UNITED STATES
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:
December 31, 2000
-OR-
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-5050
ALBERTO-CULVER COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 36-2257936
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2525 Armitage Avenue
Melrose Park, Illinois 60160
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (708) 450-3000
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 December 31, 2000, the company had 23,424,297 shares of Class A common stock
and 32,957,471 shares of Class B common stock outstanding.
PART I
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended December 31, 2000 and 1999
(in thousands, except per share data)
(Unaudited)
---------------------
2000 1999
---- ----
Net sales $ 593,560 525,799
Cost of products sold 292,183 257,370
--------- -------
Gross profit 301,377 268,429
Advertising, promotion, selling and administrative 260,362 233,933
Non-recurring gain (Note 6) -- (9,257)
--------- -------
Operating earnings (Note 6) 41,015 43,753
Interest expense, net of interest income of $1,202
in 2000 and $745 in 1999 5,752 3,427
--------- -------
Earnings before provision for income taxes (Note 6) 35,263 40,326
Provision for income taxes (Note 6) 11,637 13,493
--------- -------
Net earnings (Note 6) $ 23,626 26,833
========= =======
Net earnings per share (Note 6)
Basic $ 0.42 0.48
========= =======
Diluted $ 0.41 0.48
========= =======
Cash dividends paid per share $ .075 .065
========= =======
See notes to consolidated financial statements.
2
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and September 30, 2000
(dollars in thousands, except share data)
(Unaudited)
December 31, September 30,
ASSETS 2000 2000
------ ------------ -------------
Current assets:
Cash and cash equivalents $ 110,551 114,637
Short-term investments 546 314
Receivables, less allowance for doubtful
accounts ($10,458 at 12/31/00 and $10,135 at 9/30/00) 167,982 154,207
Inventories:
Raw materials 48,635 45,197
Work-in-process 4,189 4,819
Finished goods 429,430 395,241
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Total inventories 482,254 445,257
Other current assets 26,416 26,122
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Total current assets 787,749 740,537
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Property, plant and equipment at cost, less accumulated
depreciation ($220,061 at 12/31/00 and $211,337 at 9/30/00) 236,765 240,091
Goodwill, net 265,828 263,847
Trade names, net 83,486 83,788
Other assets 64,064 61,556
------------ ------------
Total assets $ 1,437,892 1,389,819
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 3,877 3,988
Accounts payable 209,651 183,770
Accrued expenses 125,533 135,115
Income taxes 24,492 17,916
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Total current liabilities 363,553 340,789
------------ ------------
Long-term debt 333,026 340,948
Deferred income taxes 41,473 38,349
Other liabilities 32,680 33,252
Stockholders' equity:
Common stock, par value $.22 per share:
Class A authorized 75,000,000 shares; issued 30,612,798 shares 6,735 6,735
Class B authorized 75,000,000 shares; issued 37,710,655 shares 8,296 8,296
Additional paid-in capital 188,980 190,137
Retained earnings 707,059 687,631
Accumulated other comprehensive income -
foreign currency translation (51,340) (54,400)
------------ ------------
859,730 838,399
Less treasury stock at cost (Class A common shares: 7,188,501 at 12/31/00 and
7,630,930 at 9/30/00; Class B common shares:
4,753,184 at 12/31/00 and 9/30/00) (192,570) (201,918)
------------ ------------
Total stockholders' equity 667,160 636,481
------------ ------------
Total liabilities and stockholders' equity $ 1,437,892 1,389,819
============ ============
See notes to consolidated financial statements.
3
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended December 31, 2000 and 1999
(dollar amounts in thousands)
(Unaudited)
----------------------
2000 1999
--------- ------
Cash Flows from Operating Activities:
-------------------------------------
Net earnings $ 23,626 26,833
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization 12,864 11,279
Non-recurring gain (Note 6) -- (9,257)
Other 2,400 438
Cash effects of changes in (exclusive of acquisitions):
Receivables, net (10,559) (4,516)
Inventories (29,587) (12,670)
Other current assets 378 (494)
Accounts payable and accrued expenses 15,346 (24,044)
Income taxes 5,316 11,626
--------- ------
Net cash provided (used) by operating activities 19,784 (805)
--------- ------
Cash Flows from Investing Activities:
-------------------------------------
Short-term investments (215) 1,396
Capital expenditures (5,303) (8,112)
Payments for purchased businesses, net of acquired companies' cash (11,137) (15,115)
Proceeds from sale of trademark (Note 6) -- 10,000
Other, net (1,042) 3,673
--------- ------
Net cash used by investing activities (17,697) (8,158)
--------- ------
Cash Flows from Financing Activities:
-------------------------------------
Short-term borrowings 177 1,587
Proceeds from long-term debt 23 18,000
Repayments of long-term debt (8,585) (6,500)
Cash dividends paid (4,198) (3,618)
Cash proceeds from exercise of stock options 6,679 951
Stock purchased for treasury (841) (3,460)
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Net cash provided (used) by financing activities (6,745) 6,960
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Effect of foreign exchange rate changes on cash 572 (974)
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Net decrease in cash and cash equivalents (4,086) (2,977)
Cash and cash equivalents at beginning of period 114,637 55,931
--------- ------
Cash and cash equivalents at end of period $ 110,551 52,954
========= ======
See notes to consolidated financial statements.
4
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) The consolidated financial statements contained in this report have not
been audited by independent public accountants, except for balance sheet
information presented at September 30, 2000. However, in the opinion of
the company, the consolidated financial statements reflect all
adjustments, which include only normal adjustments, necessary to present
fairly the data contained therein. The results of operations for the
periods covered are not necessarily indicative of results for a full
year. Certain amounts for the prior year have been reclassified to
conform to the current year's presentation.
(2) On January 25, 2001, the company announced an increase in the cash
dividend on Class A and Class B common stock, raising the quarterly
dividend 10% to 8.25 cents per share or 33 cents annually. The cash
dividend is payable February 20, 2001 to stockholders of record on
February 5, 2001.
(3) Basic earnings per share is calculated using the weighted average of
actual shares outstanding of 56,197,000 and 55,708,000 for the three
months ended December 31, 2000 and 1999, respectively.
Diluted earnings per share is determined by dividing net earnings by the
weighted average shares outstanding, including common stock equivalents.
Diluted weighted average shares outstanding were 57,328,000 and
56,432,000 for the three months ended December 31, 2000 and 1999,
respectively.
The following table provides a reconciliation of diluted weighted
average shares outstanding (in thousands):
Three Months
Ended December 31
-----------------
2000 1999
---- ----
Basic weighted average shares
outstanding 56,197 55,708
Effect of dilutive securities:
Assumed exercise of
stock options 1,131 649
Other -- 75
------ ------
Diluted weighted average shares
outstanding 57,328 56,432
====== ======
Stock options for 5,000 and 1,874,000 shares were excluded from the
computation of diluted earnings per share for the three months ended
December 31, 2000 and 1999, respectively, as the options' exercise
prices were greater than the average market price and, therefore, were
anti-dilutive.
(4) Comprehensive income consists of net earnings and foreign currency
translation adjustments as follows (in thousands):
Three Months
Ended December 31
-----------------
2000 1999
---- ----
Net earnings $ 23,626 26,833
Other comprehensive income
adjustments-foreign currency
translation 3,060 (4,712)
-------- ------
Comprehensive income $ 26,686 22,121
======== ======
5
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(5) During fiscal year 1998, the Board of Directors authorized the company to
purchase up to 6.0 million shares of its Class A common stock. This
authorization was increased to 9.0 million shares in fiscal year 1999. As
of December 31, 2000, the company had purchased 7,290,400 Class A common
shares under this program at a total cost of $162.9 million. No Class A
shares have been purchased under this program since October, 1999.
(6) In the first quarter of fiscal year 2000, the company sold a European
trademark for $10.0 million. The transaction resulted in a non-recurring
pre-tax gain of $9.3 million and an increase in net earnings of $6.0
million. The non-recurring gain added 11 cents to the company's basic and
diluted earnings per share.
The following table provides information for the first three months of
fiscal years 2001 and 2000 excluding the non-recurring gain (in thousands,
except per share data):
Three Months
------------
Ended December 31
------------------
2000 1999
---- ----
Operating earnings before non-recurring gain $ 41,015 34,496
======== ======
Earnings before non-recurring gain and income taxes $ 35,263 31,069
======== ======
Earnings before non-recurring gain after income taxes $ 23,626 20,816
======== ======
Earnings per share before non-recurring gain after income taxes:
Basic $ 0.42 0.37
======== ======
Diluted $ 0.41 0.37
======== ======
6
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(7) Segment data for the three months ended December 31, 2000 and 1999 is as
follows (in thousands):
Three Months
Ended December 31
-----------------
2000 1999
---- ----
Net sales:
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Consumer products:
Alberto-Culver North America $ 146,590 124,589
Alberto-Culver International 105,656 110,358
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Total consumer products 252,246 234,947
Specialty distribution - Sally 348,719 295,874
Eliminations (7,405) (5,022)
---------- -------
$ 593,560 525,799
========== =======
Earnings before provision for income taxes:
-------------------------------------------
Consumer products:
Alberto-Culver North America $ 13,160 7,072
Alberto-Culver International 719 850
---------- -------
Total consumer products 13,879 7,922
Specialty distribution - Sally 34,522 29,791
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Segment operating profit 48,401 37,713
Non-recurring gain (Note 6) -- 9,257
Unallocated expenses, net (7,386) (3,217)
Interest expense, net of interest income (5,752) (3,427)
---------- -------
$ 35,263 40,326
========== =======
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
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FINANCIAL CONDITION
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RESULTS OF OPERATIONS
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First Quarter Ended December 31, 2000 versus First Quarter Ended December 31,
-----------------------------------------------------------------------------
1999
-----
The company achieved record first quarter net sales of $593.6 million in fiscal
year 2001, up $67.8 million or 12.9% over the comparable period of fiscal year
2000.
Net earnings were $23.6 million for the three months ended December 31, 2000 or
13.5% higher than the prior year's first quarter net earnings of $20.8 million
before the non-recurring gain described below. Excluding the fiscal 2000
non-recurring gain, basic earnings per share of 42 cents in fiscal year 2001
were 5 cents or 13.5% higher than the same period of fiscal year 2000. Diluted
earnings per share before the non-recurring gain increased 10.8% to 41 cents in
fiscal year 2001 from 37 cents in fiscal year 2000.
As described in Note 6, the company sold a European trademark in the first
quarter of fiscal year 2000. As a result, the company recognized a non-recurring
pre-tax gain of $9.3 million and an increase in net earnings of $6.0 million.
Accordingly, basic and diluted earnings per share increased 11 cents as a result
of the gain. Fiscal year 2001 first quarter net earnings decreased $3.2 million
or 12.0% compared to fiscal year 2000 net earnings including the non-recurring
gain.
Compared to the same period of the prior year, sales of Alberto-Culver North
America consumer products increased 17.7% in the first quarter of fiscal year
2001. The increase was primarily due to sales related to the acquired Pro-Line
business along with higher sales of the St. Ives Swiss Formula facial, body
lotions and body wash product lines, the Alberto VO5 Herbals line of shampoos
and conditioners, TRESemme styling products and Mrs. Dash salt alternatives.
Sales of Alberto-Culver International consumer products ("International")
decreased 4.3% in the first quarter of fiscal 2001 compared to last year. Fiscal
year 2001 results were negatively impacted by the effect of foreign exchange
rates. Had foreign exchange rates this year been the same as the first quarter
of fiscal 2000, International sales would have increased 7.8%.
The "Specialty distribution-Sally" business segment achieved a sales increase of
17.9% for the first quarter of fiscal year 2001. The increase was mainly
attributable to the expansion of Sally's full service operations, higher sales
for established Sally Beauty Company outlets and the addition of stores during
the year. At December 31, 2000, Sally Beauty Company had 2,339 stores offering a
full range of professional beauty supplies.
Cost of products sold as a percentage of net sales was 49.2% for the first
quarter of fiscal year 2001 compared to 48.9% for the first quarter of the prior
year. The higher cost of products sold percentage in the first quarter of fiscal
year 2001 was primarily due to product mix and the growth of Sally Beauty
Company, which has a higher cost of goods sold as a percentage of sales.
Compared to the prior year, advertising, promotion, selling and administrative
expenses in fiscal year 2001 increased $26.4 million or 11.3% for the first
quarter. The increase primarily resulted from the higher selling and
administration costs associated with the growth of the Sally Beauty Company
business and the acquisition of Pro-Line.
Net interest expense in fiscal year 2001 increased $2.3 million for the first
quarter compared to the same period of the prior year. The increase was
primarily attributable to additional interest expense related to the $200
million of 8.25% senior notes issued in April, 2000. This higher interest
expense was partially offset by lower interest expense related to the repayments
of borrowings under the revolving credit facility and the $20 million of notes
payable which matured in September, 2000, lower borrowings on the Swedish Krona
revolving credit facility and higher interest income from investing the net
senior note proceeds.
The provision for income taxes as a percentage of earnings before income taxes
was 33.0% for the first quarter of fiscal years 2001 and 2000.
8
FINANCIAL CONDITION
-------------------
December 31, 2000 versus September 30, 2000
-------------------------------------------
The ratio of current assets to current liabilities was 2.17 to 1.00 at December
31, 2000 and September 30, 2000. Working capital of $424.2 million was $24.5
million higher than the September 30, 2000 balance of $399.7 million.
Inventories increased $37.0 million to $482.3 million during the first three
months of fiscal year 2001. The increase primarily resulted from the growth of
Sally Beauty Company's business.
Accounts payable increased $25.9 million to $209.7 million during the first
three months of fiscal year 2001 primarily due to the timing of inventory
purchases and vendor payments.
Long-term debt decreased $7.9 million to $333.0 million primarily due to reduced
borrowing under the company's Swedish Krona revolving credit facility.
NEW ACCOUNTING STANDARDS
------------------------
In December, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB No. 101 provides
guidance in applying generally accepted accounting principles to revenue
recognition. The company implemented SAB No. 101 in the first quarter of fiscal
year 2001 and its adoption did not have a material effect on the consolidated
financial statements.
In May, 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting
Standards Board (FASB) reached a consensus on Issue No. 00-14, "Accounting for
Certain Sales Incentives." EITF Issue No. 00-14 addresses the recognition,
measurement and income statement classification for various types of sales
incentives including coupons, rebates and free products. The company is required
to comply with EITF Issue No. 00-14 in the fourth quarter of fiscal year 2001.
The company estimates its adoption will result in a reduction of consolidated
net sales of approximately 2%, but will have no effect on consolidated net
earnings.
In September, 2000, the EITF reached a consensus on Issue No. 00-10, "Accounting
for Shipping and Handling Fees and Costs." EITF Issue No. 00-10 addresses the
income statement classification of shipping and handling fees and costs. The
company implemented EITF Issue No. 00-10 in the first quarter of fiscal year
2001 and its adoption did not have a material effect on the consolidated
financial statements.
In September, 2000, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 140 replaces SFAS No. 125 and revises
the standards for accounting for securitizations and other transfers of
financial assets and collateral. The company is required to comply with SFAS No.
140 in the third quarter of fiscal year 2001 and estimates its adoption will not
have a material effect on the consolidated financial statements.
9
FORWARD - LOOKING STATEMENTS
----------------------------
This Quarterly Report on Form 10-Q and the documents incorporated by reference
herein, if any, may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such statements are based on management's current
expectations and assessments of risks and uncertainties and reflect various
assumptions concerning anticipated results, which may or may not prove to be
correct. Some of the factors that could cause actual results to differ
materially from estimates or projections contained in such forward-looking
statements include the pattern of brand sales, including variations in sales
volume within periods; competition within the relevant product markets,
including pricing, promotional activities, continuing customer acceptance of
existing products, loss of distributorship rights and the ability to develop and
successfully introduce new products; risks inherent in acquisitions and
strategic alliances; changes in costs, including changes in labor costs, raw
material prices or promotional expenses; the costs and effects of unanticipated
legal or administrative proceedings; variations in political, economic or other
factors such as currency exchange rates, inflation rates, recessionary or
expansive trends, tax changes, legal and regulatory changes or other external
factors over which Alberto-Culver Company has no control. Alberto-Culver Company
has no obligation to update any forward-looking statement in this Quarterly
Report on Form 10-Q or any incorporated document.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------
There have been no material changes in the company's market risk during the
three months ended December 31, 2000.
10
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
No report on Form 8-K was filed by the registrant during the quarter
ended December 31, 2000.
11
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.
ALBERTO-CULVER COMPANY
(Registrant)
By: /s/ William J. Cernugel
-------------------------------------------------
William J. Cernugel
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
February 9, 2001
12