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 June 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 July 31, 1999, 9,964,305 shares of the registrant's Class A Common Stock,
par value $0.01 per share, and 5,245,343 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
June 30, 1999 and December 31, 1998............................... 3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1999 and 1998.......... 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 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 4.
Submission of Matters to a Vote of Security Holders ............. 21
Item 6.
(a) Exhibits .................................................... 22
(b) Reports on Form 8-K.......................................... 22
Signatures....................................................... 23
2
<PAGE>
CARSON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(In thousands, except share and per share data)
<TABLE>
<S> <C> <C>
June 30, December 31,
ASSETS 1999 1998
============ ============
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 19,957 $ 28,706
Accounts receivable less allowances of $4,941 and $6,457 at June 30, 1999
and December 31, 1998, respectively 39,957 38,953
Inventories 23,409 22,825
Restricted cash 2,373 4,500
Other current assets 1,378 669
------------ -----------
Total current assets 87,074 95,653
PROPERTY, PLANT AND EQUIPMENT, net 37,688 35,765
INTANGIBLES, net 127,359 129,183
OTHER ASSETS 5,937 6,862
------------ -----------
TOTAL ASSETS $ 258,058 $ 267,463
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,070 $ 12,584
Due for A&J Cosmetics -- 6,355
Accrued expenses 17,115 19,306
Income taxes payable 1,147 2,508
Current maturities of long-term debt -- 126
------------ -----------
Total current liabilities 30,332 40,879
LONG-TERM DEBT 135,901 133,423
OTHER LIABILITIES 3,309 3,345
MINORITY INTEREST IN SUBSIDIARY 21,776 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 June 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 June 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 June 30, 1999 and December 31, 1998, respectively 53 53
Paid-in capital 81,501 80,970
Accumulated deficit (6,376) (3,920)
Accumulated other comprehensive losses (6,963) (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 66,740 69,160
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 258,058 $ 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>
<S> <C> <C> <C> <C>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
============= ============= ============= =============
Net sales $ 41,067 $ 29,174 $ 82,720 $ 60,971
Cost of goods sold 19,488 21,075 39,373 36,453
------------- ------------- ------------- -------------
Gross profit 21,579 8,099 43,347 24,518
Expenses:
Marketing and selling 11,332 8,826 21,656 17,517
General and administrative 6,728 10,028 13,955 15,976
Restructuring charges 500 4,837 500 4,837
------------- ------------- ------------- -------------
18,560 23,691 36,111 38,330
------------- ------------- ------------- -------------
Operating income (loss) 3,019 (15,592) 7,236 (13,812)
Interest expense (4,487) (3,010) (8,764) (5,847)
Gain on sale of subsidiary stock -- 49,140 -- 49,140
Other income, net 822 1,165 1,712 1,704
------------- ------------- ------------- -------------
(Loss) income before income taxes and minority interest (646) 31,703 184 31,185
Provision for income taxes (1,086) (13,361) (1,196) (13,026)
------------- ------------- ------------- -------------
(Loss) income before minority interest (1,732) 18,342 (1,012) 18,159
Minority interest in earnings of subsidiary (904) (626) (1,444) (944)
------------- ------------- ------------- -------------
Net (loss) income $ (2,636) $ 17,716 $ (2,456) $ 17,215
============= ============= ============= =============
Basic and diluted net (loss) income per common share $ (0.17) $ 1.18 $ (0.16) $ 1.15
============= ============= ============= =============
Weighted average common shares outstanding 15,100 14,988 15,090 14,990
============= ============= ============= =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CARSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(In thousands)
<TABLE>
<S> <C> <C>
Six Months Ended June 30,
1999 1998
============= =============
OPERATING ACTIVITIES:
Net (loss) income $ (2,456) $ 17,215
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization 3,657 3,189
Provision for doubtful accounts 634 196
Minority interest in earnings of subsidiary 1,444 944
Gain on sale of subsidiary stock -- (49,140)
Non-cash special charges -- 14,222
Other, net 2 (513)
Changes in operating assets and liabilities:
Accounts receivable (1,833) (437)
Inventories (728) (7,706)
Restricted cash 2,127 --
Other current assets (715) 90
Accounts payable (466) 2,443
Income taxes payable (1,326) 13,679
Accrued expenses (2,178) (585)
------------- -------------
Total adjustments 618 (23,618)
------------- -------------
Net cash used in operating activities (1,838) (6,403)
------------- -------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,454) (4,926)
Collection of long-term note receivable 517 --
------------- -------------
Net cash used in investing activities (2,937) (4,926)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 2,538 9,500
Principal payments on long-term debt (58) (12,556)
Payment on A&J Cosmetics payable (6,171) (5,416)
Proceeds from sale of subsidiary stock -- 74,392
Other, net 177 (277)
------------- -------------
Net cash (used in) provided by financing activities (3,514) 65,643
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES (460) (3,933)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,749) 50,381
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,706 14,043
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,957 $ 64,424
============= =============
</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 June 30, 1999 Johnson Products Co., Inc., was merged
into Carson Products Company and ceased to exist as a separate legal entity. The
merger is intended to enhance internal efficiencies, specifically in connection
with the Company's implementation of new software.
3. Inventories
Inventories are summarized as follows (in thousands):
June 30, 1999 December 31, 1998
--------------------------------------------
Raw materials $ 11,042 $ 9,979
Work-in-process 2,222 1,938
Finished goods 10,145 10,908
--------------------------------------------
$ 23,409 $ 22,825
============================================
4. Comprehensive Income (Loss)
The components of comprehensive income (loss) are summarized as follows (in
thousands):
<TABLE>
<S> <C> <C> <C> <C>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-------------- -------------- -------------- --------------
Net (loss) income $ (2,636) $ 17,716 $ (2,456) $ 17,215
Other comprehensive income
(loss):
Change in equity due to foreign
currency translation adjustments 762 (4,137) (468) (4,275)
-------------- -------------- -------------- --------------
Comprehensive (loss) income $ (1,874) $ 13,577 $ (2,924) $ 12,940
============== ============== ============== ==============
</TABLE>
6
<PAGE>
5. New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), was issued in June 1998.
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133", was issued in June 1999, deferring the effective date of FAS
133 from June 15, 1999 to June 15, 2000 for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company has not yet completed its evaluation
of the effect of this standard on its financial statements. However, at this
time the Company does not expect FAS 133 to have a material effect on its
financial position, results of operations, cash flows or financial statement
disclosures.
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") and
Dermablend, Inc. ("Dermablend"). Carson Products is a direct wholly-owned
subsidiary of the Company, and Dermablend is an indirect wholly-owned subsidiary
of the Company which was purchased by Carson Products in 1998. Johnson Products
Co., Inc. ("Johnson Products"), formerly an indirect wholly-owned subsidiary of
the Company, was also a guarantor subsidiary of the Notes until it was merged
into Carson Products during the quarter ended June 30, 1999. The following
tables present condensed consolidating financial information for the Company,
the guarantor subsidiaries, 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 subsidiaries are
not included and the guarantor subsidiaries are not filing separate reports
under the Securities Exchange Act of 1934, as amended, because the guarantor
subsidiaries have fully and unconditionally guaranteed the Notes, and separate
financial statements and other disclosures concerning the guarantor subsidiaries
are not deemed material to investors.
Non-guarantor subsidiaries include Carson Holdings Limited ("Carson South
Africa") and Carson UK Limited ("Carson UK"). Carson UK is an indirect
wholly-owned subsidiary of the Company. Carson South Africa, an indirect
52.6%-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. 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. Carson Management
Company is a direct majority-owned subsidiary of the Company.
7
<PAGE>
Consolidating Statement of Operations for the Quarter Ended June 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
Net sales $ ---- $ 28,434 $ 12,633 $ ---- $ 41,067
Cost of goods sold ---- 13,268 6,220 ---- 19,488
-------------- -------------- -------------- -------------- --------------
Gross profit ---- 15,166 6,413 ---- 21,579
Marketing and selling expenses ---- 8,375 2,957 ---- 11,332
General and administrative expense ---- 5,644 1,084 ---- 6,728
Restructuring expenses ---- 500 ---- ---- 500
-------------- -------------- -------------- -------------- --------------
Operating income ---- 647 2,372 ---- 3,019
Other income, net ---- (4,109) 444 ---- (3,665)
Equity in subsidiary earnings (net of taxes) (2,636) ---- ---- 2,636 ----
-------------- -------------- -------------- -------------- --------------
Income (loss) before income taxes and
minority interest (2,636) (3,462) 2,816 2,636 (646)
Income taxes ---- (278) (808) ---- (1,086)
-------------- -------------- -------------- -------------- --------------
Income (loss) before minority interest (2,636) (3,740) 2,008 2,636 (1,732)
Minority interest ---- ---- (904) ---- (904)
-------------- -------------- -------------- -------------- --------------
Net income (loss) $ (2,636) $ (3,740) $ 1,104 $ 2,636 $ (2,636)
============== ============== ============== ============== ==============
</TABLE>
Consolidating Statement of Operations for the Quarter Ended June 30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
Net sales $ ---- $ 18,483 $ 10,691 $ ---- $ 29,174
Cost of goods sold ---- 16,013 5,062 ---- 21,075
-------------- -------------- -------------- -------------- --------------
Gross profit ---- 2,470 5,629 ---- 8,099
Marketing and selling expenses ---- 6,593 2,233 ---- 8,826
General and administrative expense ---- 8,674 1,354 ---- 10,028
Restructuring expenses ---- 4,837 ---- ---- 4,837
-------------- -------------- -------------- -------------- --------------
Operating income (loss) ---- (17,634) 2,042 ---- (15,592)
Other income, net ---- 46,660 635 ---- 47,295
Equity in subsidiary earnings (net of taxes) 17,716 ---- ---- (17,716) ----
-------------- -------------- -------------- -------------- --------------
Income (loss) before income taxes and
minority interest 17,716 29,026 2,677 (17,716) 31,703
Income taxes ---- (12,451) (910) ---- (13,361)
-------------- -------------- -------------- -------------- --------------
Income (loss) before minority interest 17,716 16,575 1,767 (17,716) 18,342
Minority interest ---- ---- (626) ---- (626)
-------------- -------------- -------------- -------------- --------------
Net income (loss) $ 17,716 $ 16,575 $ 1,141 $ (17,716) $ 17,716
============== ============== ============== ============== ==============
</TABLE>
8
<PAGE>
Consolidating Statement of Operations for the Six Months Ended June 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
Net sales $ ---- $ 59,121 $ 23,599 $ ---- $ 82,720
Cost of goods sold ---- 27,713 11,660 ---- 39,373
-------------- -------------- -------------- -------------- --------------
Gross profit ---- 31,408 11,939 ---- 43,347
Marketing and selling expenses ---- 16,528 5,128 ---- 21,656
General and administrative expenses ---- 11,271 2,684 ---- 13,955
Restructuring expense ---- 500 ---- ---- 500
-------------- -------------- -------------- -------------- --------------
Operating income ---- 3,109 4,127 ---- 7,236
Other income, net ---- (7,967) 915 ---- (7,052)
Equity in subsidiary earnings (net of taxes) (2,456) ---- ---- 2,456 ----
-------------- -------------- -------------- -------------- --------------
Income (loss) before income taxes and
minority interest (2,456) (4,858) 5,042 2,456 184
Income taxes ---- ---- (1,196) ---- (1,196)
-------------- -------------- -------------- -------------- --------------
Income (loss) before minority interest (2,456) (4,858) 3,846 2,456 (1,012)
Minority interest ---- ---- (1,444) ---- (1,444)
-------------- -------------- -------------- -------------- --------------
Net income (loss) $ (2,456) $ (4,858) $ 2,402 $ 2,456 $ (2,456)
============== ============== ============== ============== ==============
</TABLE>
Consolidating Statement of Operations for the Six Months Ended June 30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
Net sales $ ---- $ 40,705 $ 20,266 $ ---- $ 60,971
Cost of goods sold ---- 26,282 10,171 ---- 36,453
-------------- -------------- -------------- -------------- --------------
Gross profit ---- 14,423 10,095 ---- 24,518
Marketing and selling expenses ---- 13,854 3,663 ---- 17,517
General and administrative expenses ---- 13,516 2,460 ---- 15,976
Restructuring expense ---- 4,837 ---- ---- 4,837
-------------- -------------- -------------- -------------- --------------
Operating income (loss) ---- (17,784) 3,972 ---- (13,812)
Other income, net ---- 44,041 956 ---- 44,997
Equity in subsidiary earnings (net of taxes) 17,215 ---- ---- (17,215) ----
-------------- -------------- -------------- -------------- --------------
Income (loss) before income taxes and
minority interest 17,215 26,257 4,928 (17,215) 31,185
Income taxes ---- (11,381) (1,645) ---- (13,026)
-------------- -------------- -------------- -------------- --------------
Income (loss) before minority interest 17,215 14,876 3,283 (17,215) 18,159
Minority interest ---- ---- (944) ---- (944)
-------------- -------------- -------------- -------------- --------------
Net income (loss) $ 17,215 $ 14,876 $ 2,339 $ (17,215) $ 17,215
============== ============== ============== ============== ==============
</TABLE>
9
<PAGE>
Consolidating Balance Sheet as of June 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
Assets
Current assets:
Cash $ ---- $ 9,691 $ 10,266 $ ---- $ 19,957
Accounts receivable, net 827 28,735 15,166 (4,771) 39,957
Inventories, net ---- 13,822 9,587 ---- 23,409
Restricted cash ---- 2,373 ---- ---- 2,373
Other current assets ---- 1,019 359 ---- 1,378
Property, plant and equipment, net ---- 27,650 10,074 (36) 37,688
Intangible assets, net and other assets ---- 122,630 10,666 ---- 133,296
Investment in subsidiary 65,913 44,667 ---- (110,580) ----
-------------- -------------- -------------- -------------- --------------
Total assets $ 66,740 $ 250,587 $ 56,118 $(115,387) $ 258,058
============== ============== ============== ============== ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ ---- $ 8,346 $ 8,495 $ (4,771) $ 12,070
Other current liabilities ---- 15,756 2,506 ---- 18,262
Long-term debt ---- 135,770 131 ---- 135,901
Other liabilities ---- 24,766 319 ---- 25,085
Common stock and paid in capital 81,654 28,182 39,608 (67,790) 81,654
Other equity accounts (8,538) (15,269) (9,758) 25,027 (8,538)
Retained earnings (Accumulated deficit) (6,376) 53,036 14,817 (67,853) (6,376)
-------------- -------------- -------------- -------------- --------------
Total liabilities and stockholders' equity $ 66,740 $ 250,587 $ 56,118 $(115,387) $ 258,058
============== ============== ============== ============== ==============
</TABLE>
10
<PAGE>
Consolidating Balance Sheet as of December 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
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 Six Months Ended June 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
Operating Activities:
Net income (loss) $ (2,456) $ (5,279) $ 2,823 $ 2,456 $ (2,456)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization ---- 2,922 735 ---- 3,657
Minority interest in earnings of
subsidiary ---- 540 904 ---- 1,444
Other, net 2,456 676 (40) (2,456) 636
Changes in operating assets and
liabilities ---- (2,569) (2,550) ---- (5,119)
-------------- -------------- -------------- -------------- --------------
Total adjustments 2,456 1,569 (951) (2,456) 618
-------------- -------------- -------------- -------------- --------------
Net cash (used in ) provided by
operating activities ---- (3,710) 1,872 ---- (1,838)
-------------- -------------- -------------- -------------- --------------
Investing Activities:
Additions to property, plant and ---- (2,372) (1,082) ---- (3,454)
equipment
Collection of long-term note receivable ---- 517 ---- ---- 517
-------------- -------------- -------------- -------------- --------------
Net cash used in investing activities ---- (1,855) (1,082) ---- (2,937)
-------------- -------------- -------------- -------------- --------------
Financing Activities:
Proceeds from long-term borrowings ---- 2,446 92 ---- 2,538
Principal payments on debt ---- ---- (6,229) ---- (6,229)
Other ---- 490 (313) ---- 177
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in) ---- 2,936 (6,450) ---- (3,514)
financing activities
-------------- -------------- -------------- -------------- --------------
Effect of Exchange Rate Changes ---- ---- (460) ---- (460)
-------------- -------------- -------------- -------------- --------------
Net decrease in Cash and Cash Equivalents ---- (2,629) (6,120) ---- (8,749)
Cash and Cash Equivalents at Beginning of
Period ---- 12,320 16,386 ---- 28,706
-------------- -------------- -------------- -------------- --------------
Cash and Cash Equivalents at End of Period $ ---- $ 9,691 $ 10,266 $ ---- $ 19,957
============== ============== ============== ============== ==============
</TABLE>
12
<PAGE>
Consolidating Statement of Cash Flows for the Six Months Ended June 30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Carson, Inc. Guarantor Non-guarantor Consolidated
(parent) subsidiaries subsidiaries Eliminations Carson, Inc.
-------------- -------------- -------------- -------------- --------------
Operating Activities:
Net income (loss) $ 17,215 $ 14,876 $ 2,339 $ (17,215) $ 17,215
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Gain on sale of subsidiary stock ---- (49,140) ---- ---- (49,140)
Non-cash special charges ---- 14,222 ---- ---- 14,222
Depreciation and amortization ---- 2,643 546 ---- 3,189
Minority interest in earnings of
subsidiary ---- ---- 944 ---- 944
Other, net (17,215) (47) (270) 17,215 (317)
Changes in operating assets and
liabilities ---- 8,005 (521) ---- 7,484
-------------- -------------- -------------- -------------- --------------
Total adjustments (17,215) (24,317) 699 17,215 (23,618)
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
operating activities ---- (9,441) 3,038 ---- (6,403)
-------------- -------------- -------------- -------------- --------------
Investing Activities:
Additions to property, plant and
equipment ---- (2,378) (2,548) ---- (4,926)
-------------- -------------- -------------- -------------- --------------
Net cash used in investing activities ---- (2,378) (2,548) ---- (4,926)
-------------- -------------- -------------- -------------- --------------
Financing Activities:
Proceeds from long-term borrowings ---- 9,500 ---- ---- 9,500
Principal payments on long-term debt ---- (12,500) (5,472) ---- (17,972)
Proceeds from sale of subsidiary stock ---- 55,265 19,127 ---- 74,392
Other ---- (277) ---- ---- (277)
-------------- -------------- -------------- -------------- --------------
Net cash provided by financing
activities ---- 51,988 13,655 ---- 65,643
-------------- -------------- -------------- -------------- --------------
Effect of Exchange Rate Changes ---- ---- (3,933) ---- (3,933)
-------------- -------------- -------------- -------------- --------------
Net increase in Cash and Cash Equivalents ---- 40,169 10,212 ---- 50,381
Cash and Cash Equivalents at Beginning of
Period ---- 2,623 11,420 ---- 14,043
-------------- -------------- -------------- -------------- --------------
Cash and Cash Equivalents at End of Period $ ---- $ 42,792 $ 21,632 $ ---- $ 64,424
============== ============== ============== ============== ==============
</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 six months ended June 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 six months ended June 30, 1999 and 1998, 32.4% and 38.1%, 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:
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Six Months Six Months
Ended % of Ended % of
June 30,1999 Total June 30,1998 Total
- --------------------------------------------------------------------------------
Net sales to:
United States $ 55,946 67.6% $ 37,721 61.9%
South Africa 19,252 23.3 17,148 28.1
Europe 4,347 5.3 3,117 5.1
Other International 3,175 3.8 2,985 4.9
- --------------------------------------------------------------------------------
Total $ 82,720 100.0% $ 60,971 100.0%
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 June 30, 1999 Compared to Quarter Ended June 30, 1998
Net Sales. Consolidated net sales for the quarter ended June 30, 1999 were $41.1
million, an increase of $11.9 million, or 40.8%, over net sales for the quarter
ended June 30, 1998 of $29.2 million. The increase in net sales is primarily
attributable to the Company's acquisition of Johnson Products and Dermablend in
July 1998. This increase is summarized as follows (dollars are in thousands):
Quarter Ended Quarter Ended
June 30, 1999 June 30, 1998 % Change
--------------- --------------- ---------------
Carson Hair Care $ 11,522 $ 10,444 10.3
Johnson Hair Care 11,038 -- N/A
Export 3,449 2,758 25.1
Dermablend Group 4,415 346 1,176.0
--------------- ---------------
US Ethnic 30,424 13,548 124.6
--------------- ---------------
South Africa 10,643 9,347 13.9
--------------- ---------------
Carson Ethnic 41,067 22,895 79.4
--------------- ---------------
Cutex -- 6,279 (100.0)
--------------- ---------------
Consolidated $ 41,067 $ 29,174 40.8
=============== ===============
Carson and Johnson hair care net sales above include domestic sales of 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
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sales of Dermablend corrective cosmetics, Posner cosmetics and Dark and Lovely
Cosmetics. Most of the increase in Carson hair care products was in sales of
relaxers and hair color products.
There have been no net sales in 1999 of Cutex, which was sold in December 1998.
Gross Profit. Consolidated gross profit was $21.6 million in the quarter ended
June 30, 1999 compared to $8.1 million in the quarter ended June 30, 1998, an
increase of $13.5 million, or 166.7%. Gross margin was 52.5% in 1999 compared to
27.8% in 1998. In the second quarter of 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 $14.7
million, and gross margin was 50.3% in the second quarter of 1998. The increase
in gross margin in 1999 was attributable in part to increased plant utilization
in the Savannah manufacturing facility, whereas in 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 hair care margins resulting from discounted sales pricing.
Management has revised pricing terms for Johnson hair care products and expects
gross margins to improve in the second half of 1999. Carson South Africa
produced a gross profit of $5.3 million and a gross margin percentage of 49.9%
in the second quarter of 1999 compared to a gross profit of $4.6 million and a
gross margin percentage of 49.0% in the second quarter of 1998.
Marketing and Selling Expenses. Marketing and selling expenses increased $2.5
million, or 28.4%, to $11.3 million in the quarter ended June 30, 1999 from $8.8
million in the quarter ended June 30, 1998. This increase consists of higher
spending resulting from the addition of Johnson Products and higher spending at
Carson South Africa offset by reduced spending on the Cutex, Dark and Lovely
Cosmetics and Salon Professional lines, all of which were being promoted in the
second quarter of 1998. As a percentage of net sales, marketing and selling
expenses decreased to 27.6% during the quarter ended June 30, 1999 from 30.3%
during the quarter ended June 30, 1998.
General and Administrative Expenses. General and administrative expenses were
$6.7 million for the second quarter of 1999 compared to $10.0 million for the
second quarter of 1998, a decrease of $3.3 million, or 32.9%. In the second
quarter of 1998, general and administrative expenses included $3.7 million of
special charges primarily related to an executive management restructuring and
additional accounts receivable reserves. Excluding these special charges,
general and administrative expenses were $6.3 million in the second quarter of
1998. Compared to this amount, general and administrative expenses increased
$0.4 million, or 6.3%, in the second quarter of 1999. The increase resulted
primarily from the addition of Johnson Products and consisted of increases in
amortization, bad debt expense, research and development and insurance and
taxes. As a percentage of net sales, general and administrative expenses
decreased to 16.4% during the quarter ended June 30, 1999 from 21.7% during the
quarter ended June 30, 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 second quarter of 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 second quarter of 1998, the
Company recorded restructuring charges of $4.8 million related primarily to
changes in the Company's top management group and to the write-down of fixed
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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 $3.0 million in the quarter ended June 30, 1999 from an operating loss of
$15.6 million in the quarter ended June 30, 1998.
Interest Expense. Interest expense increased to $4.5 million in the quarter
ended June 30, 1999 from $3.0 million in the quarter ended June 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 Carson South Africa, resulting in a pre-tax gain to the Company of
$49.1 million.
Other Income. Other income decreased to $0.8 million for the quarter ended June
30, 1999 from $1.2 million for the quarter ended June 30, 1998. The decrease was
primarily due to lower interest income on reduced domestic cash balances.
Provision for Income Taxes. The provision for income taxes decreased to $1.1
million in the quarter ended June 30, 1999 compared to $13.4 million in the
quarter ended June 30, 1998. The 1999 provision was calculated on the earnings
of the Company's foreign subsidiaries. The Company did not record a 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 $0.9 million in the quarter ended June 30, 1999 from
$0.6 million in the quarter ended June 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 resulting from sales of Carson
South Africa stock in the second quarter of 1998.
Six months Ended June 30, 1999 Compared to Six months Ended June 30, 1998
Net Sales. Consolidated net sales for the six months ended June 30, 1999 were
$82.7 million, an increase of $21.7 million, or 35.7%, over net sales for the
six months ended June 30, 1998 of $61.0 million. This increase is summarized as
follows (dollars are in thousands):
Six months Ended Six months Ended
June 30, 1999 June 30, 1998 % Change
---------------- ---------------- ---------------
Carson Hair Care $ 26,772 $ 25,074 6.8
Johnson Hair Care $ 20,715 -- N/A
Export 7,522 6,103 23.3
Dermablend Group 8,459 886 854.7
---------------- ----------------
US Ethnic 63,468 32,063 97.9
---------------- ----------------
South Africa 19,252 17,148 12.3
---------------- ----------------
Carson Ethnic 82,720 49,211 68.1
---------------- ----------------
Cutex -- 11,760 (100.0)
---------------- ----------------
Consolidated $ 82,720 $ 60,971 35.7
================ ================
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Carson and Johnson hair care net sales above include domestic sales of 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. Most of the increase in Carson hair care products was in sales of
hair color products.
There were no net sales in 1999 of Cutex, which was sold in December 1998.
Gross Profit. Consolidated gross profit was $43.3 million in the six months
ended June 30, 1999 compared to $24.5 million in the six months ended June 30,
1998, an increase of $18.8 million, or 76.8%. Gross margin was 52.4% for such
period in 1999 compared to 40.2% for such period in 1998. In the six months
ended June 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 $31.1 million, and gross margin was 51.0% in
the six months ended June 30, 1998. The increase in gross margin in 1999 was
attributable in part to increased plant utilization in the Savannah
manufacturing facility, whereas in 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 and expects gross
margins to improve in the second half of 1999. Carson South Africa produced a
gross profit of $9.6 million and a gross margin percentage of 49.9% in the six
months ended June 30, 1999 compared to a gross profit of $8.1 million and a
gross margin percentage of 47.4% in the six months ended June 30, 1998.
Marketing and Selling Expenses. Marketing and selling expenses increased $4.1
million, or 23.6%, to $21.7 million in the six months ended June 30, 1999 from
$17.5 million in the six months ended June 30, 1998. This increase consists of
higher spending resulting from the addition of Johnson Products and higher
spending at Carson South Africa offset by reduced spending on the Cutex, Dark
and Lovely Cosmetics and Salon Professional lines, all of which were being
promoted in the first half of 1998. As a percentage of net sales, marketing and
selling expenses decreased to 26.2% during 1999 from 28.7% during 1998.
General and Administrative Expense. General and administrative expenses were
$14.0 million for the first six months of 1999 compared to $16.0 million for the
first six months of 1998, a decrease of $2.0 million, or 12.7%. In the first six
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 $12.3 million in the six months ended
June 30, 1998. Compared to this amount, general and administrative expenses
increased $1.7 million, or 13.8%, in the six months ended June 30, 1999. The
increase resulted primarily from the addition of Johnson Products and consisted
of increases in amortization, bad debt expense, research and development and
insurance and taxes. As a percentage of net sales, general and administrative
expenses decreased to 16.4% during 1999 from 20.1% 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.
18
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Restructuring Charges. In the six months ended June 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 six months ended June 30,
1998, the Company recorded restructuring charges of $4.8 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 $7.2 million in the six months ended June 30, 1999 from an operating loss of
$13.8 million in the six months ended June 30, 1998.
Interest Expense. Interest expense increased to $8.8 million in the six months
ended June 30, 1999 from $5.8 million in the six months ended June 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 Carson South Africa, resulting in a pre-tax gain to the Company of
$49.1 million.
Other Income. Other income was flat for the six months ended June 30, 1999
compared to the six months ended June 30, 1998.
Provision for Income Taxes. The provision for income taxes decreased to $1.2
million in the six months ended June 30, 1999 compared to $13.0 million in the
six months ended June 30, 1998. The 1999 provision was calculated on the
earnings of the Company's foreign subsidiaries. The Company did not record a 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 $1.4 million in the six months ended June 30, 1999 from
$0.9 million in the six months ended June 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 and June of 1999 and
thereby increased long-term debt $2.4 million in the six months ended June 30,
1999. The capital stock and assets of Carson Products Company (including
stock in Carson South Africa representing a 52.6% majority stake), the capital
19
<PAGE>
stock and intellectual property of Dermablend Inc. 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 six months ended June 30, 1999, the Company's cash balance decreased by
$8.7 million, to $20.0 million. Net cash flow used in operations was $1.8
million. Cash was used primarily to increase accounts receivable and to reduce
income taxes payable and accrued expenses. Approximately $2.1 million of cash
was provided by the conversion of restricted cash into available cash, which was
used to pay for items related to the disposition of Cutex.
Net cash used in investing activities in the six months ended June 30, 1999
consisted primarily of capital expenditures of $3.5 million. Approximately $1.1
million of these additions related to the Carson Products software conversion to
SAP, and approximately $1.1 million were additions by Carson South Africa.
Net cash used in financing activities in the six months ended June 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 $2.5 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 foreseeable future.
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 Year 2000 compliant, 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
facilities during the quarter ended June 30, 1999. The implementation of SAP at
the Company's Chicago facility is currently in progress and is expected to be
completed during the third quarter of 1999. Moreover, the Company expects to
receive a certificate of Year 2000 compliance for its AS/400 computer from IBM.
Once SAP has been implemented at the Chicago facility and 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 another
software and/or hardware vendor 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
20
<PAGE>
its main bank 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 June 30, 1999, the Company had incurred approximately $1.5 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
At the annual meeting of shareholders of Carson, Inc., held on June 15, 1999,
the following directors were elected to three-year terms expiring in 2002: Leroy
Keith, Lawrence E. Bathgate II, John L. Sabre and Vincent A. Wasik. Other
directors whose terms of office continued after the meeting included: Abbey J.
Butler, Suzanne de Passe, Melvyn J. Estrin, James L. Hudson, Jack F. Kemp and
21
<PAGE>
Malcolm R. Yesner. Also, the appointment of Deloitte & Touche LLP as independent
auditors for 1999 was ratified, and the Carson, Inc. 1996 Long-Term Incentive
Plan was adopted at the annual meeting.
Results of the annual meeting votes were as follows:
<TABLE>
<S> <C> <C> <C>
Against
or
For Withheld Abstentions
----------------- ---------------- ------------------
(1) To elect directors to three-year terms expiring in 2002:
Leroy Keith 43,728,442 451,415 -0-
Lawrence E. Bathgate, II 43,728,442 451,415 -0-
John L. Sabre 42,136,642 2,043,215 -0-
Vincent A. Wasik 43,728,442 451,415 -0-
(2) To ratify the appointment of Deloitte & Touche LLP
as the Company's independent auditors for 1999 44,178,357 1,100 400
(3) To adopt The Carson, Inc. 1996 Long-Term Incentive
Plan 38,077,642 6,046,807 55,408
</TABLE>
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>
SIGNATURES
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.
Date: August 16, 1999
/S/Robert W. Pierce
Executive Vice President, Finance
Chief Financial Officer and Corporate Secretary
(Principal Accounting and Financial Officer)
23
<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 June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.0
<CASH> 19,957
<SECURITIES> 0
<RECEIVABLES> 44,898
<ALLOWANCES> 4,941
<INVENTORY> 23,409
<CURRENT-ASSETS> 87,074
<PP&E> 42,935
<DEPRECIATION> 5,247
<TOTAL-ASSETS> 258,058
<CURRENT-LIABILITIES> 30,332
<BONDS> 135,901
0
0
<COMMON> 153
<OTHER-SE> 66,587
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<SALES> 82,720
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<CGS> 39,373
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<NET-INCOME> (2,456)
<EPS-BASIC> (0.16)
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</TABLE>
