SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______ to _______
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
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
At November 9, 1999, 10,083,485 shares of the registrant's Class A Common
Stock, par value $0.01 per share, and 5,126,163 shares of the registrant's
Class C Common Stock, par value $0.01 per share were outstanding.
<PAGE>
CARSON, INC.
INDEX
Part I. Financial Information Page
Item 1.
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998......................... 3
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1999 and 1998... 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998..................... 5
Notes to Condensed Consolidated Financial Statements.............. 6-13
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 14-21
Part II. Other Information............................................... 21
Item 6.
(a) Exhibits .................................................... 22
(b) Reports on Form 8-K.......................................... 22
Signature........................................................ 23
2
<PAGE>
CARSON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20,606 $ 28,706
Accounts receivable less allowances of $5,811 and $6,457 at September 30, 1999
and December 31, 1998, respectively 41,614 38,953
Inventories 27,212 22,825
Restricted cash -- 4,500
Other current assets 1,179 669
-------------- --------------
Total current assets 90,611 95,653
PROPERTY, PLANT AND EQUIPMENT, net 38,025 35,765
INTANGIBLES, net 126,410 129,183
OTHER ASSETS 6,689 6,862
-------------- --------------
TOTAL ASSETS $ 261,735 $ 267,463
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,711 $ 12,584
Due for A&J Cosmetics -- 6,355
Accrued expenses 15,315 19,306
Income taxes payable 1,220 2,508
Current maturities of long-term debt -- 126
-------------- --------------
Total current liabilities 31,246 40,879
LONG-TERM DEBT 136,723 133,423
OTHER LIABILITIES 3,299 3,345
MINORITY INTEREST IN SUBSIDIARY 22,617 20,656
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, 9,977,550 and
7,926,485 shares issued as of September 30, 1999 and December 31, 1998, respectively 100 79
Class B, nonvoting, $.01 par value, 2,000,000 shares authorized, 0 and 1,859,677 shares
issued and outstanding as of September 30, 1999 and December 31, 1998, respectively -- 19
Class C, voting, $.01 par value, 13,000,000 shares authorized, 5,274,312 and
5,334,700 shares issued as of September 30, 1999 and December 31, 1998, respectively 53 53
Paid-in capital 81,526 80,970
Accumulated deficit (5,316) (3,920)
Accumulated other comprehensive losses (6,938) (6,495)
Notes receivable from shareholders, net of discount (1,238) (1,209)
Treasury stock, 13,245 shares of Class A common stock and 28,969 shares of Class C
common stock (337) (337)
------------- --------------
Total stockholders' equity 67,850 69,160
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 261,735 $ 267,463
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
CARSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
=============== ============== ================ ===============
<S> <C> <C> <C> <C>
Net sales $ 48,010 $ 44,563 $ 130,730 $ 105,534
Cost of goods sold 22,912 21,983 62,285 58,436
--------------- -------------- --------------- ---------------
Gross profit 25,098 22,580 68,445 47,098
Expenses:
Marketing and selling 12,520 12,708 34,176 30,225
General and administrative 6,760 6,428 20,715 22,404
Restructuring charges -- 914 500 5,751
--------------- -------------- --------------- ---------------
19,280 20,050 55,391 58,380
--------------- -------------- --------------- ---------------
Operating income (loss) 5,818 2,530 13,054 (11,282)
Interest expense (4,379) (3,786) (13,143) (9,633)
Gain on sale of subsidiary stock -- -- -- 49,140
Loss on write-off of investment -- (3,768) (3,768)
Other income, net 649 1,057 2,361 2,761
--------------- -------------- --------------- ---------------
Income (loss) before income taxes, minority
interest and extraordinary item 2,088 (3,967) 2,272 27,218
(Provision for) benefit from income taxes (535) 2,011 (1,731) (11,015)
--------------- -------------- --------------- ---------------
Income (loss) before minority interest and
extraordinary item 1,553 (1,956) 541 16,203
Minority interest in earnings of subsidiary (493) (708) (1,937) (1,652)
--------------- -------------- --------------- ---------------
Income (loss) before extraordinary item 1,060 (2,664) (1,396) 14,551
Extraordinary item, net of income taxes -- (933) -- (933)
--------------- -------------- --------------- ---------------
Net income (loss) $ 1,060 $ (3,597) $ (1,396) $ 13,618
=============== ============== =============== ===============
Basic and diluted net income (loss) per common share:
Before extraordinary item $ 0.07 $ (0.18) $ (0.09) $ 0.97
Extraordinary item, net of income taxes -- (0.06) -- (0.06)
--------------- -------------- --------------- ---------------
Net income (loss) $ 0.07 $ (0.24) $ (0.09) $ 0.91
=============== ============== =============== ===============
Weighted average common
shares outstanding 15,210 14,988 15,130 14,990
=============== ============== =============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CARSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (1,396) $ 13,618
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization 5,503 4,776
Provision for doubtful accounts 963 634
Minority interest in earnings of subsidiary 1,937 1,652
Gain on sale of subsidiary stock - (49,140)
Non-cash special charges - 14,695
Loss on write-off of investment - 3,768
Extraordinary item, net of income taxes - 933
Other, net (42) 599
Changes in operating assets and liabilities:
Accounts receivable (3,663) (3,956)
Inventories (4,416) (5,396)
Restricted cash 4,500 -
Other current assets (511) (3,171)
Accounts payable 2,137 (3,058)
Income taxes payable (1,281) 10,385
Accrued expenses (3,988) 2,350
-------------- --------------
Total adjustments 1,139 (24,929)
-------------- --------------
Net cash used in operating activities (257) (11,311)
-------------- --------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,374) (8,242)
Issuance of long-term note receivable (1,000) -
Collection of long-term note receivable 517 (35,000)
Acquisition of business assets, net of cash acquired - --
-------------- --------------
Net cash used in investing activities (4,857) (43,242)
-------------- --------------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 3,373 9,500
Principal payments on long-term debt (73) (12,633)
Payment on A&J Cosmetics payable (6,171) (5,416)
Proceeds from sale of subsidiary stock - 74,450
Other, net 226 (197)
-------------- --------------
Net cash (used in) provided by financing activities (2,645) 65,704
-------------- --------------
EFFECT OF EXCHANGE RATE CHANGES (341) (3,685)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,100) 7,466
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,706 14,043
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,606 $ 21,509
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CARSON, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The accompanying condensed consolidated interim financial statements of Carson,
Inc. (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 and the notes thereto of the
Company's 1998 Annual Report on Form 10-K. 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. Organization
During the quarter ended September 30, 1999 Dermablend, Inc., was merged into
Carson Products Company and ceased to exist as a separate legal entity. The
merger is intended to enhance internal efficiencies.
3. Inventories
Inventories are summarized as follows (in thousands):
September 30, 1999 December 31, 1998
--------------------------------------------------
Raw materials $ 14,301 $ 9,979
Work-in-process 2,651 1,938
Finished goods 10,260 10,908
--------------------------------------------------
$ 27,212 $ 22,825
==================================================
4. Comprehensive Income (Loss)
The components of comprehensive income (loss) are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ 1,060 $ (3,597) $ (1,396) $ 13,618
Other comprehensive income
(loss):
Change in equity due to foreign
currency translation adjustments 25 144 (443) (4,131)
------------- ------------- ------------- -------------
$ 1,085 $ (3,453) $ (1,839) $ 9,487
============= ============= ============= =============
</TABLE>
6
<PAGE>
5. New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), as amended by FAS 137, will be
required to be adopted by the Company effective with the quarter ended March 31,
2001. The Company has not yet completed its evaluation of the effect of this
standard on its financial statements.
6. Consolidating Financial Information of Carson, Inc.
The following condensed consolidating financial information is presented for
regulatory purposes in connection with the registration of the Company's 10 3/8%
Senior Subordinated Notes due 2007 (the "Notes"). The Notes are guaranteed on a
senior subordinated basis by Carson Products Company ("Carson Products"), a
direct wholly-owned subsidiary of the Company. Johnson Products Co., Inc.
("Johnson Products"), and Dermablend, Inc. ("Dermablend"), formerly indirect
wholly-owned subsidiaries of the Company, were also guarantor subsidiaries of
the Notes until they were merged into Carson Products during the quarters ended
June 30, 1999 and September 30, 1999, respectively. The following tables present
condensed consolidating financial information for the Company, the guarantor
subsidiary, the non-guarantor subsidiaries of the Company (other than
inconsequential non-guarantor subsidiaries) and the eliminations necessary to
arrive at the consolidated financial statements of the Company and its
subsidiaries. Separate financial statements for the guarantor subsidiarys are
not included and the guarantor subsidiary is not filing separate reports under
the Securities Exchange Act of 1934, as amended, because the guarantor
subsidiary has fully and unconditionally guaranteed the Notes, and separate
financial statements and other disclosures concerning the guarantor subsidiary
are not deemed material to investors.
Non-guarantor subsidiaries include Carson Holdings Limited ("Carson South
Africa"), Carson UK Limited ("Carson UK") and Carson Management Company. Carson
UK is an indirect wholly-owned subsidiary of the Company. Carson South Africa,
an indirect 52.5%-owned non-guarantor subsidiary of the Company, has three
wholly-owned subsidiaries which are also non-guarantors: Carson Products
(Proprietary) Limited, Carson Products West Africa Limited and Carson Products
East Africa (EPZ) Limited. The financial information for these three
non-guarantor subsidiaries is included in the consolidated financial statements
of Carson South Africa. Carson Management Company is a direct majority-owned
subsidiary of the Company. The Company also has one inactive subsidiary (Carson
Botswana (PTY Limited)), which is inconsequential to the Company, and separate
financial information for it has not been included in these tables.
7
<PAGE>
Consolidating Statement of Operations for the Quarter Ended September 30, 1999
<TABLE>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- ------------- -------------- -------------- --------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net sales $ ---- $ 33,036 $ 14,974 $ ---- $ 48,010
Cost of goods sold ---- 14,690 8,294 (72) 22,912
-------------- ------------- -------------- -------------- --------------
Gross profit ---- 18,346 6,680 72 25,098
Marketing and selling expenses ---- 8,892 3,628 ---- 12,520
General and administrative expense ---- 5,555 1,205 ---- 6,760
Restructuring expenses ---- ---- ---- ---- ----
-------------- ------------- -------------- -------------- --------------
Operating income ---- 3,899 1,847 72 5,818
Other income (expense), net ---- (3,834) 176 (72) (3,730)
Equity in subsidiary earnings (net of taxes) 1,060 ---- ---- (1,060) ----
-------------- ------------- -------------- -------------- --------------
Income (loss) before income taxes and
minority interest 1,060 65 2,023 (1,060) 2,088
Income taxes ---- (133) (402) ---- (535)
-------------- ------------- -------------- -------------- --------------
Income (loss) before minority interest 1,060 (68) 1,621 (1,060) (1,553)
Minority interest ---- ---- (493) ---- (493)
-------------- ------------- -------------- -------------- --------------
Net income (loss) $ 1,060 $ (68) $ 1,128 $ (1,060) $ 1,060
============== ============= ============== ============== ==============
</TABLE>
Consolidating Statement of Operations for the Quarter Ended September 30, 1998
<TABLE>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net sales $ ---- $ 34,464 $ 10,099 $ ---- $ 44,563
Cost of goods sold ---- 16,934 5,049 ---- 21,983
-------------- -------------- -------------- -------------- --------------
Gross profit ---- 17,530 5,050 ---- 22,580
Marketing and selling expenses ---- 10,871 1,837 ---- 12,708
General and administrative expense ---- 5,249 1,179 ---- 6,428
Restructuring expenses ---- 914 ---- ---- 914
-------------- -------------- -------------- -------------- --------------
Operating income ---- 496 2,034 ---- 2,530
Other income (expense), net ---- (7,163) 666 ---- (6,497)
Equity in subsidiary earnings (net of taxes) (3,597) ---- ---- 3,597 ----
-------------- -------------- -------------- -------------- --------------
Income (loss) before income taxes,
minority interest and extraordinary item (3,597) (6,667) 2,700 3,597 (3,967)
Income taxes ---- 2,531 (520) ---- 2,011
-------------- -------------- -------------- -------------- --------------
Income (loss) before minority interest and
extraordinary item (3,597) (4,136) 2,180 3,597 (1,956)
Minority interest ---- ---- (708) ---- (708)
-------------- -------------- -------------- -------------- --------------
Income (loss) before extraordinary item (3,597) (4,136) 1,472 3,597 (2,664)
Extraordinary item, net of tax ---- (933) ---- ---- (933)
-------------- -------------- -------------- -------------- --------------
Net income (loss) $ (3,597) $ (5,069) $ 1,472 $ 3,597 $ (3,597)
============== ============== ============== ============== ==============
</TABLE>
8
<PAGE>
Consolidating Statement of Operations for the Nine Months Ended September 30,
1999
<TABLE>
<CAPTION>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ ---- $ 92,156 $ 38,574 $ ---- $ 130,730
Cost of goods sold ---- 42,402 20,077 (194) 62,285
-------------- ------------- ------------- ------------- --------------
Gross profit ---- 49,754 18,497 194 68,445
Marketing and selling expenses ---- 25,421 8,755 ---- 34,176
General and administrative expenses ---- 16,828 3,887 ---- 20,715
Restructuring expense ---- 500 ---- ---- 500
-------------- ------------- ------------- ------------- --------------
Operating income ---- 7,005 5,855 194 13,054
Other income, net ---- (11,679) 1,091 (194) (10,782)
Equity in subsidiary earnings (net of taxes) (1,396) ---- ---- 1,396 ----
-------------- ------------- ------------- ------------- --------------
Income (loss) before income taxes and
minority interest (1,396) (4,674) 6,946 1,396 2,272
Income taxes ---- (133) (1,598) ---- (1,731)
-------------- ------------- ------------- ------------- --------------
Income (loss) before minority interest (1,396) (4,807) 5,348 1,396 541
Minority interest ---- ---- (1,937) ---- (1,937)
-------------- ------------- ------------- ------------- --------------
Net income (loss) $ (1,396) $ (4,807) $ 3,411 $ 1,396 $ (1,396)
============== ============= ============= ============= ==============
</TABLE>
Consolidating Statement of Operations for the Nine Months Ended September 30,
1998
<TABLE>
<CAPTION>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ ---- $ 75,172 $ 30,362 $ ---- $ 105,534
Cost of goods sold ---- 43,214 15,694 (472) 58,436
-------------- -------------- -------------- -------------- --------------
Gross profit ---- 31,958 14,668 472 47,098
Marketing and selling expenses ---- 24,727 5,498 ---- 30,225
General and administrative expenses ---- 18,767 3,637 ---- 22,404
Restructuring expense ---- 5,751 ---- ---- 5,751
Operating income (loss) ---- (17,287) 5,533 472 (11,282)
-------------- -------------- -------------- -------------- --------------
Other income, net ---- 37,347 1,625 (472) 38,500
Equity in subsidiary earnings (net of taxes) 13,618 ---- ---- (13,618) ----
-------------- -------------- -------------- -------------- --------------
Income (loss) before income taxes,
minority interest and extraordinary item 13,618 20,060 7,158 (13,618) 27,218
Income taxes ---- (9,398) (1,617) ---- (11,015)
-------------- -------------- -------------- -------------- --------------
Income (loss) before minority interest and
extraordinary item 13,618 10,662 5,541 (13,618) 16,203
Minority interest ---- ---- (1,652) ---- (1,652)
-------------- -------------- -------------- -------------- --------------
Income before extraordinary item 13,618 10,662 3,889 (13,618) 14,551
Extraordinary item, net of tax ---- (933) ---- ---- (933)
-------------- -------------- -------------- -------------- --------------
Net income (loss) $ 13,618 $ 9,729 $ 3,889 $ (13,618) $ 13,618
============== ============== ============== ============== ==============
</TABLE>
9
<PAGE>
Consolidating Balance Sheet as of September 30, 1999
<TABLE>
<CAPTION>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash $ ---- $ 8,670 $ 11,936 $ ---- $ 20,606
Accounts receivable, net 827 29,713 16,453 (5,379) 41,614
Inventories, net ---- 15,890 11,322 ---- 27,212
Other current assets ---- 753 426 ---- 1,179
Property, plant and equipment, net ---- 27,607 10,454 (36) 38,025
Intangible assets, net and other assets ---- 121,341 11,758 ---- 133,099
Investment in subsidiary 67,023 46,033 ---- (113,056) ----
-------------- -------------- -------------- -------------- --------------
Total assets $ 67,850 $ 250,007 $ 62,349 $(118,471) $ 261,735
============== ============== ============== ============== ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ ---- $ 7,401 $ 12,725 $ (5,415) $ 14,711
Other current liabilities ---- 13,384 3,151 ---- 16,535
Long-term debt ---- 136,607 116 ---- 136,723
Other liabilities ---- 25,592 324 ---- 25,916
Common stock and paid in capital 81,679 28,182 39,655 (67,837) 81,679
Other equity accounts (8,513) (11,391) (9,161) 20,552 (8,513)
Retained earnings (Accumulated deficit) (5,316) 50,232 15,539 (65,771) (5,316)
-------------- -------------- -------------- -------------- --------------
Total liabilities and stockholders' equity $ 67,850 $ 250,007 $ 62,349 $(118,471) $ 261,735
============== ============== ============== ============== ==============
</TABLE>
10
<PAGE>
Consolidating Balance Sheet as of December 31, 1998
<TABLE>
<CAPTION>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash $ ---- $ 12,320 $ 16,386 $ ---- $ 28,706
Accounts receivable, net 844 30,701 14,974 (7,566) 38,953
Inventories, net ---- 13,993 8,832 ---- 22,825
Restricted cash ---- 4,500 ---- ---- 4,500
Other current assets ---- 307 362 ---- 669
Property, plant and equipment, net ---- 26,130 9,671 (36) 35,765
Intangible assets, net and other assets ---- 124,997 11,048 ---- 136,045
Investment in subsidiary 68,316 43,421 ---- (111,737) ----
-------------- -------------- -------------- -------------- --------------
Total assets $ 69,160 $ 256,369 $ 61,273 $(119,339) $ 267,463
============== ============== ============== ============== ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ ---- $ 12,484 $ 7,702 $ (7,602) $ 12,584
Other current liabilities ---- 18,569 9,726 ---- 28,295
Long-term debt ---- 133,324 99 ---- 133,423
Other liabilities ---- 23,676 325 ---- 24,001
Common stock and paid in capital 81,121 28,470 39,320 (67,790) 81,121
Other equity accounts (8,041) (15,193) (8,910) 24,103 (8,041)
Retained earnings (Accumulated deficit) (3,920) 55,039 13,011 (68,050) (3,920)
-------------- -------------- -------------- -------------- --------------
Total liabilities and stockholders' equity $ 69,160 $ 256,369 $ 61,273 $(119,339) $ 267,463
============== ============== ============== ============== ==============
</TABLE>
11
<PAGE>
Consolidating Statement of Cash Flows for the Nine Months Ended September 30,
1999
<TABLE>
<CAPTION>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $ (1,396) $ (4,807) $ 3,411 $ 1,396 $ (1,396)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization ---- 4,437 1,066 ---- 5,503
Minority interest in earnings of
subsidiary ---- ---- 1,937 ---- 1,937
Other, net 1,396 958 (37) (1,396) 921
Changes in operating assets and
liabilities ---- (6,015) (1,207) ---- (7,222)
-------------- -------------- -------------- -------------- --------------
Total adjustments 1,396 (620) 1,759 (1,396) 1,139
-------------- -------------- -------------- -------------- --------------
Net cash (used in ) provided by
operating activities ---- (5,427) 5,170 ---- (257)
-------------- -------------- -------------- -------------- --------------
Investing Activities:
Additions to property, plant and ---- (2,801) (1,573) ---- (4,374)
equipment
Issuance of long-term note receivable ---- ---- (1,000) ---- (1,000)
Collection of long-term note receivable ---- 517 ---- ---- 517
-------------- -------------- -------------- -------------- --------------
Net cash used in investing activities ---- (2,284) (2,573) ---- (4,857)
-------------- -------------- -------------- -------------- --------------
Financing Activities:
Proceeds from long-term borrowings ---- 3,281 92 ---- 3,373
Principal payments on debt ---- ---- (6,246) ---- (6,244)
Other ---- 780 (552) ---- 226
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in) ---- 4,061 (6,706) ---- (2,645)
financing activities
-------------- -------------- -------------- -------------- --------------
Effect of Exchange Rate Changes ---- ---- (341) ---- (341)
-------------- -------------- -------------- -------------- --------------
Net decrease in Cash and Cash Equivalents ---- (3,650) (4,450) ---- (8,100)
Cash and Cash Equivalents at Beginning of
Period ---- 12,320 16,386 ---- 28,706
-------------- -------------- -------------- -------------- --------------
Cash and Cash Equivalents at End of Period $ ---- $ 8,670 $ 11,936 $ ---- $ 20,606
============== ============== ============== ============== ==============
</TABLE>
12
<PAGE>
Consolidating Statement of Cash Flows for the Nine Months Ended September 30,
1998
<TABLE>
<CAPTION>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income $ 13,618 $ 9,729 $ 3,889 $ (13,618) $ 13,618
Adjustments to reconcile net income to net
cash used in operating activities:
Gain on sale of subsidiary stock ---- (49,140) ---- ---- (49,140)
Non-cash special charges ---- 14,695 ---- ---- 14,695
Depreciation and amortization ---- 3,962 814 ---- 4,776
Extraordinary item, net of tax benefit ---- 933 ---- 933
Write-off of AM stock ---- 3,768 ---- 3,768
Minority interest in earnings of
subsidiary ---- ---- 1,652 ---- 1,652
Other, net (13,618) 3,247 (2,014) 13,618 1,233
Changes in operating assets and
liabilities ---- 4,130 (6,976) ---- (2,846)
-------------- -------------- -------------- -------------- --------------
Total adjustments (13,618) (18,405) (6,524) 13,618 (24,929)
-------------- -------------- -------------- -------------- --------------
Net cash used in operating activities ---- (8,676) (2,635) ---- (11,311)
-------------- -------------- -------------- -------------- --------------
Investing Activities:
Additions to property, plant and
equipment ---- (4,092) (4,150) ---- (8,242)
Acquisitions of business assets, net of
cash acquired ---- (35,000) ---- ---- (35,000)
-------------- -------------- -------------- -------------- --------------
Net cash used in investing activities ---- (39,092) (4,150) ---- (43,242)
-------------- -------------- -------------- -------------- --------------
Financing Activities:
Proceeds from long-term borrowings ---- 9,500 ---- ---- 9,500
Principal payments on long-term debt ---- (12,500) (5,549) ---- (18,049)
Proceeds from sale of subsidiary stock ---- 55,250 19,200 ---- 74,450
Other ---- (125) (72) ---- (197)
-------------- -------------- -------------- -------------- --------------
Net cash provided by financing
activities ---- 52,125 13,579 ---- 65,704
-------------- -------------- -------------- -------------- --------------
Effect of Exchange Rate Changes ---- ---- (3,685) ---- (3,685)
-------------- -------------- -------------- -------------- --------------
Net increase in Cash and Cash Equivalents ---- 4,357 3,109 ---- 7,466
Cash and Cash Equivalents at Beginning of
Period ---- 2,614 11,420 9 14,043
-------------- -------------- -------------- -------------- --------------
Cash and Cash Equivalents at End of Period $ ---- $ 6,971 $ 14,529 $ 9 $ 21,509
============== ============== ============== ============== ==============
</TABLE>
13
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
OVERVIEW
Forward-looking Statements
This report on Form 10-Q for the nine months ended September 30, 1999 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 make
selective acquisitions, (iii) the Company's marketing, distribution and
manufacturing expansion plans, (iv) future financial performance, (v) cash flows
from operations, (vi) capital expenditures and (vii) the cost and timely
implementation of the Company's Year 2000 compliance modifications. 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")). Such statements reflect the current
views of the Company with respect to future events and are subject to certain
risks, uncertainties and assumptions. 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, the Company's IPO prospectus dated
October 14, 1996 and the Company's debt offering prospectus dated October 31,
1997), 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, (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, and
(f) unanticipated costs, difficulties or delays in implementing the Company's
Year 2000 compliance modifications. The Company assumes no responsibility to
update forward-looking information contained herein.
General
The Company believes that it is the number one manufacturer and marketer of hair
care and shaving products for people of color. The majority of the Company's net
sales are derived from five categories of the ethnic health and beauty aids
market: hair relaxers and texturizers, hair color, men's depilatory products,
hair care maintenance products and combout/oil sheens.
In the nine months ended September 30, 1999 and 1998, 33.7% and 33.5%,
respectively, of the net sales of the Company were to customers outside the
United States. The following table presents the Company's net sales by
geographic region for these periods:
14
<PAGE>
Nine Months Nine Months
Ended % of Ended % of
September 30,1999 Total September 30,1998 Total
- --------------------------------------------------------------------------------
Net sales to:
United States $ 86,632 66.3% $ 70,230 66.5%
South Africa 31,355 24.0 25,900 24.5
Europe 7,219 5.5 4,911 4.7
Other International 5,524 4.2 4,493 4.3
- --------------------------------------------------------------------------------
Total $130,730 100.0% $105,534 100.0%
With the exception of sales by Carson South Africa to South Africa, Botswana,
Lesotho, Namibia and Swaziland, which are denominated in South African Rand, all
of the Company's sales are recorded in United States Dollars. The Company does
not view the exposure to rand exchange rate fluctuations as significant because
Carson South Africa incurs most of its costs in rand. However, due to
fluctuations in the exchange rate, there is a potential for gains or losses on
the consolidated level. Assets and liabilities of Carson South Africa are
translated for consolidation purposes from South African Rand into United States
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.
Results of Operations
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998
Net Sales. Consolidated net sales for the quarter ended September 30, 1999 were
$48.0 million, an increase of $3.4 million, or 7.7%, over net sales for the
quarter ended September 30, 1998 of $44.6 million. This increase is summarized
as follows (dollars are in thousands):
Quarter Ended Quarter Ended
September 30, September 30, 1998 % Change
1999
---------------------------------------------------------
Domestic Hair Care $ 26,195 $ 26,497 (1.1)
Export 5,221 3,304 58.0
Dermablend Group 4,492 1,256 257.6
US Ethnic 35,908 31,057 15.6
------------------------------------------
South Africa 12,102 8,752 38.3
------------------------------------------
Carson Ethnic 48,010 39,809 20.6
------------------------------------------
Cutex -- 4,754 (100.0)
------------------------------------------
Consolidated $ 48,010 $ 44,563 7.7
==========================================
Domestic hair care net sales above include domestic sales of Carson and Johnson
hair care products. Export includes net sales of Carson and Johnson hair care
products in Europe and other international markets. Dermablend Group net sales
includes sales of Dermablend corrective cosmetics, Posner cosmetics and Dark and
Lovely Cosmetics. Dermablend net sales are included only for 1999 as the brand
was held for sale from its purchase in July 1998 until the end of 1998. Of the
$1.9 million
15
<PAGE>
increase in export sales, $1.5 million resulted from increased sales of Carson
hair care products in Europe and other international markets.
There have been no net sales in 1999 of Cutex, as this brand was sold in
December 1998.
Gross Profit. Consolidated gross profit was $25.1 million in the quarter ended
September 30, 1999 compared to $22.6 million in the quarter ended September 30,
1998, an increase of $2.5 million, or 11.2%. Gross margin was 52.3% in the third
quarter of 1999 compared to 50.7% in the third quarter of 1998. Gross margins in
1999 benefited from high margins (typically in excess of 75%) of the Dermablend
business. Compared to the third quarter of 1998, gross margins were lower in the
third quarter of 1999 on South Africa and export sales, while they were higher
on Carson hair care sales and relatively unchanged on Johnson hair care sales.
The overall gross margin for the third quarter of 1998 was negatively impacted
by higher than anticipated returns of Cutex product.
Marketing and Selling Expenses. Marketing and selling expenses decreased $0.2
million, or 1.5%, to $12.5 million in the quarter ended September 30, 1999 from
$12.7 million in the quarter ended September 30, 1998. This decrease consists
the elimination of spending on the Cutex and Dark and Lovely Cosmetics lines
offset by higher spending resulting from the addition of Dermablend and higher
spending at Carson South Africa. As a percentage of net sales, marketing and
selling expenses decreased to 26.1% during the quarter ended September 30, 1999
from 28.5% during the quarter ended September 30, 1998.
General and Administrative Expenses. General and administrative expenses were
$6.8 million for the third quarter of 1999 compared to $6.4 million for the
third quarter of 1998, an increase of $0.3 million, or 5.2%. The increase
resulted primarily from the addition of Dermablend. As a percentage of net
sales, general and administrative expenses decreased to 14.1% during the quarter
ended September 30, 1999 from 14.4% during the quarter ended September 30, 1998.
Restructuring Charges. In the third quarter of 1998, the Company recorded
pretax charges of $0.9 million related to a management restructuring.
Operating Income. As a result of the above changes, operating income increased
to $5.8 million in the quarter ended September 30, 1999 from $2.5 million in the
quarter ended September 30, 1998.
Interest Expense. Interest expense increased to $4.4 million in the quarter
ended September 30, 1999 from $3.8 million in the quarter ended September 30,
1998. The increased interest expense was the result of additional debt incurred
in 1998 to finance the Johnson Products acquisition.
Loss on Write-off of Investment. During the quarter ended September 30, 1998,
the Company recorded a pretax charge of $3.8 million for the write-off of an
investment in the preferred stock of AM Cosmetics, Inc., a related company which
provided contract manufacturing services to the Company.
Other Income. Other income decreased to $0.6 million for the quarter ended
September 30, 1999 from $1.1 million for the quarter ended September 30, 1998.
The decrease was primarily due to lower interest income in South Africa.
Provision for Income Taxes. The provision for income taxes increased to $0.5
million in the quarter
16
<PAGE>
ended September 30, 1999 compared to a benefit of $2.0 million in the quarter
ended September 30, 1998. The 1999 provision was calculated on the earnings of
the Company's foreign subsidiaries and also includes a provision for domestic
state income taxes. The Company did not record a federal tax benefit, or the
related deferred tax asset, on losses incurred by its domestic subsidiaries, in
accordance with the requirements of Financial Accounting Standards Board
Interpretation No. 18 of Accounting Principles Board Opinion No. 28.
Minority Interest in Earnings of Subsidiary. Minority interest in earnings of
subsidiary decreased to $0.5 million in the quarter ended September 30, 1999
from $0.7 million in the quarter ended September 30, 1998. This decrease was due
to the lower earnings of Carson South Africa in the current year quarter over
the prior year quarter.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Net Sales. Consolidated net sales for the nine months ended September 30, 1999
were $130.7 million, an increase of $25.2 million, or 23.9%, over net sales for
the nine months ended September 30, 1998 of $105.5 million. This increase is
summarized as follows (dollars are in thousands):
Nine Months Ended Nine Months Ended
September 30,1999 September 30, 1998 % Change
--------------------------------------------------------
Domestic Hair Care $ 73,681 $ 51,574 42.9
Export 12,743 9,404 35.5
Dermablend Group 12,951 2,142 504.6
US Ethnic 99,375 63,120 57.4
-------------------------------------------
South Africa 31,355 25,900 21.1
-------------------------------------------
Carson Ethnic 130,730 89,020 46.9
-------------------------------------------
Cutex -- 16,514 (100.0)
-------------------------------------------
Consolidated $130,730 $105,534 23.9
===========================================
Domestic hair care net sales above include domestic sales of Carson and Johnson
hair care products. Export includes net sales of Carson and Johnson hair care
products in Europe and other international markets. Dermablend Group net sales
includes sales of Dermablend corrective cosmetics, Posner cosmetics and Dark and
Lovely Cosmetics. Dermablend net sales are included only for 1999 as the brand
was held for sale from its purchase in July 1998 until the end of 1998. The
increases in net sales of Domestic hair care products and the Dermablend Group
resulted primarily from the acquisition of Johnson Products Company and
Dermablend, Inc. in July 1998. Export net sales were also increased due to the
acquisition of Johnson Products Company as well as higher sales of Carson hair
care products in Europe.
There were no net sales in 1999 of Cutex, which was sold in December 1998.
Gross Profit. Consolidated gross profit was $68.4 million in the nine months
ended September 30, 1999 compared to $47.1 million in the nine months ended
September 30, 1998, an increase of $21.3 million, or 45.3%. Gross margin was
52.4% for such period in 1999 compared to 44.6% for such period in 1998. In the
nine months ended September 30, 1998, cost of sales included $6.6 million of
special charges for the write-down of non-strategic, obsolete or excess
inventory. Excluding these special charges, gross profit was $53.7 million, and
gross margin was 50.9% in the nine months
17
<PAGE>
ended September 30, 1998. The increase in gross margin in 1999 was attributable
in part to increased plant utilization in the Savannah manufacturing facility,
whereas in the first half of 1998 gross margins were adversely impacted by
reduced production volumes undertaken in order to lower inventory balances at
that time. Gross margins in 1999 also benefited from high margins (typically in
excess of 75%) of the Dermablend business, offset somewhat by lower Johnson
Products hair care margins resulting from discounted sales pricing. Management
has revised pricing terms for Johnson hair care products; however, due to the
phasing in of the new pricing terms, the benefits of the price increases were
not fully realized in the third quarter of 1999. The overall gross margin for
1998 was reduced by higher than anticipated returns of Cutex product.
Marketing and Selling Expenses. Marketing and selling expenses increased $4.0
million, or 13.1%, to $34.2 million in the nine months ended September 30, 1999
from $30.2 million in the nine months ended September 30, 1998. This increase
consists of higher spending resulting from the addition of Johnson Products and
higher spending at Carson South Africa offset by the elimination of spending on
the Cutex, Dark and Lovely Cosmetics and Salon Professional lines. As a
percentage of net sales, marketing and selling expenses decreased to 26.1%
during 1999 from 28.6% during 1998.
General and Administrative Expense. General and administrative expenses were
$20.7 million for the first nine months of 1999 compared to $22.4 million for
the first nine months of 1998, a decrease of $1.7 million, or 7.5%. In the first
nine months of 1998, general and administrative expense included $3.7 million of
special charges primarily related to the executive management restructuring and
additional accounts receivable reserves. Excluding these special charges,
general and administrative expenses were $18.7 million in the nine months ended
September 30, 1998. Compared to this amount, general and administrative expenses
increased $2.0 million, or 10.9%, in the nine months ended September 30, 1999.
The increase resulted primarily from the addition of Johnson Products. As a
percentage of net sales, general and administrative expenses decreased to 15.8%
during 1999 from 17.7% during 1998, excluding special charges. This percentage
decrease is primarily due to the incremental net sales provided by the addition
of Johnson Products without a pro rata increase in overall general and
administrative expenses.
Restructuring Charges. In the nine months ended September 30, 1999, the Company
recorded $0.5 million of restructuring charges for severance payments related to
personnel reductions. These reductions were undertaken as a cost-cutting measure
to improve the Company's operating income. In the nine months ended September
30, 1998, the Company recorded restructuring charges of $5.7 million related
primarily to changes in the Company's top management group and to the write-down
of fixed assets which were disposed of as a result of changes in product lines.
Operating Income. As a result of the above changes, operating income increased
to $13.1 million in the nine months ended September 30, 1999 from an operating
loss of $11.3 million in the nine months ended September 30, 1998.
Interest Expense. Interest expense increased to $13.1 million in the nine months
ended September 30, 1999 from $9.6 million in the nine months ended September
30, 1998. The increased interest expense was the result of additional debt
incurred in 1998 to finance the Johnson Products acquisition.
Gain on Sale of Subsidiary Stock. In May 1998 the Company sold 29.1 million of
its shares of
18
<PAGE>
Carson South Africa, resulting in a pre-tax gain to the Company of $49.1
million.
Loss on Write-off of Investment. During the nine months ended September 30,
1998, the Company recorded a pretax charge of $3.8 million for the write-off of
an investment in the preferred stock of AM Cosmetics, Inc., a related company
which provided contract manufacturing services to the Company.
Other Income. Other income decreased to $2.4 million in the nine months ended
September 30, 1999 compared to $2.8 million in the nine months ended September
30, 1998. The decrease was primarily due to lower interest income in South
Africa.
Provision for Income Taxes. The provision for income taxes decreased to $1.7
million in the nine months ended September 30, 1999 compared to $11.0 million in
the nine months ended September 30, 1998. The 1999 provision was calculated on
the earnings of the Company's foreign subsidiaries and also includes a provision
for domestic state income taxes. The Company did not record a federal tax
benefit, or the related deferred tax asset, on losses incurred by its domestic
subsidiaries, in accordance with the requirements of Financial Accounting
Standards Board Interpretation No. 18 of Accounting Principles Board Opinion No.
28. The 1998 provision included expense related to the Company's $49.1 million
gain on the sale of subsidiary stock.
Minority Interest in Earnings of Subsidiary. Minority interest in earnings of
subsidiary increased to $1.9 million in the nine months ended September 30, 1999
from $1.7 million in the nine months ended September 30, 1998. This increase was
due to the higher earnings of Carson South Africa in the current year over the
prior year and to the higher minority ownership percentage in 1999 resulting
from sales of Carson South Africa stock in the second quarter of 1998.
Liquidity and Capital Resources
The Company has a Secured Term Loan outstanding which bears interest at an
annual rate of 13% and matures on December 8, 2003. Interest is payable monthly.
The Company may, at its option, defer the monthly interest payment a maximum of
twelve times until December 8, 2000. This option provides the Company
flexibility in meeting its cash needs in the near term. In the event of
deferral, interest is accrued at an annual rate of 16% for the month deferred
and added to the outstanding principal amount of the loan. The Company elected
to defer the monthly interest payments in March, May, June and July of 1999 and
thereby increased long-term debt by $3.3 million in the nine months ended
September 30, 1999. The capital stock and assets of Carson Products Company
(including stock in Carson South Africa representing a 52.5% majority stake) are
pledged as collateral for the Secured Term Loan. The loan contains covenants
with respect to, among other things, (i) restrictions on the incurrence of
additional liens or indebtedness and (ii) restrictions on the payment of any
cash dividend by the Company or any subsidiary.
In the nine months ended September 30, 1999, the Company's cash balance
decreased by $8.1 million, to $20.6 million. Net cash flow used in operations
was $0.3 million. Cash was used primarily to increase accounts receivable and
inventories and to reduce income taxes payable and accrued expenses. Cash was
provided by an increase in accounts payable and by the conversion of restricted
cash into available cash, which was used to pay for items related to the
disposition of Cutex.
19
<PAGE>
Net cash used in investing activities in the nine months ended September 30,
1999 consisted primarily of capital expenditures of $4.4 million. Approximately
$1.4 million of these additions related to the Carson Products software
conversion to SAP, and approximately $1.6 million were additions by Carson South
Africa. Cash was also used in the issuance of a $1.0 million loan from Carson
Products West Africa Limited ("Carson Ghana"), a wholly-owned subsidiary of
Carson South Africa, to Layff Kosmetic, Ltda. ("Layff"), the distributor of the
Company's products in Brazil. The loan was made to provide Layff with working
capital and thereby assist in developing the Company's sales in Brazil. The
term of the loan is two years. All principal is due in September 2001; interest
accrues at 10% per annum and is payable semi-annually. The loan is denominated
in US dollars and is secured by a mortgage on certain real property owned by
Layff. The loan is included in "Other assets" in the accompanying consolidated
balance sheet.
Net cash used in financing activities in the nine months ended September 30,
1999 consisted primarily of $6.2 million of additional consideration paid by
Carson South Africa related to the 1997 purchase of A&J Cosmetics. Proceeds from
long-term borrowings were principally $3.3 million for capitalization of
interest on the Company's Secured Term Loan in lieu of cash payment.
The Company believes that cash flow from operating activities and existing cash
balances will be sufficient to fund working capital requirements, capital
expenditures and debt service requirements in the immediate future. However, no
assurance can be given that changing business circumstances will not require
additional capital for reasons that are not currently anticipated or that the
necessary capital will then be available to the Company on favorable terms, or
at all.
Year 2000 Compliance Efforts
To replace former computer systems that were not Year 2000 compliant, the
Company selected SAP, a single vendor, integrated business software package. SAP
is compatible with the Company's IBM AS/400 computer and suitable for use in all
major functional areas, including invoicing, distribution, production and
financial reporting.
The Company completed the implementation of SAP at its Savannah, Georgia and
Chicago facilities during the quarters ended June 30, 1999 and September 30,
1999, respectively. The software is operating satisfactorily, and the Company
experienced no adverse material impact on operations from the implementation.
The Company has received assurance from the vendor that the SAP software is Year
2000 compliant. In the fourth quarter of 1999, the Company plans to run test
transactions gain further assurance and also expects to receive a certificate of
Year 2000 compliance for its AS/400 computer from IBM. Once the Company has
received the IBM certificate, the Company will have substantially completed its
Year 2000 compliance efforts for its information technology systems.
In the unlikely event that the SAP software and/or the AS/400 computer fails to
be Year 2000 compliant, the Company would immediately begin working with the
software and/or hardware vendors to achieve Year 2000 compliance as quickly as
possible. The risk associated with not having systems that are compliant by the
Year 2000 is that the Company would have to implement manual procedures which
would lead to a reduction in efficiency. The Company could continue to operate,
but at a reduced level of productivity.
The Company has issued requests to all major vendors and customers as well as to
its main bank
20
<PAGE>
seeking assurance that they will be Year 2000 compliant and will continue to
monitor the progress of these third parties in becoming Year 2000 compliant.
Despite these efforts, there can be no assurance that the computer software and
systems of the Company and its vendors and customers will be made Year 2000
compliant in a timely manner. Any failures by the Company, its vendors and
customers to become Year 2000 compliant in a timely manner could have a material
adverse effect on the business, financial condition or operations of the
Company.
Other items which include non-information technology systems are being tested
and upgraded as needed. Included in non-information technology systems are the
Company's personal computers and applications, telephone systems, manufacturing
equipment, security systems and other non-crucial items. The Company is
replacing all non-compliant personal computers and installing the latest
versions of year 2000 compliant applications. Specialized applications not used
company-wide are being upgraded as necessary. Other non-informative technology
systems such as telephone systems, security systems and copiers are being
assessed for year 2000 compliance. The Company is contacting vendors of these
items to determine their compliance status.
The cost of conversion to SAP is estimated to be approximately $1.9 million,
including hardware, software and the Company's commitment of internal resources.
As of September 30, 1999, the Company had incurred approximately $1.8 million of
the total cost.
CARSON, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is 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.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
21
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- 27 Financial data schedule.
(b) Reports on Form 8-K --
None.
22
<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: November 15, 1999
Robert W. Pierce
Executive Vice President, Finance
Chief Financial Officer and Corporate Secretary
(Principal Accounting and Financial Officer)
23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of the Company for the period ended September
30, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 20,606
<SECURITIES> 0
<RECEIVABLES> 47,425
<ALLOWANCES> 5,811
<INVENTORY> 27,212
<CURRENT-ASSETS> 90,611
<PP&E> 43,888
<DEPRECIATION> 5,863
<TOTAL-ASSETS> 261,735
<CURRENT-LIABILITIES> 31,246
<BONDS> 136,723
0
0
<COMMON> 153
<OTHER-SE> 67,697
<TOTAL-LIABILITY-AND-EQUITY> 261,735
<SALES> 130,730
<TOTAL-REVENUES> 130,730
<CGS> 62,285
<TOTAL-COSTS> 62,285
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 963
<INTEREST-EXPENSE> 13,143
<INCOME-PRETAX> 2,272
<INCOME-TAX> 1,731
<INCOME-CONTINUING> (1,396)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,396)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
