SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1 to
FORM 8-K
Current Report
[X ] Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): July 14, 1998
Commission file number 1-12271
================================================================================
CARSON, INC.
================================================================================
(Exact name of registrant as specified in its charter)
DELAWARE 06-1428605
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) 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
<PAGE>
Item 2. Acquisition or Disposition of Assets
During June, 1998 the Company entered into a Purchase Agreement with IVAX
Corporation, d/b/a IVX Bioscience, Inc. in order to acquire shares of Johnson
Products Co., Inc., a Florida corporation ("Johnson Products"). Johnson Products
is a manufacturer of personal care products for the ethnic care market. The
purchase price approximated $85 million with $35 million paid in cash. The
Company entered into a credit agreement with IVAX Corporation for the remaining
$50.0 million of the purchase price. The transaction was completed on July 14,
1998 and announced in the accompanying press release. Total revenues of Johnson
Products for the twelve months ended December 31, 1997 was $80.2 million. This
acquisition was accounted for under the purchase method of accounting.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired - Johnson Products Co.,
Inc., and Subsidiaries (Personal Care Products Subsidiary of IVAX
Corporation)
(1) Consolidated Financial Statements for the Years Ended December
31, 1997, 1996 and 1995
a) Report of Independent Public Accountants
b) Consolidated Balance Sheets as of December 31, 1997, 1996 and
1995
c) Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995
d) Consolidated Statements of Shareholders Equity for the Years
Ended December 31, 1997, 1996 and 1995
e) Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995
f) Consolidated Notes to Financial Statements
(2) Consolidated Financial Statements for the Three Months Ended
March 31, 1998 and 1997 (Unaudited)
a) Consolidated Balance Sheet as of March 31, 1998
b) Consolidated Statements of Income for the Three Months Ended
March 31, 1998 and 1997
c) Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997
d) Consolidated Notes to Financial Statements
b) Pro Forma Financial Information
(1) Carson, Inc. Pro Forma Consolidated Balance Sheet (unaudited) as
of March 31, 1998
(2) Carson, Inc. Pro Forma Consolidated Statement of Operations for
the Year Ended December 31, 1997
(3) Carson, Inc. Pro Forma Consolidated Statement of Operations for
the Three Months Ended March 31, 1998
(4) Notes to Pro Forma Consolidated Financial Statements (Unaudited)
(C) Exhibits
10.1 Purchase Agreement dated as of June 16, 1998 between Ivax
Corporation, d/b/a IVX Bioscience, Inc., and the Company - was
previously filed with the initial filing of this form 8-K and is
incorporated herein by reference.
10.2 Credit Agreement dated as of July 14, 1998 between Ivax
Corporation, d/b/a IVX Bioscience, Inc., and the Company - was
previously filed with the initial filing of this form 8-K and is
incorporated herein by reference.
22.1 Press Release dated July 14, 1998 announcing the purchase of
Johnson Products Company by the Company - was previously filed
with the initial filing of this form 8-K and is incorporated
herein by reference.
23 Consent of Arthur Andersen L.L.P.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CARSON, INC.
/s/Robert W. Pierce Date: September 28, 1998
Robert W. Pierce
Executive Vice President, Chief Financial Officer and Secretary
(Principal Financial Officer)
<PAGE>
(a) Financial Statements of Business Acquired - Johnson Products Co., Inc., and
Subsidiaries (Personal Care Products Subsidiary of IVAX Corporation)
(1) Johnson Products Co., Inc., and Subsidiaries (Personal Care Product
Subsidiary of IVAX Corporation) Consolidated Financial Statements For
the Years Ended December 31, 1997, 1996 and 1995
<PAGE>
Johnson Products Co., Inc. and Subsidiaries
(Personal Care Products
Subsidiary of IVAX Corporation)
Consolidated Financial Statements
For the Years Ended December 31, 1997, 1996 and 1995
Together With Auditors' Report
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Johnson Products Co., Inc. and Subsidiaries (Personal
Care Products Subsidiary of IVAX Corporation):
We have audited the accompanying consolidated balance sheets of JOHNSON PRODUCTS
CO., INC. (a Florida corporation) AND SUBSIDIARIES (PERSONAL CARE PRODUCTS
SUBSIDIARY OF IVAX CORPORATION) as of December 31, 1997, 1996 and 1995, and the
related consolidated statements of income, shareholder's equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Johnson Products Co., Inc. and
Subsidiaries (Personal Care Products Subsidiary of IVAX Corporation) as of
December 31, 1997, 1996 and 1995, and the results of their operations and their
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/Arthur Andersen L.L.P.
Chicago, Illinois
March 11, 1998
<PAGE>
<TABLE>
JOHNSON PRODUCTS CO., INC. AND SUBSIDIARIES
(PERSONAL CARE PRODUCTS
SUBSIDIARY OF IVAX CORPORATION)
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997, 1996 and 1995
(Dollars in thousands)
<S> <C> <C> <C>
ASSETS 1997 1996 1995
- ------------------------------------------------------------------------------- ----------- ---------- ----------
CURRENT ASSETS:
Cash $ 100 $ 103 $ 287
Accounts receivable, net of allowance for doubtful accounts of $958,
$1,248 and $566 and reserve for credit memos of $3,931, $6,699 and
$4,894 at December 31, 1997, 1996 and 1995, respectively 10,709 12,583 12,246
Inventories, net of reserves 12,337 13,897 10,431
Deferred income taxes 8,909 9,574 5,372
Prepaid expenses and other current assets 1,510 2,335 2,002
----------- ---------- ----------
Total current assets 33,565 38,492 30,338
----------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT 20,268 20,329 21,362
Less- Accumulated depreciation (15,035) (14,292) (13,743)
----------- ---------- ----------
5,233 6,037 7,619
----------- ---------- ----------
INTANGIBLE ASSETS 24,920 24,535 24,103
Less- Accumulated amortization (5,461) (3,837) (2,248)
----------- ---------- ----------
19,459 20,698 21,855
----------- ---------- ----------
LONG-TERM NOTE RECEIVABLE 547 514 1,233
----------- ---------- ----------
Total assets $58,804 $65,741 $61,045
=========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Bank overdraft $ 1,440 $ 998 $ 868
Accounts payable 3,536 4,316 3,862
Accrued expenses 1,968 1,876 1,707
Reserve for cosmetics returns and allowances 5,762 4,653 3,259
----------- ---------- ----------
Total current liabilities 12,706 11,843 9,696
----------- ---------- ----------
----------- ------------ -----------
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES 819 783 1,447
----------- ------------ -----------
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDER'S EQUITY:
Common shares (1,000 shares at par value $0.01) - - -
Additional paid-in capital 26,424 26,424 26,424
Treasury stock (352) (352) (352)
Retained earnings 29,979 28,967 29,541
Receivables from related parties, net (10,772) (1,924) (5,711)
Total shareholder's equity 45,279 53,115 49,902
----------- ------------ -----------
Total liabilities and shareholder's equity $58,804 $65,741 $61,045
=========== ========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
JOHNSON PRODUCTS CO., INC. AND SUBSIDIARIES
(PERSONAL CARE PRODUCTS
SUBSIDIARY OF IVAX CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<S> <C> <C> <C>
1997 1996 1995
---------- ---------- ----------
NET SALES $80,217 $78,554 $65,189
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of goods sold (35,285) (39,342) (30,291)
Selling, general and administrative expenses (40,974) (38,628) (29,484)
---------- ---------- ----------
Total costs and expenses (76,259) (77,970) (59,775)
---------- ---------- ----------
Income from operations 3,958 584 5,414
AMORTIZATION EXPENSE (1,615) (1,565) (821)
INTEREST INCOME, net 375 253 332
OTHER INCOME (EXPENSE), net (826) (310) 1,761
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 1,892 (1,038) 6,686
INCOME TAX (EXPENSE) BENEFIT (880) 464 (2,082)
---------- ---------- ----------
NET INCOME (LOSS) $ 1,012 $ (574) $ 4,604
=========== ========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
JOHNSON PRODUCTS CO., INC. AND SUBSIDIARIES
(PERSONAL CARE PRODUCTS
SUBSIDIARY OF IVAX CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
Common Stock Additional Receivables
(Par Value $0.01) Paid-in Retained from Related Treasury
-------------------- Capital Earnings Parties, net Stock Total
Shares Amount
-------- ---------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 1,000 $ - $26,424 $24,937 $(11,543) $(352) $39,466
Net income for 1995 - - - 4,604 - - 4,604
Change in receivable from related
parties, net --------- --------- ---------- ---------- ---------- ---------- ----------
- - - - 5,832 - 5,832
--------- --------- ---------- ---------- ---------- ---------- ----------
BALANCE, December 31, 1995 1,000 - 26,424 29,541 (5,711) (352) 49,902
Net loss for 1996 - - - (574) - - (574)
Change in receivable from related
parties, net --------- --------- ---------- ---------- ---------- ---------- ----------
- - - - 3,787 - 3,787
--------- --------- ---------- ---------- ---------- ---------- ----------
BALANCE, December 31, 1996 1,000 - 26,424 28,967 (1,924) (352) 53,115
Net income for 1997 - - - 1,012 - - 1,012
Change in receivable from related
parties, net --------- --------- ---------- ---------- ---------- ---------- ----------
- - - - (8,848) - (8,848)
--------- --------- ---------- ---------- ---------- ---------- ----------
BALANCE, December 31, 1997 1,000 $ - $26,424 $29,979 $(10,772) $(352) $45,279
========= ========= ========== ========== ========== ========== ==========
The accompanying notes are an
integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
JOHNSON PRODUCTS CO., INC. AND SUBSIDIARIES
(PERSONAL CARE PRODUCTS
SUBSIDIARY OF IVAX CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<S> <C> <C> <C>
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES: ----------- ----------- -----------
Net income (loss) $ 1,012 $ (574) $ 4,604
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities-
Write down of property, plant and equipment 478 - 800
Gain on sale of trademark - - (1,572)
Loss on disposal of fixed assets - 114 -
Depreciation 743 766 726
Amortization 1,615 1,565 821
Provision for excess and obsolete inventory 2,448 5,106 2,456
Change in assets and liabilities-
Decrease (increase) in accounts receivable, net 1,874 (337) (2,264)
Increase in inventories (888) (8,572) (3,953)
Decrease (increase) in prepaid expenses and other current assets 825 (448) (1,043)
(Decrease) increase in bank overdraft 442 130 (216)
Increase (decrease) in accounts payable and accrued expenses (688) 623 552
Increase in reserve for cosmetics returns and allowances 1,109 1,394 229
Decrease (increase) in deferred tax assets, net and other ----------- ----------- -----------
long-term liabilities 701 4,866) (2,802)
----------- ----------- -----------
Total adjustments 8,659 (4,525) (6,266)
----------- ----------- -----------
Net cash provided by (used in) operating activities 9,671 (5,099) (1,662)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on sale of property, plant and equipment - 1,183 103
Proceeds on sale of trademark - - 2,743
Additions of property, plant and equipment (417) (484) (752)
Purchases of businesses/product lines, net of current assets of $748 in 1995 (376) (407) (5,230)
----------- ----------- -----------
Net cash (used in) provided by in investing activities (793) 292 (3,136)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments to) borrowing from IVAX (8,848) 3,787 5,832
Notes receivable granted to TCM (48) - (1,793)
Payments received from TCM - 836 489
Proceeds from other noncurrent assets 15 - 296
----------- ----------- -----------
Net cash (used in) provided by financing activities (8,881) 4,623 4,824
----------- ----------- -----------
<PAGE>
JOHNSON PRODUCTS CO., INC. AND SUBSIDIARIES
(PERSONAL CARE PRODUCTS
SUBSIDIARY OF IVAX CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
(Continued)
1997 1996 1995
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH $ (3) $ (184) $ 26
CASH, beginning of year 103 287 261
----------- ----------- -----------
CASH, end of year $ 100 $ 103 $ 287
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for Interest $ 8 $ 14 $ 68
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
JOHNSON PRODUCTS CO., INC. AND SUBSIDIARIES
(PERSONAL CARE PRODUCTS
SUBSIDIARY OF IVAX CORPORATION)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
1. ORGANIZATION AND BUSINESS
Organization
For the periods presented, Johnson Products Co., Inc. and Subsidiaries
(Personal Care Products Subsidiary of IVAX Corporation) (the "Company") was
100% owned by IVAX Corporation ("IVAX" or the "Parent"). The Company is
incorporated in Florida. The consolidated financial statements include the
accounts of Johnson Products Co., Inc. and its subsidiaries (IVAX Personal
Care Products P.R. Inc., Flori Roberts, Inc., Searoads, Inc., Johnson
Products Export Sales, Inc., Johnson Products Co. (UK) Limited and WuT.
Products, Inc.).
Business
The Company is principally engaged in the manufacture and distribution
of hair care and cosmetics products (Health and Beauty Aides segment)
designed primarily for AfricanAmerican consumers.
The Company's ethnic hair care product line includes hair relaxers,
conditioners, dressings and shampoos. Such products are sold through mass
merchants, retailers, wholesalers and professional outlets in the United
States and overseas. They are sold under such trademarks as Ultra Sheen,
Ultra Sheen's Precise, Classy Curl, Ultra Star, Gentle-Treatment, Afro
Sheen, Ultra Sheen Supreme, Soft Touch, Bantu and StaSofFro.
The Company's corrective cosmetics product line is primarily composed
of products sold under the Dermablend trademark. Products are sold
primarily through department store and specialty retailers.
The Company's other ethnic cosmetics product line includes facial
makeup, perfumes and other cosmetics. They are sold under such trademarks
as Iman and Flori Roberts.
Export sales for the Company amounted to approximately $4,717, $4,819
and $6,193 of net sales for the years ended December 31, 1997, 1996 and
1995, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include those revenues and expenses directly
attributable to the operations of the Company. These costs include direct
expenses and certain allocated expenses incurred by IVAX on the Company's
behalf as further discussed in Note 7, "Transactions with Affiliate."
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Revenue Recognition
Sales are recorded at the time of shipment of products. The Company
establishes reserves for estimated returns and allowances at the time of
shipment. In addition, reserves for customer discounts and rebates are
recorded when revenues are recognized. Provisions for credit memos and
reserve for cosmetics returns and allowances amounted to $6,663, $9,575,
and $8,234 in 1997, 1996 and 1995, respectively.
Cost of Goods Sold
Cost of goods sold for hair care products consist of material and
manufacturing costs. Manufacturing costs principally represent labor and
overhead for manufacturing operations in the Company's Chicago, Illinois
facility. Cost of goods sold for cosmetic products consists of material and
the cost to have the product manufactured and packaged by third-party
contractors. Cost of goods sold for both hair care and cosmetics products
also include a provision for excess and obsolete inventory.
Advertising Expense
Advertising costs are charged to expense as incurred and were $3,448,
$4,278 and $2,611 during 1997, 1996 and 1995, respectively.
Research and Development
Research and development costs are charged to expense as incurred and
were $689, $852 and $848 during 1997, 1996 and 1995, respectively.
Concentration of Credit Risk
Accounts receivable potentially expose the Company to concentrations
of credit risk, as defined by Statement of Financial Accounting Standards
No. 105, "Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk."
The Company provides credit, in the normal course of business, to a
large number of distributors and retailers concentrated in the health,
beauty aid and cosmetic business. The Company had sales to an individual
customer representing approximately 17%, 19% and 10% of net sales in the
years ended December 31, 1997, 1996 and 1995, respectively. The Company
performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
basis) or market. A reserve for excess and obsolete inventories has been
provided primarily for on-hand inventory items in excess of one year's net
sales or usage as well as for products that will be discontinued in the
following year.
Prepaid Expenses and Other Currents Assets
Prepaid expenses and other current assets are comprised primarily of
promotional inventory, net of a reserve for excess and obsolete promotional
items. The provision for excess and obsolete promotional inventories is
reflected in selling, general and administrative expenses.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Maintenance costs
are expensed when incurred. Expenditures which substantially improve or
extend the useful lives of the respective assets are capitalized. The
Company provides for depreciation and amortization of the costs of the
various classes of assets over their estimated useful lives using the
straight-line method.
Depreciation expense was $743, $766 and $726 in the years ended
December 31, 1997, 1996 and 1995, respectively. Fully depreciated assets
amounted to $9,562, $8,590 and $8,880 at December 31, 1997, 1996 and 1995,
respectively.
Intangible Assets
Intangible assets are stated at cost. The Company provides for
amortization of the costs over their estimated useful lives using the
straight-line method.
The Company continually evaluates whether events and circumstances
have occurred that indicate the remaining estimated useful life of goodwill
and other intangible assets may warrant revision or that the remaining
balance of goodwill and other intangible assets may not be recoverable. The
Company's policy is to recognize any impairment through the reduction of
current earnings in the period in which such determination is made.
As of December 31, 1997, the Company has determined that no
impairments to intangible assets exist for the periods presented, based on
the selling price the Company expects to receive on the anticipated sale of
the business. However, there are no firm commitments or letters of intent
from any buyer. Should the ultimate sales value of the business differ
significantly from the expected selling price, an impairment loss may need
to be recognized at that time.
Reserve for Cosmetics Returns and Allowances
The Company offers its cosmetics customers, other than mass
merchandise customers, 100% right of return of product for full credit. In
general, product returned from customers is deemed to have no value. As a
result, the Company maintains a Reserve for Cosmetics Returns and
Allowances to cover such returns. The Company estimates the reserve based
primarily on estimated cosmetics inventory held for sale by its customers
in excess of one year's estimated retail sales.
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, the
disclosure of commitments and contingent 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.
As a result of the Company's relationship with IVAX, certain costs and
expenses are not necessarily indicative of what they would have been had
this relationship not existed. Additionally, these financial statements are
not necessarily indicative of the future operations of the Company (see
Note 7 for additional information).
3. INVENTORIES
Net inventories as of December 31, 1997, 1996 and 1995 are summarized
as follows:
1997 1996 1995
--------- --------- ---------
Raw materials $ 9,033 $ 9,810 $ 6,968
Work in process 4,079 2,426 1,608
Finished goods 10,217 10,017 6,534
Reserve for excess and obsolete inventories (10,992) (8,356) (4,679)
--------- --------- ---------
Net inventories $ 12,337 $ 13,897 $ 10,431
========= ========= =========
Included in cost of goods sold is the provision for excess and obsolete
inventories in the amounts of $2,448, $5,106, and $2,456 for the years ended
December 31, 1997, 1996 and 1995, respectively.
4. PREPAID EXPENSES
Promotional inventory is included in prepaid expenses and consists of the
following amounts at December 31, 1997, 1996 and 1995:
1997 1996 1995
--------- --------- ---------
Promotional inventory $ 4,305 $ 2,949 $ 1,122
Reserve for excess and obsolete inventory (3,255) (1,434) (477)
--------- --------- ---------
Net promotional inventory $ 1,050 $ 1,515 $ 645
========= ========= =========
5. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are summarized as
follows:
December 31 Depreciation
-------------------------------- Period
1997 1996 1995
-------- -------- -------- ------------
Land $ 754 $ 754 $ 966
Land improvements 302 302 302 15-40 years
Buildings 6,026 6,026 7,064 15-40 years
Machinery and equipment 8,654 8,263 8,329 5-10 years
Furniture and fixtures 2,307 2,759 2,737 3-10 years
Computer and software 2,138 2,138 1,769 3-8 years
Leasehold improvements 87 87 195 5-20 years
-------- -------- -------- =============
Total cost 20,268 20,329 21,362
Accumulated depreciation (15,035) (14,292) (13,743)
-------- -------- --------
$ 5,233 $ 6,037 $ 7,619
======== ======== ========
6. INTANGIBLE ASSETS
The major classes of intangible assets are as follows:
December 31
-------------------------------- Amortization
1997 1996 1995 Period
-------- -------- -------- -------------
Trademarks $ 2,915 $ 2,530 $ 2,098 15 years
Goodwill 22,005 22,005 22,005 5-40 years
-------- -------- --------
Total cost 24,920 24,535 24,103
Accumulated amortization (5,461) (3,837) (2,248)
-------- -------- --------
$19,459 $20,698 $21,855
======== ======== ========
On November 8, 1995, the Company acquired the assets of Iman. The
assets acquired were primarily inventory and promotional inventory.
Reserves for inventory obsolescence and returns were set up at the
acquisition. The price paid by the Company for the Iman assets and business
was approximately $5,048, resulting in goodwill of $4,829.
The acquisition was accounted for as a purchase and the net assets and
results of operations are included in the Company's consolidated financial
statements from the purchase date.
7. TRANSACTIONS WITH AFFILIATE
IVAX has furnished certain outside legal counsel services, insurance
coverage and employee retirement benefits to the Company. The costs of
outside legal services are charged to the Company based on actual cost
incurred. Insurance coverage includes property and product liability, the
costs of which are allocated to the Company based on the ratio that the
Company's total property value and net sales, respectively bear in relation
to IVAX's consolidated corresponding amounts. Certain Company employees
participated in the IVAX Corporation U.S. Employee Savings Plan, which is a
401(k) retirement savings plan. IVAX allocated to the Company its portion
of the IVAX employer matching contribution. The charges for the above
outside legal services, insurance coverage and retirement benefits were
$1,065, $1,343 and $839 for the years ended December 31, 1997, 1996 and
1995, respectively.
IVAX also provides workers' compensation and medical insurance
coverage to the Company. For such coverage, the Company is allocated
charges based on the ratio that the Company's total compensation cost and
full-time equivalents, respectively, bear in relation to IVAX's
consolidated corresponding amounts. At any point in time, the Company has
been fully insured for such risks by IVAX. As a result, no liabilities for
these items are recorded in the Company's consolidated financial statements
at December 31, 1997, 1996 and 1995. The Company recognized expense in the
amount of $1,011, $1,043 and $1,137 for such coverage for the years ended
December 31, 1997, 1996 and 1995, respectively.
The Company believes that the charges for the above services,
insurance coverage and retirement benefits have been calculated and
allocated on a reasonable basis and that the total amount of costs
recognized in the accompanying statements of income approximate what actual
costs would have been for the Company as a stand-alone entity.
The accompanying consolidated financial statements do not include
allocations from IVAX of other general and administrative functions at
IVAX, including treasury, tax, risk management, human resources, accounting
and finance. Such expenses may have to be incurred separately in order to
operate the Company as a stand-alone entity in the future. It is not
possible to determine the effect of such expenses, if any, on the Company's
future results of operations.
Sales to affiliated companies amounted to $126, $237 and $334 for the
years ended December 31, 1997, 1996 and 1995, respectively. There were no
purchases from affiliated companies during 1997, 1996 and 1995. Outstanding
balances with related parties are as follows:
1997 1996 1995
-------- --------- ---------
Intercompany receivable (Parent) $11,283 $ 6,458 $ 8,076
Accrued income taxes owed to parent (850) (5,174) (2,934)
Baker Norton (trade) 325 270 544
Searoads (trade) - - (240)
Baker Norton, Asia (trade) 14 - 6
IVAX Industries (trade) - - (8)
Goldline (trade) - 370 338
Baker Cummins (trade) - - (71)
-------- -------- --------
Total $10,772 $ 1,924 $ 5,711
======== ======== ========
The total outstanding balances with related parties have been
classified as a reduction of shareholder's equity in the accompanying
consolidated balance sheets.
8. LONG-TERM NOTE RECEIVABLE
The Company has a note receivable from T.C.M. Limited ("TCM") that
resulted from the sale of certain of the Company's brand names to TCM in
1995. The note receivable requires quarterly installment payments of $62.5,
plus interest at 9%. In 1996, TCM paid in advance four 1997 installment
payments and four 1998 installments.
9. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1997, minimum payments due for assets under operating
leases are as follows:
1998 $ 202
1999 78
2000 37
2001 3
2002 -
========
Rent expense was $221, $220 and $234 for the years ended December 31,
1997, 1996 and 1995, respectively.
The Company has entered into several royalty or other compensation
agreements, under which the following require a minimum payment:
The Company is obliged to pay a minimum annual compensation of $200
to Paz, Inc. up to January 31, 2001, relating to the services of
Patti LaBelle to advertise, endorse and promote a product line. The
agreement requires Patti LaBelle to render services as a performer
and a participant in television commercials, photography sessions
and personal appearances.
WuT. Products, Inc. (subsidiary of the Company) has a license
agreement with Wu-Wear, Inc. WuT. Products, Inc. is required to pay
minimum annual royalty payments in the amount of $50 for the first
year, as defined in the agreement (August 1, 1997-January 31, 1999),
$200 for the second year and $250 for the next three years. The
agreement expires on January 31, 2003. In the event WuT. Products,
Inc. fails to pay the minimum royalty payment for any year, Wu-Wear,
Inc.'s sole right is to terminate the agreement by notice to WuT.
Products, Inc. and Wu-Wear, Inc. shall not be entitled to any
further minimum royalty obligations from the date of such
termination. Management anticipates that WuT. Products, Inc. will
not meet the minimum annual royalty payment for the first year and
expects that the agreement will terminate prior to December 31,1998.
The Company has a consulting agreement with Sam Fine, which requires
the Company to pay Mr. Fine a minimum of $200 a year. The agreement
is effective July 1, 1997, and continues for three consecutive
years. However, the Company has the option to terminate the
agreement at the end of the thirtieth month. The agreement requires
Sam Fine to act as an on-camera spokesperson, make-up artist, and
cosmetic advisor. The agreement stipulates that in the event a
change of control or if the divestiture of the Company does not
occur by February 1998, Sam Fine and the Company shall decide in
good faith whether or not to continue with the agreement. Management
believes that it can renegotiate or terminate the existing agreement
with no significant amounts owed Mr. Fine.
The Company is, from time to time, engaged in litigation normally
incident to the conduct of its business, including product liability cases,
in some of which material damages are sought. With respect to product
liability cases, the Company is covered by product liability insurance held
by IVAX. Management believes that none of the litigation will have a
material effect on the Company's financial position or results of
operations.
10. INCOME TAXES
The Company is part of a consolidated tax filing group with IVAX.
Income taxes for the Company have been calculated on a separate Company
basis pursuant to a tax sharing agreement between the Company and IVAX and
in accordance with the requirements of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
Income tax (expense) benefit consists of:
1997 1996 1995
-------- -------- --------
Deferred taxes $ (739) $ 4,870 $ 586
Current income taxes (141) (4,406) (2,668)
-------- -------- --------
Net tax (expense) benefit $ (880) $ 464 $(2,082)
======== ======== ========
The components of the deferred tax asset (liability) as of December
31, 1997, 1996 and 1995, are as follows:
December 31
--------------------------------
1997 1996 1995
-------- -------- --------
Deferred tax assets-current
Inventory $ 3,997 $ 4,043 $ 1,432
Accounts receivable allowances 2,421 3,198 1,898
Accruals 2,432 2,278 1,679
Other 59 55 363
-------- -------- --------
Total deferred tax assets--current 8,909 9,574 5,372
-------- -------- --------
Deferred tax assets (liabilities)-noncurrent
Fixed assets (360) (868) (305)
Intangibles 180 346 (80)
DISC earnings (699) (280) (1,052)
Other 22 19 (14)
-------- -------- --------
Total deferred tax
liabilities-noncurrent (857) (783) (1,451)
-------- -------- --------
Net deferred tax asset $ 8,052 $ 8,791 $ 3,921
======== ======== ========
A reconciliation of the statutory tax rate to the effective income tax
rate is as follows. The statutory federal tax rate of 34% has been applied.
December 31
--------------------------------
1997 1996 1995
-------- -------- --------
Income tax (expense) benefit based on
statutory tax rates $ (643) $ 353 $(2,273)
Effect of state income taxes (85) (54) (170)
Nondeductible goodwill amortization (150) (153) (156)
Tax effect on permanent differences (35) (11) 134
Other 33 329 383
-------- -------- --------
Income taxes (expense) benefit according
to financial statements $ (880) $ 464 $(2,082)
======== ======== ========
Realization of deferred tax assets associated with the Company's
future deductible temporary differences is dependent upon generating
sufficient taxable income. Although realization of the deferred tax assets
is not assured, management believes it is more likely than not that the
deferred tax assets will be realized through future taxable income. On a
quarterly basis, management will assess whether it remains more likely than
not that the deferred tax assets will be realized. If management determines
that it is no longer more likely than not that the deferred tax assets will
be realized, a valuation allowance will be required against some or all of
the deferred tax assets. This would require a charge to the income tax
provision which could be material to the Company's future results of
operations.
11. SUBSEQUENT EVENTS
IVAX has announced that the Company is being held for sale and is
anticipated to be disposed of during 1998.
On March 3, 1998, the Company's cosmetics distributor and warehouse
provider, terminated its contract with a 180-day notice period. The Company
is in the process of identifying alternative warehouses and distributors
for its cosmetics products. Management believes it can replace the current
distributor and warehouse provider with one that is more cost effective and
customer responsive.
On January 27, 1998, the Company's largest customer issued a press
release stating their intention of closing 75 stores in 1998. The Company
has not been able to estimate the effect, if any, of this event on future
operations.
<PAGE>
(2) Johnson Products Co., Inc., and Subsidiaries (Personal Care Products
Subsidiary of IVAX Corporation) Consolidated Financial Statements
(Unaudited) For the Three Months Ended March 31, 1998 and 1997
<PAGE>
<TABLE>
JOHNSON PRODUCTS CO., INC. AND SUBSIDIARIES
UNAUDITED BALANCE SHEET
As of March 31, 1998
(Dollars in thousands)
<S> <C>
ASSETS 3/31/98
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 112
Accounts receivable, net of allowance for doubtful accounts of $889
and reserve for credit memos of $4,029 13,696
Inventories, net of reserves 10,730
Deferred income taxes 8,952
Prepaid expenses and other current assets 812
---------------
Total current assets $ 34,302
---------------
PROPERTY, PLANT AND EQUIPMENT 20,308
Less-Accumulated depreciation (15,415)
---------------
4,893
---------------
INTANGIBLE ASSETS 25,010
Less-Accumulated amortization (5,826)
---------------
19,184
---------------
LONG-TERM NOTE RECEIVABLE 547
---------------
Total assets $ 58,926
===============
LIABILITIES AND SHAREHOLDER'S EQUITY
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Bank overdraft $ 1,416
Accounts payable 3,342
Accrued expenses 1,799
Accrued income tax payable 139
Reserve for cosmetics returns and allowances 6,129
---------------
Total current liabilities 12,825
---------------
DEFERRED INCOME TAXES AND OTHER LONG-TERM
LIABILITIES 870
--------------
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDER'S EQUITY:
Common shares (1,000 shares at par value $.01) -
Additional paid-in capital 26,424
Treasury stock (352)
Retained earnings 30,140
Receivables from related parties, net (10,981)
---------------
Total shareholder's equity 45,231
---------------
Total liabilities and shareholder's equity $ 58,926
===============
</TABLE>
<PAGE>
JOHNSON PRODUCTS CO., INC. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1998 and 1997
(Dollars in thousands)
1998 1997
---- ----
NET SALES $ 18,595 $ 19,255
COSTS AND EXPENSES:
Cost of goods sold (9,182) (8,708)
Selling, general and administrative expenses (8,744) (9,959)
---------- ----------
Total costs and expenses (17,926) (18,667)
---------- ----------
Income from operations 669 588
AMORTIZATION EXPENSE (403) (400)
INTEREST INCOME, net 116 53
OTHER INCOME (EXPENSE), net (57) -
---------- ----------
INCOME BEFORE INCOME TAXES 325 241
INCOME TAX EXPENSE (164) (92)
---------- ----------
NET INCOME $ 161 $ 149
========== ==========
<PAGE>
<TABLE>
JOHNSON PRODUCTS CO., INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
(Dollars in thousands)
<S> <C> <C>
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 161 $ 149
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation 377 199
Amortization 403 400
Provision for excess and obsolete inventory 528 984
Change in assets and liabilitities-
Increase in accounts receivable, net (2,987) (2,177)
Decrease (increase) in inventories 1,079 (99)
Decrease (increase) in prepaid expenses and other current
assets 698 (783)
(Decrease) increase in bank overdraft 367 610
Decrease in deferred tax assets, net and other
long-term liabilities 8 896
---------------- -----------------
Total adjustments 225 (109)
---------------- -----------------
Net cash provided by operating activities 386 40
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property, plant and equipment (40)
Purchases of businesses/product lines (128) (21)
---------------- -----------------
Net cash used in investing activities (168) (21)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments to IVAX (206) (76)
Write down of other noncurrent assets 16
---------------- -----------------
Net cash used in financing activities (206) (60)
---------------- -----------------
NET INCREASE (DECREASE) IN CASH $ 12 $ (41)
CASH, beginning of year 100 103
---------------- -----------------
CASH, end of year $ 112 $ 62
================ =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ - $ -
================ =================
</TABLE>
<PAGE>
JOHNSON PRODUCTS CO., INC. AND SUBSIDIARIES
(PERSONAL CARE PRODUCTS SUBSIDIARY OF IVAX CORPORATION)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated interim financial statements of Johnson
Products Co., Inc. and Subsidiaries (Personal Care Products Subsidiary of IVAX
Corporation) (the "Company") presented herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted from these consolidated
financial statements pursuant to applicable rules and regulations of the
Securities and Exchange Commission. These financial statements should be read in
conjunction with the audited Consolidated Financial Statements for the Years
Ended December 31, 1997, 1996 and 1995 and the notes thereto. In the opinion of
management, the accompanying unaudited financial statements contain all normal
recurring adjustments necessary to present fairly the Company's financial
position, results of operations and cash flows at the dates and for the periods
presented. Interim results of operations are not necessarily indicative of the
results to be expected for a full year. Certain prior period amounts have been
reclassified to conform with the current period presentation.
2. INVENTORIES
Net inventories as of March 31, 1998 are summarized as follows (in thousands):
March 31, 1998
-------------------
Raw materials $9,088
Work-in-process 3,690
Finished goods 9,656
Reserve for excess and obsolete inventories (11,704)
-------------------
Net inventories $10,730
===================
(B) Pro Forma Financial Information -
The following pro forma summary financial data has been prepared giving
effect to the acquisition of Johnson Products as if the transaction had taken
place at January 1, 1997.
The acquisition is being accounted for under the purchase method of
accounting. Certain assets and liabilities, primarily intercompany tax and other
intercompany accounts, were retained by IVAX Corporation and were closed out on
Johnson Products' historical March 31, 1998 balance sheet to retained earnings.
The fair market value of property, plant and equipment was determined by
independent appraisal. The carrying values of other assets and liabilities have
been estimated to approximate fair market value. Final allocations will be made
on the basis of continuing valuations giving effect to economic and market
factors. Accordingly, the purchase price allocation is currently preliminary.
Any purchase price adjustments will be made within one year from the acquisition
date and are not expected to be material to the pro forma financial information
taken as a whole.
Immediately prior to the Company's acquisition of Johnson Products, Johnson
Products sold Flori Roberts, Inc., to an outside third party. Therefore, the
assets and liabilities of Flori Roberts, Inc., have been deducted from the pro
forma balance sheet, and the operating results of Flori Roberts, Inc., have been
deducted from the pro forma statements of operations. The Dermablend line of
corrective cosmetics which are sold in department and specialty stores was
purchased by the Company, but management intends to sell this business within
one year. Until the disposal occurs, the assets and liabilities related to
Dermablend are included in the consolidated balance sheet of the Company.
Therefore, the pro forma balance sheet includes the purchased assets and
liabilities related to Dermablend. Since Dermablend was purchased with the
intent to be sold within a year, the results of operations related to Dermablend
are excluded from the Company's consolidated statement of operations. Therefore,
the results of operations related to Dermablend have also been excluded from the
pro forma statements of operations.
As discussed above, the purchase price of this acquisition approximated $85
million with $35 million paid in cash. The cash was provided by sale of $29.1
million of the Company's shares of its South African subsidiary, Carson Holdings
Limited, in May 1998. This sale generated cash proceeds of $55.2 million and
resulted in a one-time pretax gain of $49.1 million and an increase in minority
interest if $6.0 million. These cash proceeds were used for the acquisition of
Johnson Products in July 1998. The following pro forma balance sheet indicates a
large negative cash balance which did not actually occur since the stock sale
occurred before the acquisition.
The pro forma financial information is not necessarily indicative of the
results of operations or the financial position which would have been obtained
had the acquisition been consummated at January 1, 1997. The pro forma financial
information should be read in conjunction with the historical consolidated
financial statements of the Company.
<PAGE>
<TABLE>
Carson, Inc.
Pro Forma Consolidated Balance Sheets (Unaudited)
As of March 31, 1998
(Dollars in 000's)
<S> <C> <C> <C> <C> <C>
Less
Johnson ------------ Pro forma
Products Flori Adjustments
Carson, Inc. Company Roberts, Increase/ Carson, Inc.
(historical) (consolidated) Inc. (decrease) (pro forma)
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 5,184 $ 112 $ -- $ (35,000) (1) $ (29,704)
Accounts receivable, net 30,111 13,696 (75) 43,882
Inventories, net 28,936 10,730 2,799 36,867
Deferred income taxes -- 8,952 -- (8,952) (2) --
Other current assets 905 812 241 1,476
Property, plant and equipment, net 22,288 4,893 -- 5,242 (3) 32,423
Investments 3,695 -- -- 3,695
Intangible assets, net, and other assets 107,127 19,731 16,726 60,818 (4) 170,950
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 198,246 $ 58,926 $ 19,691 $ 22,108 $ 259,589
Liabilities and stockholders' equity:
Current liabilities:
Bank overdraft $ -- $ 1,416 $ -- $ (1,416) (2) $ --
Accounts payable 10,152 3,342 13,494
Notes payable -- -- -- 50,000 (1) 50,000
Due for A&J Cosmetics 4,003 -- -- 4,003
Accrued expenses 9,426 1,799 -- 5,000 (5) 16,225
Reserve for cosmetics returns and allowances -- 6,129 4,927 1,202
Income taxes payable 1,927 139 -- (139) (2) 1,927
Long-term debt 102,534 -- -- 102,534
Deferred income taxes and other liabilities 1,705 870 -- (870) (2) 1,705
Minority interest in subsidiary 7,636 -- -- 7,636
Common stock 150 -- -- 150
Paid in capital 69,018 26,424 14,764 (11,660) (6) 69,018
Accumulated (deficit) earnings (4,512) 30,140 -- (17,508) (2) (4,512)
(12,632) (6)
Accumulated other comprehensive losses (2,308) -- -- (2,308)
Note receivable from employee shareholders, net (1,378) -- -- (1,378)
Receivables from related parties, net -- (10,981) -- 10,981 (2) --
Treasury stock (107) (352) -- 352 (6) (107)
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 198,246 $ 58,926 $ 19,691 $ 22,108 $ 259,589
</TABLE>
<PAGE>
<TABLE>
Carson, Inc.
Pro Forma Consolidated Statements of Operations (Unaudited)
Year Ended December 31, 1997
(Dollars in 000's except per share data)
<S> <C> <C> <C> <C> <C> <C>
Less
Johnson ----------------------- Pro forma
Products Flori Adjustments
Carson, Inc. Company Roberts, Increase/ Carson, Inc.
(historical) (consolidated) Inc. Dermablend (decrease) (pro forma)
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 109,631 $ 80,217 $ 18,806 $ 12,555 $ -- $ 158,487
Cost of goods sold 50,510 35,285 7,851 3,155 -- 74,789
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 59,121 44,932 10,955 9,400 -- 83,698
Marketing and selling expenses 28,158 32,301 13,710 5,983 -- 40,766
General and administrative expenses 14,921 8,673 2,285 1,167 -- 20,142
Depreciation and amortization 3,793 1,615 1,375 -- 1,670 (4,7) 5,703
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 12,249 2,343 (6,415) 2,250 (1,670) 17,087
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense (6,444) -- -- -- (4,500) (8) (10,944)
Other income (expense) 728 (451) (179) (66) -- 522
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 6,533 1,892 (6,594) 2,184 (6,170) 6,665
(Provision for) benefit from income taxes (2,779) (880) 1,748 (732) 2,468 (9) (2,207)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) from continuing operations $ 3,754 $ 1,012 $ (4,846) $ 1,452 $ (3,702) $ 4,458
Earnings per share from continuing
operations $ 0.25 $ 0.30
Weighted average common shares outstanding 15,003 15,003
</TABLE>
<PAGE>
<TABLE>
Carson, Inc.
Pro Forma Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Less
Johnson ----------------------- Pro forma
Products Flori Adjustments
Carson, Inc. Company Roberts, Increase/ Carson, Inc.
(historical) (consolidated) Inc. Dermablend (decrease) (pro forma)
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 31,797 $ 18,595 $ 3,752 $ 2,786 $ -- $ 43,854
Cost of goods sold 15,378 9,182 1,304 741 -- 22,515
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 16,419 9,413 2,448 2,045 -- 21,339
Marketing and selling expenses 8,691 6,767 3,113 1,169 -- 11,176
General and administrative expenses 5,305 1,977 476 265 -- 6,541
Depreciation and amortization 643 403 336 -- 418 (4,7) 1,128
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 1,780 266 (1,477) 611 (418) 2,494
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense (2,837) -- -- -- (1,125) (8) (3,962)
Other income (expense) 221 59 (52) (14) -- 346
- ------------------------------------------------------------------------------------------------------------------------------------
(Loss) income before income taxes (836) 325 (1,529) 597 (1,543) (1,122)
Benefit from (provision for) from income taxes 335 (164) 602 (301) 617 (9) 487
- ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) income from continuing operations $ (501) $ 161 $ (927) $ 296 $ (926) $ (635)
Loss per share from continuing
operations $ (0.03) $ (0.04)
Weighted average common shares outstanding 14,993 14,993
</TABLE>
<PAGE>
Carson, Inc.
Notes to Pro Forma Consolidated Financial Statements (Unaudited)
1. The total purchase price of $85 million was financed through a
combination of $35 million of cash and a $50 million short-term seller's note
provided by IVAX Corporation. The cash was provided by sale of $29.1 million of
the Company's shares of its South African subsidiary, Carson Holdings Limited,
in May 1998. This sale generated cash proceeds of $55.2 million and resulted in
a one-time pretax gain of $49.1 million and an increase in minority interest of
$6.0 million.
The Company entered into a Credit Agreement with IVAX Corporation for the
remaining $50 million purchase price. The term loan provided by IVAX Corporation
matures on November 30, 1998 and bears interest at 9.0% per annum, payable
monthly. Any overdue principal and interest bear interest at 12.0% per annum
and are payable upon demand.
2. A pro forma adjustment has been included to adjust Johnson Products'
historical balance sheet for intercompany tax and other intercompany accounts
which were retained by IVAX Corporation and were not part of the sale to the
Company.
3. A pro forma adjustment has been included to adjust the carrying value of
property, plant and equipment to the appraised value.
4. Goodwill of approximately $61 million was recorded as a result of the
acquisition. Of this amount, $15 million has been allocated to intangibles
related to Dermablend and is not being amortized, as management expects to sell
Dermablend within the year and is not including any of its results in the
statement of operations. The $46 million of remaining intangibles is being
amortized over a period of 40 years. The Company is performing a valuation of
the assets and liabilities acquired. As a result, the amount assigned to
goodwill and the amortization of intangibles may change based upon the results
of this valuation.
5. A pro forma adjustment has been included to record accruals for certain
expenses expected to be incurred as a result of the acquisition, including
severance, professional fees, plant clean-up, etc.
6. A pro forma adjustment has been included to eliminate the equity of
Johnson Products Company.
7. A pro forma adjustment has been included to record additional
depreciation expense based on the new cost bases and useful lives of the
fixed assets acquired.
8. A pro forma adjustment has been included to record incremental interest
expense at 9% on the $50 million short-term debt used to finance the
acquisition.
9. The net effect of the acquisition and the related pro forma adjustments
has been taxed at the Company's historical effective tax rate.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-8 of our report dated March 11, 1998 included in
Registration Statement File No. 333-37667 and 333-21141. It should be noted
that we have not audited any financial statements of Johnson Products Co., Inc.
and Subsidiaries (Personal Care Products Subsidiary of IVAX Corporation)
subsequent to December 31, 1997 or performed any audit procedures subsequent to
the date of our report.
/s/ Arthur Andersen L.L.P.
Chicago, Illinois
September 25, 1998
