......... Promissory note between Dennis Smith and the Registrant
- --------------------------------------------------------------------------------
*10.25 ......... Promissory note between Donald Cowsar and the Registrant
- --------------------------------------------------------------------------------
*10.26 ......... Promissory note between Arthur P. Gnann, III and the
Registrant
- --------------------------------------------------------------------------------
*10.27 ......... Promissory note between Sharon A. Davis and the Registrant
- --------------------------------------------------------------------------------
*10.28 ......... Pledge agreement dated August 13, 1996 between Arthur P.
Gnann, III and the Registrant
- --------------------------------------------------------------------------------
*10.29 ......... Pledge agreement dated August 13, 1996 between Sharon A. Davis
and the Registrant
- --------------------------------------------------------------------------------
*10.30 ......... Pledge agreement dated August 13, 1996 between Dr. Donald
Cowser and the Registrant
- --------------------------------------------------------------------------------
*10.31 ......... Pledge agreement dated August 13, 1996 between John P. Brown
and the Registrant
- --------------------------------------------------------------------------------
*10.32 ......... Pledge agreement dated August 13, 1996 between Miriam Muley
and the Registrant
- --------------------------------------------------------------------------------
*10.33 ......... Pledge agreement dated August 13, 1996 between Joyce Roche and
the Registrant
- --------------------------------------------------------------------------------
*10.34 ......... Pledge agreement dated August 13, 1996 between Dennis Smith
and the Registrant
- --------------------------------------------------------------------------------
**10.35 .......... New Senior Bank Facility (including exhibits) dated as of
October 18, 1996
<PAGE>
- --------------------------------------------------------------------------------
13 .............. Annual Report to Shareholders for the nine months ended
December 31, 1996
- --------------------------------------------------------------------------------
*16 ............. Letter regarding Change in Certifying Accountant from Price
Waterhouse LLP
- --------------------------------------------------------------------------------
*21 ............. Subsidiaries of the Registrant
- --------------------------------------------------------------------------------
23 .............. Consent of Deloitte Touche LLP
- --------------------------------------------------------------------------------
23.1 ............ Consent of Price Waterhouse LLP
- --------------------------------------------------------------------------------
27 .............. Financial Data Schedule
- --------------------------------------------------------------------------------
* Incorporated herein by reference to the Registrant's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on October 14, 1996
[File No. 333-10191] and the amendments thereto.
** Incorporated herein by reference to the Registrant's Transition Report on
Form 10-K filed with the Securities and Exchange Commission on March 31, 1997.
(b) No reports on Form 8-K were filed during the last quarter of 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registration has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CARSON, INC.
Date: October 9, 1997 By: /s/ Dr. Leroy Keith
Dr. LeRoy Keith
Chairman, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates included.
Date: October 9, 1997 By: /s/ Dr. Leroy Keith
Dr. LeRoy Keith
Chairman, Chief Executive Officer
and Director
Date: October 9, 1997 By: /s/ Joyce M. Roche
Joyce M. Roche
President and Chief Operating
Officer and Director
Date:October 9, 1997 By: /s/ Dennis E. Smith
Dennis E. Smith
Executive Vice President, Sales and
Director
Date: October 9, 1997 By: /s/ Lawrence E. Bathgate, II
Lawrence E. Bathgate, II
Director
Date: October 9, 1997 By: /s/ Abbey J. Butler
Abbey J. Butler
Director
Date: October 9, 1997 By: /s/ Suzanne de Passe
Suzanne de Passe
Director
Date: October 9, 1997 By: /s/ Melvyn J. Estrin
Melvyn J. Estrin
Director
Date: October 9, 1997 By: /s/ James L. Hudson
James L. Hudson
Director
<PAGE>
Date: October 9, 1997 By: /s/ Jack Kemp
Jack Kemp
Director
Date: October 9, 1997 By: /s/ John L. Sabre
John L. Sabre
Director
Date: October 9, 1997 By: /s/ Vincent A. Wasik
Vincent A. Wasik
Director
Date: October 9, 1997 By: /s/ Robert W. Pierce
Robert W. Pierce
Executive Vice President and Chief
Financial Officer
(Chief Accounting Officer)
<PAGE>
Carson, Inc.
Valuation and Qualifying Accounts
For the Nine Months Ended December 31, 1996
(in thousands)
<TABLE>
Schedule II
<S> <C> <C> <C> <C>
----------Twelve months---------
Predecessor Predecessor Company Company
Period Period Nine
Year From From Months
Ended April 1, 1995 to August 23, 1995 to Ended
March 31, 1995 August 22, 1995 March 31, 1996 December 31, 1996
Allowance for doubtful accounts:
Balance, beginning of period $206 $242 $358 $531
Addition - provisions charged to income 629 158 329 112
Deduction - accounts written off as uncollectible (593) (42) (156) (29)
Balance, end of period $242 $358 $531 $614
</TABLE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-21141 of Carson, Inc. on Form S-8 of our report dated March 7, 1997 (June
30, 1997 as to Note 15) (which expresses an unqualified opinion and includes an
explanatory paragraph relating to the Company's change in its method of
accounting for inventories and the related retroactive restatement of the
consolidated financial statements), appearing in this Annual Report on Form
10-K/A of Carson, Inc. for the transition period from April 1, 1996 to December
31, 1996.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
October 7, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-21141) of Carson, Inc. of our report dated May 8,
1995, except as to the accounting change described in Note 15 which is as of
June 30, 1997, appearing on page 24 of Item 8, of the Carson, Inc. Annual Report
on Form 10-K/A for the transition period from April 1, 1996 to December 31,
1996. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page 47 of such Form 10-K/A.
PRICE WATERHOUSE LLP
Atlanta, Georgia
October 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted
from the consolidated financial statements of the Company for the period ended
December 31, 1996 and is qualified in its entirety by reference to such
financial statements. The Company changed its method of accounting for
inventories from LIFO to FIFO. See Note 15 of Notes to Consolidated Financial
Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,191,000
<SECURITIES> 0
<RECEIVABLES> 15,731,000
<ALLOWANCES> 614,000
<INVENTORY> 10,572,000
<CURRENT-ASSETS> 31,301,000
<PP&E> 16,070,000
<DEPRECIATION> 981,000
<TOTAL-ASSETS> 97,529,000
<CURRENT-LIABILITIES> 15,449,000
<BONDS> 0
0
0
<COMMON> 150
<OTHER-SE> 54,065,000
<TOTAL-LIABILITY-AND-EQUITY> 97,529,000
<SALES> 59,938,000
<TOTAL-REVENUES> 59,938,000
<CGS> 26,940,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,545,000
<INCOME-PRETAX> (1,529,000)
<INCOME-TAX> 1,727,000
<INCOME-CONTINUING> (3,256,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,527,000)
<CHANGES> 0
<NET-INCOME> (6,783,000)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
