<PAGE> 1
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 MARCH 31, 1999
Commission File Number 0-21703
STYLING TECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2665378
- ---------------------------------------- -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7400 EAST TIERRA BUENA LANE
SCOTTSDALE, ARIZONA 85260
- ---------------------------------------- -------------------------------
(Address of Principal Executive Offices) (Zip Code)
(480) 609-6000
--------------------------------------
(Registrant's Telephone Number, Including Area Code)
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 / /
The number of shares of the issuer's class of capital stock as of the latest
practicable date, is as follows: 4,067,503 shares of Common Stock, $.0001 par
value, as of May 14, 1999.
<PAGE> 2
STYLING TECHNOLOGY CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1998 and March 31, 1999 .................... 3
Condensed Consolidated Statements of Operations -
Three Months ended March 31, 1998 and March 31, 1999 .... 4
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 1998 and March 31, 1999..... 5
Notes to Condensed Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 21
Item 2. Changes in Securities.............................................. 21
Item 3. Defaults Upon Senior Securities.................................... 21
Item 4. Submission of Matters to a Vote of Security Holders................ 21
Item 5. Other Information.................................................. 21
Item 6. Exhibits and Reports on Form 8-K................................... 21
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
STYLING TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
March 31,
December 31, 1999
1998 (Unaudited)
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,023,000 $ 5,249,000
Accounts receivable, net of allowance for doubtful
accounts of $2,882,000 and $3,675,000 32,326,000 42,318,000
Inventories, net 25,375,000 23,061,000
Prepaid expenses and other current assets 1,791,000 3,854,000
------------- -------------
Total current assets 63,515,000 74,482,000
PROPERTY AND EQUIPMENT, net 5,362,000 6,343,000
GOODWILL AND OTHER INTANGIBLES, net of accumulated
amortization of approximately $4,749,000 and $6,129,000 139,566,000 138,400,000
OTHER ASSETS 10,755,000 11,096,000
------------- -------------
Total assets $219,198,000 $ 230,321,000
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,668,000 $ 12,943,000
Accrued liabilities 10,367,000 8,333,000
Current portion of long-term debt and other 2,768,000 2,466,000
------------- -------------
Total current liabilities 25,803,000 23,742,000
------------- -------------
DEFERRED INCOME TAXES 19,216,000 19,216,000
------------- -------------
LONG-TERM DEBT AND OTHER, less current portion 140,366,000 152,535,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 1,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, $.0001 par value, 10,000,000 shares authorized,
4,876,000 shares issued and 4,068,000 shares outstanding at
December 31, 1998 and March 31, 1999 1,000 1,000
Additional paid-in capital 29,038,000 29,038,000
Retained earnings 6,574,000 7,589,000
Treasury stock (1,800,000) (1,800,000)
------------- -------------
Total stockholders' equity 33,813,000 34,828,000
------------- -------------
Total liabilities and stockholders' equity $219,198,000 $ 230,321,000
============ =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets
3
<PAGE> 4
STYLING TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1999
<TABLE>
<CAPTION>
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1999
----------- -----------
<S> <C> <C>
NET SALES $16,225,000 $34,252,000
COST OF SALES 7,042,000 14,845,000
----------- -----------
Gross profit 9,183,000 19,407,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,395,000 13,128,000
CENTRALIZATION AND REENGINEERING COSTS -- 660,000
----------- -----------
5,395,000 13,788,000
----------- -----------
Income from operations 3,788,000 5,619,000
INTEREST EXPENSE 1,264,000 3,928,000
----------- -----------
Income before extraordinary item and income taxes 2,524,000 1,691,000
PROVISION FOR INCOME TAXES 1,085,000 676,000
----------- -----------
Net income $ 1,439,000 $ 1,015,000
=========== ===========
BASIC EARNINGS PER SHARE:
Net income $ 0.36 $ 0.25
=========== ===========
Weighted average shares outstanding 3,971,000 4,068,000
=========== ===========
DILUTED EARNINGS PER SHARE:
Net income $ 0.34 $ 0.24
=========== ===========
Weighted average shares outstanding 4,278,000 4,205,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
STYLING TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1999
<TABLE>
<CAPTION>
(Unaudited)
Three months Three months
Ended Ended
March 31, 1998 March 31, 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,439,000 $ 1,015,000
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 781,000 1,623,000
Interest accretion on note payable 44,000 --
Changes in certain assets and liabilities:
Accounts receivable, net (1,309,000) (9,992,000)
Inventories, net 347,000 2,314,000
Prepaid expenses and other assets (448,000) (2,509,000)
Accounts payable and accrued liabilities (1,327,000) (1,759,000)
----------- ------------
Net cash used in operating activities (473,000) (9,308,000)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant & equipment (341,000) (1,110,000)
Changes in investments, long term receivables and other (886,000) (54,000)
----------- ------------
Net cash used in investing activities (1,227,000) (1,164,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from credit facility, net of financing costs 1,940,000 12,000,000
Exercise of stock options 50,000 --
Repayment of notes payable and credit facility (825,000) (302,000)
----------- ------------
Net cash provided by financing activities 1,165,000 11,698,000
----------- ------------
CHANGE IN CASH AND CASH EQUIVALENTS (535,000) 1,226,000
CASH AND CASH EQUIVALENTS, beginning of period 3,063,000 4,023,000
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 2,528,000 $ 5,249,000
----------- ------------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
STYLING TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. The statements presented do not include all information and
footnotes required to be in conformity with generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Results of operations in interim
periods are not necessarily indicative of results for a full year. These
condensed consolidated financial statements and notes thereto should be read in
conjunction with Styling Technology Corporation's (the Company) consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K as of and for the year ended December 31, 1998. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions. Such estimates and
assumptions affect the reported amounts of assets and liabilities as well as
disclosure of contingent assets and liabilities at the date of the accompanying
consolidated financial statements, and the reported amounts of the revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Effective January 1, 1999 the Company adopted Statement of Position 98-1,
Accounting for the Costs of Computer Software, ("SOP 98-1"). SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. The adoption of SOP 98-1 did not have a material effect on the
Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. The statement is
effective for the Company's quarter ending March 31, 2000. The Company is
currently evaluating the impact that SFAS No. 133 will have on its future
results of operations and financial position.
During 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 Reporting on the Costs of Start-up Activities ("SOP
98-5"). SOP 98-5 requires costs of start-up activities and organization costs to
be expensed as incurred. The Company adopted this statement effective January 1,
1999. The adoption of SOP 98-5 did not have a material effect on the Company's
financial position or results of operations.
6
<PAGE> 7
NOTE 3. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted
earnings per share (EPS) computations for the three months ended March 31, 1998
and March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998 Three Months Ended March 31, 1999
-------------------------------------- -----------------------------------
Effect of Effect of
Stock Stock
Options Options
Basic and Diluted Basic and Diluted
EPS Warrants EPS EPS Warrants EPS
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (numerator) ........... $1,439,000 $1,439,000 $1,015,000 $1,015,000
Shares (denominator) ............. 3,971,000 307,000 4,278,000 4,068,000 137,000 4,205,000
========== ========== ========== ========== ======= =========
Per share amount - net income .... $ 0.36 $ 0.34 $ 0.25 $ 0.24
========== ========== ========== =========
</TABLE>
For purposes of applying the treasury stock method, the Company has assumed that
it will fully utilize tax deductions arising from the assumed exercise of
non-qualified stock options.
NOTE 4. INVENTORY
Inventories, net, consist of the following at:
<TABLE>
<CAPTION>
March 31,
December 31, 1999
1998 (Unaudited)
----------- -----------
<S> <C> <C>
Raw materials & work-in-process $ 8,612,000 $ 8,037,000
Finished goods 16,763,000 15,024,000
----------- -----------
$25,375,000 $23,061,000
=========== ===========
</TABLE>
NOTE 5. LONG-TERM DEBT
As of March 31, 1999, the Company had borrowed approximately $24.0 million on
its revolving line of credit for working capital purposes including financing
the working capital requirements of its internal growth. In addition, the
borrowing was used to fund capital expenditures associated with the Company's
centralization and reengineering project, to repay debt created in conjunction
with the acquisition of Gena Laboratories, Inc. in November 1996, and to repay
debt assumed in the acquisition of Framesi USA. On March 30, 1999, the Company
added a $5.0 million overline facility maturing June 30, 1999 to its revolving
line of credit. As of March 31, 1999, there were no amounts outstanding on the
overline.
In May 1999, the Company received a commitment for a $90 million Senior Secured
Revolving Credit Facility from GE Capital Corporation. The new facility will be
used to repay amounts outstanding under
7
<PAGE> 8
the Company's current $50 million credit facility, for future acquisitions, and
for working capital purposes. The Company intends to take an extraordinary,
non-cash charge during the second quarter of approximately $400,000 net of tax,
or approximately $0.10 per diluted share, related to the write-off of
unamortized financing costs associated with the current facility. The Company
expects the new facility to close in June. The closing of the new credit
facility is subject to the execution of definitive loan documents.
NOTE 6. INTEREST RATE PROTECTION
The Company maintains certain interest rate protection instruments to reduce the
impact of changes in interest rates. These instruments include an interest rate
swap and interest rate cap agreement (the Agreements). The Company is exposed to
a risk of credit loss in the event of nonperformance by financial institutions
that are also party to the Agreements. However, the Company believes that, based
on the high creditworthiness of these counterparties, nonperformance is
unlikely. The following is a summary of the Company's Agreements as of March 31,
1999:
<TABLE>
<CAPTION>
Company's Notional Value
Instrument Effective Rate (dollars in thousands)
- ---------- -------------- ----------------------
<S> <C> <C>
Swap 8.50% $ 12,500
Cap 10.25% 12,500
--------
$ 25,000
--------
</TABLE>
NOTE 7. SEGMENT INFORMATION
The Company monitors its salon distribution operations according to the hair
care, nail care, skin and body care, and appliances and sundries product
categories. Distribution of the products take place primarily throughout the
United States. Management monitors and evaluates the financial performance of
the Company's operations by its four current operating segments. The following
operating segment information includes financial information (in thousands) for
all four of the Company's operating segments.
MARCH 31, 1999
<TABLE>
<CAPTION>
SKIN AND APPLIANCES
HAIR CARE NAIL CARE BODY CARE AND SUNDRIES PARENT ELIMINATIONS TOTAL
--------- --------- --------- ------------ --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ........... $ 17,205 $ 5,683 $ 7,602 $ 3,762 $ -- $ -- $ 34,252
Operating Income .... 3,100 924 619 1,201 (225) -- 5,619
Total assets ........ 105,125 50,392 95,143 32,044 107,049 (159,432) 230,321
</TABLE>
MARCH 31, 1998
<TABLE>
<CAPTION>
SKIN AND APPLIANCES
HAIR CARE NAIL CARE BODY CARE AND SUNDRIES PARENT ELIMINATIONS TOTAL
--------- --------- --------- ------------ --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ........... $ 4,125 $ 2,921 $ 8,853 $ 326 $ -- $ -- $16,225
Operating Income .... 1,071 536 2,701 90 (610) -- 3,788
Total assets ........ 28,139 23,735 59,072 2,067 33,747 (52,474) 94,286
</TABLE>
8
<PAGE> 9
NOTE 8. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is party to certain legal matters arising in the ordinary course of
its business. In management's opinion, as of March 31, 1999, the expected
outcome of such matters will not have a material impact on the Company's
financial position or results of operations.
NOTE 9. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The Company's long-term debt includes $100 million of 10 7/8% senior
subordinated notes due 2008 (Notes). The Notes are general unsecured obligations
of the Company and are unconditionally guaranteed on a joint and several basis
by all of the Company's wholly owned current and future domestic subsidiaries.
The financial statements presented below include the combined financial position
as of December 31, 1998 and March 31, 1999, the results of operations for the
three ended March 31, 1998 and 1999, and the statement of cash flows for the
three months ended March 31, 1998 and 1999 of Styling Technology Corporation
(Parent); guarantor subsidiaries (Guarantors) and the non-guarantor subsidiaries
(Non-guarantors).
9
<PAGE> 10
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998 (IN THOUSANDS)
--------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATING CONSOLIDATED
--------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,867 $ 343 $ 813 $ -- $ 4,023
Accounts receivable, net 17,614 8,830 5,882 -- 32,326
Inventories, net 13,232 10,060 2,083 -- 25,375
Prepaid expenses and other current assets 1,013 695 83 -- 1,791
Due to/from affiliates 2,314 5,545 (7,859) -- --
--------- ------- -------- --------- ---------
Total current assets 37,040 25,473 1,002 -- 63,515
PROPERTY AND EQUIPMENT, net 3,625 1,626 111 -- 5,362
GOODWILL, net 37,128 52,509 49,929 -- 139,566
OTHER ASSETS 10,452 118 185 -- 10,755
INVESTMENT IN SUBSIDIARIES, net 104,386 -- -- (104,386) --
--------- ------- -------- --------- ---------
Total assets $ 192,631 $79,726 $ 51,227 $(104,386) $ 219,198
========= ======= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,784 $ 2,960 $ 924 $ -- $ 12,668
Accrued liabilities 1,884 5,841 2,642 -- 10,367
Current portion of long-term debt and other 1,309 357 1,102 -- 2,768
--------- ------- -------- --------- ---------
Total current liabilities 11,977 9,158 4,668 -- 25,803
--------- ------- -------- --------- ---------
DEFERRED INCOME TAXES 6,475 -- 12,741 19,216
--------- ------- -------- --------- ---------
LONG-TERM DEBT AND OTHER, less current portion 140,366 -- -- 140,366
--------- ------- -------- --------- ---------
COMMITMENTS AND CONTINGENCIES -- -- -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock -- -- -- -- --
Common stock 1 -- -- -- 1
Additional paid-in capital 29,038 61,770 32,527 (94,297) 29,038
Retained earnings 6,574 8,798 1,291 (10,089) 6,574
Treasury stock (1,800) -- -- -- (1,800)
--------- ------- -------- --------- ---------
Total stockholders' equity 33,813 70,568 33,818 (104,386) 33,813
--------- ------- -------- --------- ---------
Total liabilities and stockholders' equity $ 192,631 $79,726 $ 51,227 $(104,386) $ 219,198
========= ======= ======== ========= =========
</TABLE>
10
<PAGE> 11
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999 (IN THOUSANDS)
(UNAUDITED)
---------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATING CONSOLIDATED
--------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,077 $ 2,423 $ 749 $ -- $ 5,249
Accounts receivable, net 17,220 14,838 10,260 -- 42,318
Inventories, net 10,239 12,325 497 -- 23,061
Prepaid expenses and other current assets 2,448 1,148 258 -- 3,854
Due to/from affiliates 6,844 1,795 (8,639) -- --
--------- ------- -------- --------- ---------
Total current assets 38,828 32,529 3,125 -- 74,482
PROPERTY AND EQUIPMENT, net 4,327 1,903 113 -- 6,343
GOODWILL AND OTHER INTANGIBLES, net 32,297 56,272 49,831 -- 138,400
OTHER ASSETS 10,786 310 -- -- 11,096
INVESTMENT IN SUBSIDIARIES, net 114,566 -- -- (114,566) --
--------- ------- -------- --------- ---------
Total assets $ 200,804 $91,014 $ 53,069 $(114,566) $ 230,321
========= ======= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,650 $ 4,526 $ 3,767 $ -- $ 12,943
Accrued liabilities 650 6,011 1,672 -- 8,333
Current portion of long-term debt and other 1,666 -- 800 -- 2,466
--------- ------- -------- --------- ---------
Total current liabilities 6,966 10,537 6,239 -- 23,742
--------- ------- -------- --------- ---------
OTHER NON-CURRENT LIABILITIES 6,475 -- 12,741 -- 19,216
--------- ------- -------- --------- ---------
LONG-TERM DEBT AND OTHER, less current portion 152,535 -- -- -- 152,535
--------- ------- -------- --------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock -- -- -- -- --
Common stock 1 -- -- -- 1
Additional paid-in capital 29,038 66,771 32,526 (99,297) 29,038
Retained earnings 7,589 13,706 1,563 (15,269) 7,589
Treasury stock (1,800) -- -- -- (1,800)
--------- ------- -------- --------- ---------
Total stockholders' equity 34,828 80,477 34,089 (114,566) 34,828
--------- ------- -------- --------- ---------
Total liabilities and stockholders' equity $ 200,804 $91,014 $ 53,069 $(114,566) $ 230,321
========= ======= ======== ========= =========
</TABLE>
11
<PAGE> 12
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1998 (IN THOUSANDS)
(UNAUDITED)
--------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATING CONSOLIDATED
----------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 9,179 $ 7,046 $ -- $ -- $ 16,225
----------- ---------- --------- --------- ----------
Cost of sales 3,814 3,228 -- -- 7,042
----------- ---------- --------- --------- ----------
Gross profit 5,365 3,818 -- -- 9,183
Selling, general and administrative expenses 3,184 2,211 -- -- 5,395
----------- ---------- --------- --------- ----------
Income from operations 2,181 1,607 -- -- 3,788
Interest (expense) and other income, net (1,264) -- -- (1,264)
----------- ---------- --------- --------- ----------
Income before income taxes 917 1,607 -- -- 2,524
Provision for income taxes 395 690 -- -- 1,085
Income from wholly owned subsidiaries 917 -- -- (917) --
----------- ---------- --------- --------- ----------
Net income $ 1,439 $ 917 $ -- $ (917) $ 1,439
=========== ========== ========= ========= ==========
</TABLE>
12
<PAGE> 13
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1999 (IN THOUSANDS)
(UNAUDITED)
---------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATING CONSOLIDATED
------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 7,951 $15,366 $ 10,935 $ -- $34,252
------- ------- -------- ------- -------
Cost of sales 3,784 7,105 3,956 -- 14,845
------- ------- -------- ------- -------
Gross profit 4,167 8,261 6,979 -- 19,407
Selling, general and administrative expenses 2,934 3,695 6,499 -- 13,128
Centralization and reengineering 660 -- -- -- 660
------- ------- -------- ------- -------
Income from operations 573 4,566 480 -- 5,619
Interest (expense) and other income, net (3,913) 11 (26) (3,928)
------- ------- -------- ------- -------
Income before income taxes (3,340) 4,577 454 -- 1,691
Provision for income taxes (1,337) 1,831 182 -- 676
Income from wholly owned subsidiaries 2,746 -- -- (2,746) --
------- ------- -------- ------- -------
Net income $ 743 $ 2,746 $ 272 $(2,746) $ 1,015
======= ======= ======== ======= =======
</TABLE>
13
<PAGE> 14
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1998 (IN THOUSANDS)
(UNAUDITED)
--------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATING CONSOLIDATED
------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,439 $ 916 $ -- $ (916) $ 1,439
Adjustments to reconcile net income to net cash
in operating activities:
Depreciation and amortization 446 335 -- -- 781
Interest accretion on note payable -- 44 -- -- 44
Change in certain assets and liabilities
Accounts receivable (204) (1,105) -- -- (1,309)
Inventory, net 157 190 -- -- 347
Prepaids and other assets (464) 16 -- -- 448
Accounts payable and accrued liabilities (1,508) 181 -- -- (1,327)
Due to/from affiliates, net (481) (435) -- 916 --
------- ------- ------- ------- -------
Net cash provided by (used in) operating activities (615) 142 -- -- (473)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchasing of property, plant and equipment (297) (44) -- -- (341)
Change in investments, long term receivables and other (872) (14) -- -- (886)
------- ------- ------- ------- -------
Net cash provided by (used in) investing activities (1,169) (58) -- -- (1,227)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from credit facility, net of financing costs 1,940 -- -- -- 1,940
Exercise of options 50 -- -- -- 50
Repayment of notes payable and Credit Facility (825) -- -- -- (825)
------- ------- ------- ------- -------
Net cash provided by (used in) financing activities 1,165 -- -- -- 1,165
------- ------- ------- ------- -------
NET CHANGE IN CASH (619) 84 -- -- (535)
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, beginning of period $ 2,850 $ 213 $ -- $ -- $ 3,063
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period $ 2,231 $ 297 $ -- $ -- $ 2,528
======= ======= ======= ======= =======
</TABLE>
14
<PAGE> 15
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1999 (IN THOUSANDS)
(UNAUDITED)
----------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATING CONSOLIDATED
-------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 743 $ 2,746 $ 272 $(2,746) $ 1,015
Adjustments to reconcile net income to net cash
in operating activities:
Depreciation and amortization 704 741 178 -- 1,623
Change in certain assets and liabilities
Accounts receivable (1,411) (4,203) (4,378) -- (9,992)
Inventory, net (585) 1,313 1,586 -- 2,314
Prepaids and other assets (1,940) (579) 10 -- (2,509)
Accounts payable and accrued liabilities (4,087) 456 1,872 -- (1,759)
Due to/from affiliates, net (3,129) (397) 780 2,746 --
-------- ------- ------- ------- --------
Net cash provided by (used in) operating activities (9,705) 77 320 -- (9,308)
-------- ------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchasing of property, plant and equipment (998) (84) (28) -- (1,110)
Change in investments, long term receivables and other 4 (4) (54) -- (54)
-------- ------- ------- ------- --------
Net cash provided by (used in) investing activities (994) (88) (82) -- (1,164)
-------- ------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from credit facility, net of financing costs 12,000 -- -- -- 12,000
Repayment of notes payable and Credit Facility -- -- (302) -- (302)
-------- ------- ------- ------- --------
Net cash provided by (used in) financing activities 12,000 -- (302) -- 11,698
-------- ------- ------- ------- --------
NET CHANGE IN CASH 1,301 (11) (64) -- 1,226
-------- ------- ------- ------- --------
CASH AND CASH EQUIVALENTS, beginning of period $ 2,603 $ 607 $ 813 $ -- 4,023
-------- ------- ------- ------- --------
CASH AND CASH EQUIVALENTS, end of period $ 3,904 $ 596 $ 749 $ -- 5,249
======== ======= ======= ======= ========
</TABLE>
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
Styling Technology Corporation (the Company) is a leading developer, producer,
and marketer of a wide array of professional salon products, addressing all
salon product categories, including hair care, nail care, and skin and body care
products, as well as salon appliances and sundries. Through strategic
acquisitions, the Company has acquired well-recognized brand names, a strong
distribution network, established marketing and salon industry education
programs, and significant production and sourcing capabilities.
The Company believes it is the only company that develops, produces, and markets
products in each category of the professional salon products industry and that
its ability to offer customers a "one-stop shop" for brand-name professional
salon products creates a competitive advantage. The Company currently sells more
than 550 products under 17 principal brand names, including ABBA Pure and
Natural Hair Care(R) products, Body Drench(R) skin and body care products, Clean
+ Easy(R) hair removal products, European Touch II(R) pedicure spa equipment,
Framesi(R) hair care products, Gena(R) nail and pedicure products, Kizmit(TM)
acrylic nail enhancements, Revivanail(R) nail treatments, and Roffler(R) hair
care products. In the United States, the Company markets its product lines
through professional salon industry distribution channels to more than 2,300
customers, consisting primarily of salon product and tanning supply distributors
(that resell to beauty and tanning salons), beauty supply outlets, and salon
chains. The Company also markets its products directly to more than 3,000 spas,
resorts, and health and country clubs through its in-house sales force.
Internationally, the Company sells its products primarily through international
salon product distributors.
Except for the historical information contained herein, the discussion in this
Quarterly Report contains or may contain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed herein, as well as
those factors discussed under "Special Considerations" contained in Item 1 of
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998. Historical results are not necessarily indicative of operating results for
any future period.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999
The Company earned net income of $1.0 million, or $0.24 per diluted share, after
centralization and reengineering costs of $660,000, for the three months ended
March 31, 1999 as compared to net income of $1.4 million, or $0.34 per diluted
share, for the corresponding period during 1998.
Net Sales
Net sales amounted to $34.3 million for the three months ended March 31, 1999,
up 111% from net sales of $16.2 million for the three months ended March 31,
1998. The $18.0 million increase in sales for the quarter ended March 31, 1999
compared to the quarter ended March 31, 1998 was due primarily to the
contributions of brands acquired subsequent to March 31, 1998 in addition to
strong performance in the
16
<PAGE> 17
Company's exclusive hair care lines, ABBA and Framesi, and in the appliances and
sundries category. On a pro forma basis, assuming the 1998 acquisitions had
taken place on January 1, 1998, net sales increased by $5.8 million, or 20.3%,
to $34.3 million in the first quarter of 1999 from $28.5 million during the
first quarter of 1998.
Cost of Sales
Cost of sales amounted to $14.8 million, or 43% as a percentage of net sales,
for the three months ended March 31, 1999, compared to $7.0 million, or 43% as a
percentage of net sales, for the three months ended March 31, 1998. As a result
of the foregoing, the Company realized gross profit for the three months ended
March 31, 1999 of $19.4 million, or 57% as a percentage of net sales, compared
to $9.2 million, or 57% as a percentage of net sales, during the corresponding
period in 1998. The Company's ability to sustain this favorable gross margin
percentage is attributable primarily to the acquisition of businesses that carry
similarly favorable gross margins and continued efforts by the Company to
leverage its substantial purchasing power with third party suppliers to obtain
optimum pricing.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $13.1 million, or 38% of net
sales, for the three months ended March 31, 1999, before recording
centralization and reengineering costs of approximately $660,000. Selling,
general, and administrative expenses including the centralization and
reengineering costs amounted to $13.8 million, or 40% of net sales, for the
three months ended March 31, 1999 compared with $5.4 million, or 33% of net
sales, for the three months ended March 31, 1998. Selling, general, and
administrative expenses increased on an absolute as well as a percentage basis
due primarily to acquisitions completed subsequent to March 31, 1998 and the
operating characteristics of those businesses acquired. Furthermore, additional
selling, marketing, and education costs were incurred to support the Company's
internal growth strategy.
Provision for Income Taxes
The provision for income taxes for the three months ended March 31, 1999
amounted to $0.7 million, which represents an effective tax rate of
approximately 40%, compared with a provision of $1.1 million, which represents
an effective tax rate of approximately 43% for the three months ended March 31,
1998. Permanent differences between book and tax amounts decreased over the
twelve month period, resulting in the lower effective tax rate for the quarter
ended March 31, 1999.
Income from Operations and Earnings Before Interest, Taxes, Depreciation &
Amortization (EBITDA)
Income from operations was $5.6 million for the three months ended March 31,
1999, compared to $3.8 million for the three months ended March 31, 1998.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) was
$7.2 million for the three months ended March 31, 1999, an increase of $2.7
million, or 58.5%, over EBITDA of $4.6 million for the three months ended March
31, 1998. EBITDA is not intended to represent net cash provided by operating
activities as defined by generally accepted accounting principles and should not
be considered as an alternative to net income as an indicator of operating
performance or to net cash provided by operating activities as a measure of
liquidity. The Company believes EBITDA is a measure commonly reported and widely
used by analysts, investors, and other interested parties who monitor business
performance. Accordingly,
17
<PAGE> 18
the Company has disclosed this information to permit a more complete comparative
analysis of its operating performance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position increased to $50.7 million at March 31,
1999 from $37.7 million at December 31, 1998. The increase of $13.0 million is
primarily due to an increased investment in accounts receivable and other
current assets as well as the Company's results of operations for the quarter
ended March 31, 1999.
During the three months ended March 31, 1999, the Company used $9.3 million of
cash in operating activities, which was primarily the result of increased
investment in accounts receivable of $10.0 million and offset by a decrease in
inventories of $2.3 million.
Capital expenditures for the period March 31, 1999 totaled approximately $1.1
million, primarily related to computer hardware and software costs in connection
with the Company's new centralized management and information systems.
As of March 31, 1999, the Company had borrowed approximately $24.0 million on
its revolving line of credit for working capital purposes including financing
the working capital requirements of its internal growth. In addition, the
borrowing was used to fund capital expenditures associated with the Company's
centralization and reengineering project, to repay debt created in conjunction
with the acquisition of Gena Laboratories, Inc. in November 1996, and to repay
debt assumed in the acquisition of Framesi USA. On March 30, 1999, the Company
added a $5.0 million overline facility maturing June 30, 1999 to its revolving
line of credit. As of March 31, 1999, there were no amounts outstanding on the
overline.
In May 1999, the Company received a commitment for a $90 million Senior Secured
Revolving Credit Facility from GE Capital Corporation. The new facility will be
used to repay amounts outstanding under the Company's current credit facility,
for future acquisitions, and for working capital purposes. The Company intends
to take an extraordinary, non-cash charge during the second quarter of
approximately $400,000 net of tax, or approximately $0.10 per diluted share,
related to the write-off of unamortized financing costs associated with the
current facility. The Company expects the new facility to close in June. The
closing of the new credit facility is subject to the execution of definitive
loan documents.
The Company intends to raise additional capital through debt and equity
financings to fund its continued growth. At this time, it is not possible to
assess the type of financings the Company will pursue or the terms or
availability of such financings. The inability to secure such financing on
acceptable terms could have an adverse effect on the Company's business,
strategy, operations, and financial position. In addition, it is possible that
such financing will further increase the Company's leverage.
The Company plans to drive internal growth through the expansion of
distribution, new products, product line extensions, and brand introductions.
The Company also plans to pursue strategic
18
<PAGE> 19
acquisitions to capitalize on the substantial fragmentation and growth potential
existing in the professional salon and personal care products industry. The
Company intends to fund its future capital needs through a combination of
current cash resources, expected cash flows from operations, bank financing,
seller notes payable, issuance of its Common Stock, and additional public or
private debt or equity financing. These capital resources may not be available,
and the availability of such capital will depend upon prevailing market
conditions, interest rates, and the financial condition of the Company.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, within the
next year, computer systems and software used by many companies may need to be
upgraded to comply with such "Year 2000" requirements. Significant uncertainty
exists concerning the potential effects associated with such compliance.
Company's State of Readiness
The Company has completed an assessment of its internal systems and processes
with respect to the "Year 2000" issue. The Company's sales, accounts receivable,
inventory management, accounts payable, general ledger and payroll systems
comprise its critical information technology ("IT") systems. The Company has
assessed its "Year 2000" readiness with regard to these critical IT systems.
Based on internal assessments and upon vendor representations, the Company
believes that its critical IT systems currently in place or being implemented as
part of the centralization and reengineering plan are or will be "Year 2000"
compliant. The Company believes that it will complete the implementation of its
new processes and systems associated with the critical IT systems by September
30, 1999. The Company intends to assess the potential impact of "Year 2000"
failures from vendors, customers, and outside parties upon its business and is
currently taking steps to assess and minimize the risk of such "Year 2000"
failures. Based upon the Company's current state of readiness and the steps
currently being taken, the Company does not believe that the "Year 2000" problem
will have a material adverse effect on the Company's business, financial
condition, or results of operations.
Software and hardware, such as security and telephone systems, that facilitate
the operations of its warehouses and operating locations that are not affected
by the centralization and reengineering plan comprise the Company's primary
non-IT systems. The Company is in the process of assessing the "Year 2000"
compliance of these non-IT systems and expects to conclude this assessment by
June 30, 1999. The Company has not incurred, nor does it expect to incur,
material costs in readying its non-IT systems for the Year 2000.
Company's Risks of "Year 2000" Issues
The Company procures a significant amount of raw materials and components from
external suppliers and relies upon third party contract manufacturers to
manufacture most of its products. As a result, the Company may be at risk from
suppliers and manufacturers, foreign and domestic, that are not taking adequate
measures to ensure "Year 2000" compliance. The failure of such suppliers and
manufacturers to be "Year 2000" compliant may cause raw material and product
shortages that would adversely impact the Company's operations. As a result, the
Company may be at risk with respect to suppliers and
19
<PAGE> 20
manufacturers that may not be "Year 2000" compliant. The Company believes that
the most likely negative effects, if any, could include disruptions in both
shipments and receipts of raw materials, components, and products by the Company
and its customers. In addition, the Company's customers may experience "Year
2000" failures, which could result in delays in the Company's receipt of
payments from customers.
Contingency Plans
The Company is developing contingency plans with respect to significant "Year
2000" issues. For example, the Company is in the process of assessing and
verifying the "Year 2000" compliance of its international and domestic suppliers
and contract manufacturers. Verification will be accomplished through the use of
"Year 2000" readiness inquiries sent to key suppliers and manufacturers. The
Company is investigating transferring supplier and manufacturing relationships
to alternate providers if current suppliers and manufacturers are not "Year
2000" compliant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Financial Instruments
At March 31, 1999, the Company did not participate in any derivative financial
instruments, or other financial and commodity instruments for which fair value
disclosure would be required under Statement of Financial Accounting Standards
No. 107. The Company holds no investment securities that would require
disclosure of market risk.
Primary Market Risk Exposures
The Company's primary market risk exposures are in the areas of interest rate
risk and foreign currency exchange rate risk. The Company incurs interest
expense on loans made under the Notes at an interest rate, which is fixed, for a
maximum of ten years. At March 31, 1999, the Company's outstanding borrowings on
the Notes were $100 million, at an interest rate of 10.875%. The Company also
incurs interest on loans made under a revolving line of credit and other debt
instruments at variable interest rates ranging from 6.0% to 8.5%. At March 31,
1999, the Company's total outstanding borrowings on the instruments were
approximately $55.0 million, including approximately $49.0 million outstanding
under the current credit facility and approximately $6.0 million of other debt
instruments. The Company has entered into an interest rate swap agreement and an
interest rate cap agreement to limit the effect of increases in the interest
rates on floating rate debt. The notional amounts of interest rate agreements
are used to measure interest to be paid or received and do not represent the
amount of exposure to credit loss. The net cash amounts paid or received on the
agreements are accrued and recognized as an adjustment to interest expense.
The interest rate swap agreement is a contract to exchange floating rate for
fixed payments periodically over the life of the agreement. During March 1998,
the Company entered into an interest rate swap agreement, which effectively
fixed the interest rate on a $12.5 million notional principal amount under its
current credit facility at 5.75% plus a credit margin ranging from 150 to 250
basis points, for a period ending March 2000. During April 1998, the Company
entered into an interest rate cap agreement, which effectively limits the
Company's interest rate exposure on a $12.5 million notional principal amount
20
<PAGE> 21
under its current credit facility at 7.50% plus a credit margin ranging from 250
to 300 basis points, for a period ending April 2000. The borrowings under the
current credit facility not subject to interest rate swap or interest rate cap
agreements at March 31, 1999 totaled $24.0 million.
Substantially all of the Company's business outside the United States is
conducted in U.S. dollar denominated transactions. The Company has a sales
division located in the United Kingdom. Some of the expenses of this foreign
subsidiary are denominated in the British pound sterling. These expenses include
local salaries and wages, utilities, and some operating supplies. However, the
Company believes that the operating expenses currently incurred in foreign
currency are immaterial, and therefore any associated market risk is unlikely to
have a material adverse effect on the Company's business, results of operations,
or financial condition.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
10.27 First Amendment to Credit Agreement dated as of March 30, 1999
by and among Styling Technology Corporation, NationsBank,
N.A., and BankBoston, N.A., as lenders, and NationsBank, N.A.
as administrative agent.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
On February 26, 1999, the Registrant filed a report on Form 8-K
regarding the adoption of a shareholder rights plan.
21
<PAGE> 22
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.
STYLING TECHNOLOGY CORPORATION
Dated: May 14, 1999 By: /s/ Richard R. Ross
-------------------------------------------------
Richard R. Ross
Executive Vice President and Chief Financial Officer
(Duly authorized officer of the Registrant, principal
financial and accounting officer)
22
<PAGE> 23
Exhibit Index
10.27 First Amendment to Credit Agreement dated as of March 30, 1999
by and among Styling Technology Corporation, NationsBank,
N.A., and BankBoston, N.A., as lenders, and NationsBank, N.A.
as administrative agent.
27 Financial Data Schedule
<PAGE> 1
Exhibit 10.27
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment"),
dated as of March 30, 1999, is entered into among STYLING TECHNOLOGY
CORPORATION, a Delaware corporation (the "Borrower"), the banks listed on the
signature pages hereof (the "Lenders"), BANKBOSTON, N.A., in its capacity as
documentation agent (in said capacity, the "Documentation Agent"), and
NATIONSBANK, N.A., in its capacity as administrative agent (in said capacity,
the "Administrative Agent").
BACKGROUND
A. The Borrower, the Lenders, the Documentation Agent and the Administrative
Agent are parties to that certain Credit Agreement, dated as of June 30, 1998
(as previously modified, supplemented or amended, the "Credit Agreement"; the
terms defined in the Credit Agreement and not otherwise defined herein shall be
used herein as defined in the Credit Agreement).
B. The Borrower, the Lenders, the Documentation Agent and the Administrative
Agent desire to amend the Credit Agreement to add a $5,000,000 overline facility
thereto.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders, the Documentation Agent and the Administrative Agent covenant and agree
as follows:
1. AMENDMENTS.
(a) The definition of "Applicable Base Rate Margin" set forth in Section 1.1 of
the Credit Agreement is hereby amended to read as follows:
"Applicable Base Rate Margin" means the following per
annum percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Revolving Credit
Advances and Term Overline
Applicability Loan Advances Advances
------------- ----------------- --------
<S> <C> <C>
(a) Initial Pricing Period 0.750% 1.250%
(b) Subsequent Pricing Period
(1) The Leverage Ratio is greater than 1.000% 1.250%
or equal to 4.50 to 1
(2) The Leverage Ratio is less than 0.750% 1.250%
4.50 to 1 but greater than or equal
to 4.00 to 1
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
(3) The Leverage Ratio is greater than 0.500% 1.250%
4.00 to 1 but greater than or equal
to 3.50 to 1
(4) The Leverage Ratio is less than 0.250% 1.250%
3.50 to 1 but greater than or equal
to 3.00 to 1
(5) The Leverage Ratio is less than 0.000% 1.250%
3.00 to 1
</TABLE>
During the Subsequent Pricing Period, the Applicable Base Rate Margin payable by
the Borrower on the Base Rate Advances outstanding hereunder shall be subject to
reduction or increase, as applicable and as set forth in the table above, on a
quarterly basis according to the performance of the Borrower as tested by using
the Leverage Ratio calculated as of the end of each fiscal quarter; provided,
that each adjustment in the Applicable Base Rate Margin shall be effective on
the date which is two Business Days following the date of receipt of the
financial statements required to be delivered pursuant to Section 6.1 or 6.2
hereof, as applicable, and the related Compliance Certificate. If such financial
statements and Compliance Certificate are not received by the Administrative
Agent by the date required, the Applicable Base Rate Margin shall be determined
as if the Leverage Ratio is greater than or equal to 4.50 to 1 until such time
as such financial statements and Compliance Certificate are received.
(b) The definition of "Applicable LIBOR Rate Margin" set forth in
Section 1.1 of the Credit Agreement is hereby amended to read as follows:
"Applicable LIBOR Rate Margin" means the following per annum
percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Revolving Credit
Advances and Term Overline
Applicability Loan Advances Advances
------------- ----------------- --------
<S> <C> <C>
(a) Initial Pricing Period 2.250% 3.000%
(b) Subsequent Pricing Period
(1) The Leverage Ratio is greater than 2.500% 3.000%
or equal to 4.50 to 1
(2) The Leverage Ratio is less than 2.250% 3.000%
4.50 to 1 but greater than or equal
to 4.00 to 1
(3) The Leverage Ratio is greater than 2.000% 3.000%
4.00 to 1 but greater than or equal
to 3.50 to 1
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C>
(4) The Leverage Ratio is less than 1.750% 3.000%
3.50 to 1 but greater than or equal
to 3.00 to 1
(5) The Leverage Ratio is less than 1.500% 3.000%
3.00 to 1
</TABLE>
During the Subsequent Pricing Period, the Applicable LIBOR Rate Margin payable
by the Borrower on the LIBOR Advances outstanding hereunder shall be subject to
reduction or increase, as applicable and as set forth in the table above, on a
quarterly basis according to the performance of the Borrower as tested by using
the Leverage Ratio calculated as of the end of each fiscal quarter; provided,
that each adjustment in the Applicable LIBOR Rate Margin shall be effective on
the date which is two Business Days following the date of receipt of the
financial statements required to be delivered pursuant to Section 6.1 or 6.2
hereof, as applicable, and the related Compliance Certificate. If such financial
statements and Compliance Certificate are not received by the Administrative
Agent by the date required, the Applicable LIBOR Rate Margin shall be determined
as if the Leverage Ratio is greater than or equal to 4.50 to 1 until such time
as such financial statements and Compliance Certificate are received.
(c) The definition of "Applicable Specified Percentage" set forth in
Section 1.1 of the Credit Agreement is hereby amended to read as follows:
"Applicable Specified Percentage" means the Revolving Credit
Specified Percentage, the Term Loan Specified Percentage, the Overline
Specified Percentage or the Total Specified Percentage, as applicable
in the context used.
(d) The definition of "Commitments" set forth in Section 1.1 of the
Credit Agreement is hereby amended to read as follows:
"Commitments" means, collectively, the Revolving Credit
Commitment, the Overline Commitment and the Term Loan Commitment, as
reduced from time to time in the case of the Revolving Credit
Commitment and the Overline Commitment pursuant to Section 2.6 hereof.
(e) The definition of "Determining Lenders" set forth in Section 1.1 of
the Credit Agreement is hereby amended to read as follows:
"Determining Lenders" means (a) on any date of determination on
which there are only two Lenders, each of the Lenders, and (b) on any
date of determination on which there are more than two Lenders, any
combination of Lenders whose Total Specified Percentages aggregate more
than 50%; provided, however, in the event that there are more than two
Lenders and all of the Commitments have been terminated, "Determining
Lenders" means, on the date of determination, any combination of
Lenders having more than 50% of the Advances then outstanding.
3
<PAGE> 4
(f) The definition of "Notes" set forth in Section 1.1 of the Credit
Agreement is hereby amended to read as follows:
"Notes" means, collectively, the Revolving Credit Notes, the Term
Loan Notes and the Overline Notes.
(g) Section 1.1 of the Credit Agreement is hereby amended by adding the
following defined terms thereto in proper alphabetical order:
"Overline Advance" means an Advance made pursuant to Section 2.1(d)
hereof.
"Overline Commitment" means $5,000,000, as reduced pursuant to
Section 2.6 hereof.
"Overline Commitment Fee" has the meaning specified in Section
2.4(c) hereof.
"Overline Commitment Maturity Date" means the earliest of (i) June
30, 1999, (ii) the date of an offering of Capital Stock of the Borrower
after March 31, 1999 or (iii) the date of termination in whole of the
Overline Commitment pursuant to Section 2.6 or 8.2 hereof.
"Overline Notes" means the promissory notes of the Borrower
evidencing Overline Advances hereunder, substantially in the form of
Exhibit L hereto, together with any extension, renewal, or amendment
thereof, or substitution therefor.
"Overline Specified Percentage" means, as to any Lender, the
percentage obtained by dividing such Lender's portion of the Overline
Commitment (or the Overline Advances owing to such Lender after the
Overline Commitment has terminated) by the Overline Commitment (or to
the aggregate principal amount of Overline Advances after the Overline
Commitment has terminated), which percentage for each Lender shall be
set forth on Section 1.1(b) hereto.
(h) The definition of "Total Specified Percentage" set forth in Section
1.1 of the Credit Agreement is hereby amended to read as follows:
"Total Specified Percentage" means, as to any Lender, the
percentage obtained by dividing the sum of such Lender's portion of the
Revolving Credit Commitment, the Term Loan Commitment and the Overline
Commitment (or Revolving Credit Advances, Term Loan Advances and
Overline Advances owing to such Lender after the Revolving Credit
Commitment, the Term Loan Commitment and the Overline Commitment have
been terminated) by the sum of the Revolving Credit Commitment, the
Term Loan Commitment and the Overline Commitment (or to the sum of the
aggregate principal amount of the Revolving Credit Advances, the Term
Loan Advances and the Overline Advances if the Revolving Credit
Commitment, the Term Loan Commitment and the Overline Commitment have
been terminated).
4
<PAGE> 5
(i) Section 2.1 of the Credit Agreement is hereby amended by adding a
subsection (d) thereto to read as follows:
(d) Overline Advances. Each Lender severally agrees, upon the terms
and conditions of this Agreement, to make Overline Advances to the
Borrower from time to time up to but not including the Overline
Commitment Maturity Date in an aggregate not to exceed its Overline
Specified Percentage of the Overline Commitment, for the purposes set
forth in Section 5.8(a) hereof. Subject to Section 2.9 hereof and the
immediately following sentence, Overline Advances may be repaid and
then reborrowed. Notwithstanding any provision of this Agreement or any
other Loan Document to the contrary, in no event shall (a) the
aggregate principal amount of all Overline Advances exceed the Overline
Commitment, (b) the sum of the principal amount of all outstanding (i)
Revolving Credit Advances, (ii) Reimbursement Obligations and (iii)
Overline Advances exceed the lesser of (i) the Revolving Credit
Commitment plus the Overline Commitment and (ii) the Borrowing Base,
(c) any Overline Advances be made unless the Unused Portion is zero, or
(d) any Revolving Credit Advance be repaid at any time that any
Overline Advance is outstanding (other than in respect of payments
pursuant to Sections 2.10(d) and 2.12 hereof and any proceeds of
Collateral, where payments are shared as provided therein and in the
Collateral Documents).
(j) Section 2.2(e) of the Credit Agreement is hereby amended by adding
the following sentence thereto at the end thereof.
All Overline Advances shall be made by each Lender in accordance
with its Overline Specified Percentage.
(k) Section 2.3(c) of the Credit Agreement is hereby amended by
adding", the Overline Commitment Maturity Date" to the seventh line thereof
immediately following "Revolving Credit Commitment Maturity Date".
(l) Section 2.4 of the Credit Agreement is hereby amended by adding a
subsection (c) thereto to read as follows:
(c) Overline Commitment Fee. Subject to Section 11.9 hereof, the
Borrower agrees to pay to the Administrative Agent, for the account of
the Lenders according to their Overline Specified Percentages, a
commitment fee of 0.50% per annum on the daily average unused portion
of the Overline Commitment during the period commencing on April 5,
1999 and ending on the Overline Commitment Maturity Date. Such fee
shall be (i) payable in arrears on each Quarterly Date and on the
Overline Commitment Maturity Date, (ii) fully earned when due and,
subject to Section 11.9 hereof, nonrefundable when paid and (iii)
subject to Section 11.9 hereof, computed on the basis of a 360-day year
for the actual number of days elapsed.
5
<PAGE> 6
(m) Section 2.5(b) of the Credit Agreement is hereby amended to read as
follows:
(b) Mandatory Prepayment. On or before the date of any reduction of
(a) the Revolving Credit Commitment and provided the Overline
Commitment has been terminated, the Borrower shall prepay applicable
outstanding Revolving Credit Advances in an amount necessary to reduce
the sum of outstanding Revolving Credit Advances and Reimbursement
Obligations to an amount less than or equal to the lesser of (i) the
Revolving Credit Commitment as so reduced and (ii) the Borrowing Base
and (b) the Overline Commitment, the Borrower shall prepay applicable
outstanding Overline Advances in an amount necessary to reduce the sum
of outstanding Overline Advances to an amount less than or equal to the
Overline Commitment as so reduced. To the extent required by the
immediately preceding sentence, the Borrower shall first prepay all
Base Rate Advances and shall thereafter prepay LIBOR Advances. To the
extent that any prepayment requires that a LIBOR Advance be repaid on a
date other than the last day of its Interest Period, the Borrower shall
reimburse each Lender in accordance with Section 2.9 hereof; provided,
however, the Lenders acknowledge and agree that no other penalties or
premiums shall be paid in connection with such prepayment. To the
extent that at any time the aggregate principal amount of Revolving
Credit Advances, Reimbursement Obligations and Overline Advances
outstanding hereunder exceed the lesser of (i) the Revolving Credit
Commitment and the Overline Commitment and (ii) the Borrowing Base, the
Borrower shall immediately repay Overline Advances first and then
Revolving Credit Advances in an amount equal to such excess.
(n) Section 2.6 of the Credit Agreement is hereby amended to read as
follows:
Section 2.6 Reduction of Revolving Credit Commitment and Overline
Commitment.
(a) Voluntary Reduction. Provided that the Overline Commitment has
been terminated, the Borrower shall have the right, upon not less than
5 Business Days' notice by an Authorized Signatory to the
Administrative Agent (if telephonic, to be confirmed by telex or in
writing on or before the date of reduction or termination), which shall
promptly notify the Lenders, to terminate or reduce the Revolving
Credit Commitment. Each partial termination shall be in an aggregate
amount which is at least $1,000,000 and which is an integral multiple
thereof, and no voluntary reduction in the Revolving Credit Commitment
shall cause any LIBOR Advance to be repaid prior to the last day of its
Interest Period unless the Borrower shall reimburse each Lender in
accordance with Section 2.9 hereof. The Borrower shall have the right,
upon not less than 5 Business Days' notice by an Authorized Signatory
to the Administrative Agent (if telephonic, to be confirmed by telex or
in writing on or before the date of reduction or termination), which
shall promptly notify the Lenders, to terminate or reduce the Overline
Commitment. Each partial termination shall be in an aggregate amount
which is at least $1,000,000 and which is an integral multiple
6
<PAGE> 7
thereof, and no voluntary reduction in the Overline Commitment shall
cause any LIBOR Advance to be repaid prior to the last day of its
Interest Period unless the Borrower shall reimburse each Lender in
accordance with Section 2.9 hereof.
(b) Mandatory Reduction. On the Revolving Commitment Maturity Date,
the Revolving Credit Commitment shall be automatically reduced to zero.
On the Term Loan Commitment Termination Date, the Term Loan Commitment
shall be automatically reduced to zero. On the Overline Commitment
Maturity Date, the Overline Commitment shall be automatically reduced
to zero.
(c) General Requirements. Upon any reduction of the Revolving
Credit Commitment or the Overline Commitment pursuant to this Section,
the Borrower shall immediately make a repayment of Revolving Credit
Advances or Overline Advances, as appropriate, in accordance with
Section 2.5(b) hereof. The Borrower shall reimburse each Lender in
connection with any such payment in accordance with Section 2.9 hereof
to the extent applicable. The Borrower shall not have any right to
rescind any termination or reduction. Once reduced, the Revolving
Credit Commitment or the Overline Commitment may not be increased or
reinstated.
(o) Section 2.8 of the Credit Agreement is hereby amended by adding a
subsection (c) thereto to read as follows:
(c) Overline Advances. To the extent not otherwise required to be
paid earlier as provided herein, the principal amount of the Overline
Advances shall be due and payable on the Overline Commitment Maturity
Date.
(p) Section 5.8 of the Credit Agreement is hereby amended to read as
follows:
Section 5.8 Use of Proceeds. The proceeds (a) of the Revolving
Credit Advances shall be used by the Borrower to finance the ongoing
working capital and general corporate requirements of the Borrower and
its Subsidiaries, including Acquisitions permitted hereunder, (b) the
Overline Advances shall be used by the Borrower to finance the ongoing
working capital and general corporate requirements of the Borrower and
its Subsidiaries, excluding, however, Acquisitions permitted hereunder,
and (c) of the Term Loan Advances shall be used by the Borrower to
finance Acquisitions permitted hereunder.
(q) Section 7.11 of the Credit Agreement is hereby amended to read as
follows:
Section 7.11 Maximum Leverage Ratio. At the end of each fiscal
quarter occurring below or at the end of each fiscal quarter occurring
during the periods indicated below, the Borrower shall not permit the
Leverage Ratio to be greater than the ratio set forth below opposite
such fiscal quarter or opposite the period in which such fiscal quarter
occurs:
<TABLE>
Period of Fiscal Quarter Ratio
------------------------ -----
<S> <C>
</TABLE>
7
<PAGE> 8
<TABLE>
<S> <C>
From and including the Agreement Date to and including December 31, 1998 4.75 to 1
Fiscal quarter ending March 31, 1999 4.85 to 1
Fiscal quarter ending June 30, 1999 4.75 to 1
From and including July 1, 1999 to but not including December 31, 1999 4.25 to 1
From and including December 31, 1999 to but not including June 30, 2000 3.75 to 1
From and including June 30, 2000 to but not including December 31, 2000 3.25 to 1
From and including December 31, 2000 and thereafter 3.00 to 1
</TABLE>
(r) Section 11.6 of the Credit Agreement is hereby amended by amending
subsection (f) thereof by revising the last sentence thereof to read as follows:
Such new Notes shall be in an aggregate principal amount of such
surrendered Notes, shall be dated the effective date of such Assignment
Agreement and shall otherwise be in substantially the form of Exhibit A
and/or B and/or L hereto, as applicable.
(s) Section 11.11 of the Credit Agreement is hereby amended by amending
subclause (a)(vii) thereof to read as follows:
(vii) amend the definition of "Determining Lenders", "Total Specified
Percentage", "Revolving Credit Specified Percentage", "Term Loan
Specified Percentage", or "Overline Specified Percentage",
(t) Schedule 1.1(b) of the Credit Agreement is hereby amended to be in
the form of Schedule 1.1(b) to this First Amendment.
(u) Exhibit E to the Credit Agreement is hereby amended to be in the
form of Exhibit E to this First Amendment.
(v) Exhibit F to the Credit Agreement is hereby amended to be in the
form of Exhibit F to this First Amendment.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendment contemplated by the
foregoing Section 1:
8
<PAGE> 9
(a) the representations and warranties contained in the Credit
Agreement are true and correct on and as of the date hereof as made on and as of
such date;
(b) no event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) the Borrower has full corporate power and authority to execute and
deliver this First Amendment, the $2,500,000 Overline Note payable to the order
of NationsBank, N.A. and the $2,500,000 Overline Note payable to the order of
BankBoston, N.A. (collectively, the "Overline Notes"), and this First Amendment,
the Overline Notes and the Credit Agreement, as amended hereby, constitute the
legal, valid and binding obligations of the Borrower, enforceable in accordance
with their respective terms, except as enforceability may be limited by Debtor
Relief Laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as rights
to indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this First
Amendment, the Overline Notes or the Credit Agreement, as amended hereby, nor
the consummation of any transactions contemplated herein or therein, will
conflict with any Law to which the Borrower or any Subsidiary is subject, or any
indenture, agreement or other instrument to which the Borrower or any Subsidiary
or any of their respective property is subject, except for matters which could
not reasonably be expected to have a Material Adverse Effect; and
(e) no authorization, approval, consent, or other action by, notice to,
or filing with, any governmental authority or other Person (other than the Board
of Directors of the Borrower) is required for the execution, delivery or
performance by the Borrower of this First Amendment or the Overline Notes, or
the acknowledgment of this First Amendment by each Guarantor.
Notwithstanding the foregoing, Lenders acknowledge that Ft. Pitt
Acquisition, Inc., a Pennsylvania corporation, Ft. Pitt-Framesi, Inc., a
Pennsylvania corporation, Styling Technology Nail Corporation, an Arizona
corporation, and Styl Institute, Inc., an Arizona corporation, may not have been
timely added as guarantors of the obligations of the Borrower under the Credit
Agreement, but that such actions have occurred on or prior to the date of this
Amendment.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
as of March 30, 1999, subject to the following:
(a) the Administrative Agent shall have received counterparts of this
First Amendment executed by the Lenders;
(b) the Administrative Agent shall have received counterparts of this
First Amendment executed by the Borrower and acknowledged by each Guarantor;
(c) the representations and warranties set forth in Section 2 of this
First Amendment shall be true and correct;
(d) no Default or Event of Default shall have occurred and be
continuing;
9
<PAGE> 10
(e) NationsBank, N.A. shall have received its Overline Note, duly
executed by the Borrower;
(f) BankBoston, N.A. shall have received its Overline Note, duly
executed by the Borrower;
(g) the Administrative Agent shall have received (i) a certified copy
of a resolution of the Borrower of Directors of the Borrower authorizing the
execution, delivery and performance of this First Amendment and the Overline
Notes and (ii) an opinion of counsel to Borrower with respect to the matters
relating to the Borrower covered in Sections 2(c), (d) and (e) of this First
Amendment, in form and substance satisfactory to the Administrative Agent;
(h) NationsBank, N.A. and BankBoston, N.A. shall have received a fee
for its agreement to extend the Overline Commitment in an amount agreed upon by
the Borrower, NationsBank, N.A. and BankBoston, N.A.; and
(i) the Administrative Agent shall have received payment of outstanding
legal fees owed to its counsel.
4. GUARANTOR ACKNOWLEDGMENT. By signing below, each Guarantor (a)
acknowledges consents and agrees to the execution, delivery and performance by
the Borrower of this First Amendment, (b) acknowledges and agrees that its
obligations in respect of its Subsidiary Guaranty (i) are not released,
diminished, waived, modified, impaired or affected in any manner by this First
Amendment or any of the provisions contemplated herein and (ii) include the
Overline Advances, (c) ratifies and confirms its obligations under its
Subsidiary Guaranty, and (d) acknowledges and agrees that it has no claims or
offsets against, or defenses or counterclaims to, its Subsidiary Guaranty.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this First Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", or words of like import
shall mean and be a reference to the Credit Agreement, as affected and amended
hereby.
(b) The Credit Agreement, as amended by the amendment referred to
above, shall remain in full force and effect and is hereby ratified and
confirmed.
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Administrative Agent in connection with the
preparation, reproduction, execution and delivery of this First Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Agent with respect thereto and with respect to advising the Administrative Agent
as to its rights and responsibilities under the Credit Agreement, as hereby
amended).
7. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts,
10
<PAGE> 11
each of which when so executed and delivered shall be deemed to be an original
and all of which when taken together shall constitute but one and the same
instrument.
8. GOVERNING LAW; BINDING EFFECT. This First Amendment shall be
governed by and construed in accordance with the laws of the State of Texas
(without regard to the principles of conflicts of laws) and the United States of
America, and shall be binding upon the Borrower, the Administrative Agent and
each Lender and their respective successors and assigns.
9. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.
- --------------------------------------------------------------------------------
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- --------------------------------------------------------------------------------
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as the date first above written.
STYLING TECHNOLOGY CORPORATION
By: /S/ Richard R. Ross
------------------------
Name: Richard R. Ross
Title: Vice President
12
<PAGE> 13
NATIONSBANK, N.A., as Administrative Agent,
a Lender and Issuing Bank
By: /S/ Natalie E. Herbert
-----------------------------
Name: Natalie E. Herbert
Title: Vice President
13
<PAGE> 14
BANKBOSTON, N.A., as Documentation Agent
and as a Lender
By: /s/ C.B. Moore
____________________________________________________
Name: C.B. Moore
__________________________________________________
Title: Vice President
_________________________________________________
14
<PAGE> 15
ACKNOWLEDGED AND AGREED:
GENA LABORATORIES, INC., a
Texas corporation
By: /s/ Michael L. Kaplan
_____________________________________
Name: Michael L. Kaplan
___________________________________
Title: Vice President
__________________________________
J.D.S. MANUFACTURING CO., INC.,
a California corporation
By: /s/ Michael L. Kaplan
_____________________________________
Name: Michael L. Kaplan
___________________________________
Title: Vice President
__________________________________
U.K. ABBA PRODUCTS, INC., a
California corporation
By: /s/ Michael L. Kaplan
_____________________________________
Name: Michael L. Kaplan
___________________________________
Title: Vice President
__________________________________
EUROPEAN TOUCH CO., INCORPORATED,
a Wisconsin corporation
By: /s/ Michael L. Kaplan
_____________________________________
Name: Michael L. Kaplan
___________________________________
Title: Vice President
__________________________________
EUROPEAN TOUCH, LTD II, a Wisconsin
corporation
By: /s/ Michael L. Kaplan
_____________________________________
Name: Michael L. Kaplan
___________________________________
Title: Vice President
__________________________________
BEAUTY PRODUCTS, INC., a Wisconsin
corporation
By: /s/ Michael L. Kaplan
_____________________________________
Name: Michael L. Kaplan
___________________________________
Title: Vice President
__________________________________
15
<PAGE> 16
COSMETICS INTERNATIONAL, INC.,
a Wisconsin corporation
By: /s/ Michael L. Kaplan
------------------------------
Name: Michael L. Kaplan
Title: Vice President
STYLING TECHNOLOGY NAIL CORPORATION,
an Arizona corporation
By: /s/ Michael L. Kaplan
------------------------------
Name: Michael L. Kaplan
Title: Vice President
FT. PITT ACQUISITION, INC., a Pennsylvania
corporation
By: /s/ Michael L. Kaplan
------------------------------
Name: Michael L. Kaplan
Title: Vice President
FT. PITT-FRAMESI, INC., a Pennsylvania
corporation
By: /s/ Michael L. Kaplan
------------------------------
Name: Michael L. Kaplan
Title: Vice President
STYL INSTITUTE, INC., an Arizona corporation
By: /s/ Michael L. Kaplan
------------------------------
Name: Michael L. Kaplan
Title: Vice President
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,249
<SECURITIES> 0
<RECEIVABLES> 42,318
<ALLOWANCES> 0
<INVENTORY> 23,061
<CURRENT-ASSETS> 74,482
<PP&E> 6,343
<DEPRECIATION> 0
<TOTAL-ASSETS> 230,321
<CURRENT-LIABILITIES> 23,742
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 34,827
<TOTAL-LIABILITY-AND-EQUITY> 230,321
<SALES> 34,252
<TOTAL-REVENUES> 34,252
<CGS> 14,845
<TOTAL-COSTS> 28,633
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,928
<INCOME-PRETAX> 1,691
<INCOME-TAX> 676
<INCOME-CONTINUING> 1,015
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,015
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.24
</TABLE>
