UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED:
SEPTEMBER 30, 1996
-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
(Exact name of registrant as specified in its charter)
Delaware 36-2257936
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2525 Armitage Avenue
Melrose Park, Illinois 60160
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (708)450-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Class A Common Stock, par value $.22 per share New York Stock Exchange
Class B Common Stock, par value $.22 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of common stock held by non-affiliates (assuming for
this purpose only that all directors and executive officers are affiliates) on
November 25, 1996 was $400.6 million for Class A Common Stock and $365.0 million
for Class B Common Stock.
At November 25, 1996, there were 11,074,894 shares of Class A Common Stock
outstanding and 16,766,240 shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II........ Portions of annual report to stockholders for the year
ended September 30, 1996
Part III.............. Portions of proxy statement and notice of annual
meeting of stockholders on January 23, 1997
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PART I
ITEM 1. BUSINESS
BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION
Alberto-Culver Company and its consolidated subsidiaries (herein referred to
collectively as the "company", unless indicated otherwise) have two principal
business segments. One segment, "Consumer Products" principally includes
developing, manufacturing, distributing and marketing branded consumer products
worldwide and includes the company's Alberto-Culver USA and Alberto-Culver
International business units. This segment also includes products intended for
end use by institutions and industries and the manufacturing of custom label
products for other companies. The second segment, "Specialty Distribution
- -Sally", consists of Sally Beauty Company, a specialty distributor of
professional beauty supplies with 1,656 stores as of September 30, 1996 in the
United States, Puerto Rico, the United Kingdom, Japan and Germany.
In February 1996, the company acquired St. Ives Laboratories, Inc. (St.
Ives) for approximately $110 million. St. Ives develops, manufactures and
markets personal care products under its SWISS FORMULA brand and manufactures
custom label products for sale by other companies.
Financial information about business segments and geographic area information is
incorporated herein by reference to the Business Segments and Geographic Area
Information note of "Notes to Consolidated Financial Statements" in the
registrant's annual report to stockholders for the year ended September 30,
1996.
PRODUCTS
The classes of products in the "Consumer Products" business segment include
health and beauty care products and food and household products. Health and
beauty care products accounted for approximately 43%, 39% and 39% of the
company's consolidated net sales for the years ended September 30, 1996, 1995
and 1994, respectively. Food and household products accounted for approximately
8%, 10% and 9% of the company's consolidated net sales for the years ended
September 30, 1996, 1995 and 1994, respectively.
The company's major health and beauty care products in the United States include
the ALBERTO VO5, TRESemme and CONSORT lines of hair care products, the St. Ives
SWISS FORMULA line of hair and skin care products, FDS feminine deodorant sprays
and the TCB line of hair care products for the ethnic market.
Food and household products sold in the United States include MRS. DASH
salt-free seasonings, MOLLY McBUTTER dairy sprinkles, SUGARTWIN sugar substitute
and STATIC GUARD anti-static spray. The company sold its Milani, Diafoods,
Thick-It and Smithers institutional food lines in July, 1996.
The company's consumer products are sold in more than 100 countries. Through its
Cederroth subsidiary, the company manufactures and markets health and beauty
care products throughout Scandanavia and Europe. Major products include
SALVEKVICK adhesive bandages, ALBERTO VO5 hair care products, SAMARIN antacids,
SELTIN salt substitute, LACTACYD liquid soap, TOPZ cotton buds, BLIW liquid
soaps, DATE anti-perspirants and cologne for women, FAMILY FRESH shampoo and
shower products, SUKETTER artificial sweetener, HEMANENT home permanents, HTH
and L300 skin care products and GRUMME TVATTSAPA detergents.
In the United Kingdom, the company markets, among other products, the ALBERTO
VO5 line of hair care products, the St. Ives SWISS FORMULA line of hair and skin
care products, ALBERTO BALSAM shampoo and conditioner and the TRESemme line of
hair care products. INDOLA professional color bleaches, shampoos, conditioners
and styling products are sold throughout Europe and other international markets.
Other major international markets include Australia, Canada, China, Hong Kong,
Italy, Mexico, New Zealand and Puerto Rico.
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The "Specialty Distribution - Sally" business segment represents the operations
of Sally Beauty Company, Inc. which operates a network of cash-and-carry
professional beauty supply stores and also sells professional beauty products to
hairdressers, beauticians and cosmetologists through its own full-service
distributors. Sally stores provide salon owners, hairdressers and consumers with
an extensive selection of hair care and skin care products, cosmetics, styling
appliances and other beauty items. Sales of the "Specialty Distribution - Sally"
business segment accounted for approximately 49%, 51% and 52% of the company's
consolidated net sales for the years ended September 30, 1996, 1995 and 1994,
respectively.
Many of the company's consumer products are developed in the company's
laboratories. New products introduced by the company are assigned product
managers who guide the products from development to the consumer. The product
managers are responsible for the overall marketing plans for the products and
coordinate advertising, promotion and market research activities.
MARKETING
The company allocates a large portion of its revenues to advertising, promotion
and market research. Net earnings for all periods are materially affected by
advertising, promotion and market research expenditures. These expenditures are
charged to income in the period in which they are incurred. Advertising,
promotion and market research expenditures were $208.4 million in 1996, $188.0
million in 1995 and $178.5 million in 1994.
Advertising, promotion, and market research expenditures relating to a new
product will ordinarily constitute a higher percentage of sales than in the case
of a well-established product. There can be no assurance that such expenditures
will result in consumer acceptance and profitability for a product.
The company regards television as the best medium for its advertising and uses
it to conduct extensive network, spot and cable television advertising
campaigns. The company also advertises through other media such as newspapers,
magazines and radio as well as through Sally Beauty Company's direct mailings to
professional customers.
Extensive advertising and promotion are required to build and protect a
product's market position. The company believes there is significant consumer
awareness of its major brands and that such awareness is an important factor in
the company's operating results.
COMPETITION
The markets for the company's branded consumer products are highly competitive
and sensitive to changes in consumer preferences and demands. The company's
competitors range in size from large, highly diversified companies (some of
which have substantially greater financial resources than the company) to small,
specialized producers. The company competes on the basis of product quality and
price and believes that brand loyalty and consumer acceptance are important
factors. The company's markets are characterized by frequent introductions of
competitive products and by the entry of other manufacturers as new competitors,
both typically accompanied by extensive advertising and promotional campaigns.
Such campaigns are often very costly and can significantly affect the sales and
earnings of the company and its competitors.
Sally Beauty Company experiences competition from local and regional
professional beauty supply stores, full-service dealers calling directly on
salons and a wide range of retail outlets carrying a limited selection of
professional beauty products.
DISTRIBUTION IN THE UNITED STATES
Retail health and beauty care products and food and household products are sold
in the United States primarily through the company's sales force of
approximately 68 employees and 122 food brokers calling upon wholesale drug
establishments and retail outlets such as supermarkets, drug stores, mass
merchandisers and variety stores.
Hair care products for the professional trade in the United States are sold by
company sales representatives and brokers to beauty supply outlets and to beauty
distributors who in turn sell to beauty salons, barber shops and beauty schools.
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<PAGE>
Sally Beauty Company sells its professional beauty supplies through full-service
distributors and its 1,656 stores located in 46 states, Puerto Rico, the United
Kingdom, Japan and Germany. Sally's stores are self-service, cash-and-carry and
are primarily located in shopping centers. Sally operates the world's largest
chain of professional beauty supply stores and as such is a major customer of
some of the company's competitors in the personal care products industry. Sally
sells the company's professional hair care products, but these products
represent only a small portion of Sally's selection of salon brands.
FOREIGN OPERATIONS
Products of the company are sold in more than 100 countries or geographic
regions, primarily through direct sales by subsidiaries, independent
distributors and licensees.
The company's foreign operations are subject to risks inherent in transactions
involving foreign currencies and fluctuating exchange rates.
EMPLOYEES
In its domestic and foreign operations, the company had approximately 10,700
full-time equivalent employees as of September 30, 1996, consisting of 6,200
hourly personnel and 4,500 salaried employees. At September 30, 1995, the
company had approximately 9,900 full-time equivalent employees. The increase in
employees in fiscal year 1996 is principally due to the growth in the number of
Sally Beauty Company stores and the acquisition of St. Ives Laboratories, Inc.
Certain subsidiaries of the company have union contracts covering production,
warehouse, shipping and maintenance personnel. The company considers relations
with its employees to be satisfactory.
REGULATION
The company is subject to the regulations of several federal and state agencies,
including the Federal Food and Drug Administration and the Federal Trade
Commission.
TRADEMARKS AND PATENTS
The company's trademarks, certain of which are material to its business, are
registered or legally protected in the United States, Canada and other countries
throughout the world in which products of the company are sold. Although the
company owns patents and has other patent applications pending, its business is
not materially dependent upon patents or patent protection.
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ITEM 2. PROPERTIES
The company's properties, plants and equipment are maintained in good condition
and are suitable and adequate to support the business. The company's principal
properties and their general characteristics are described in the following
table
Business
Location Type of Facility Segment
Company-Owned Properties:
Melrose Park, Illinois
(2525 Armitage Avenue) Executive Offices, Manufacturing, Warehouse (1)
(2150 N. 15th Avenue) Manufacturing, Warehouse (1)
(2100 N. 15th Avenue) Warehouse (1)
(1930 George Street) Office, Warehouse (1)
Atlanta, Georgia Warehouse (1)
Columbus, Ohio Warehouse (2)
Denton, Texas Office, Warehouse (2)
Falun, Sweden Office, Manufacturing, Warehouse (1)
Jacksonville, Florida Warehouse (2)
Madrid, Spain Office, Manufacturing, Warehouse (1)
Naguabo, Puerto Rico Manufacturing, Warehouse (1)
Naucalpan de Juarez, Mexico Office, Manufacturing, Warehouse (1)
North Rocks, New South Wales,
Australia Office, Manufacturing, Warehouse (1)
Reno, Nevada Warehouse (2)
Swansea, Wales, England Office, Manufacturing, Warehouse (1)
Tilburg, Holland Office, Manufacturing, Warehouse (1)
Toronto, Ontario, Canada Office, Manufacturing, Warehouse (1)
Leased Properties:
Albertslund, Denmark Office, Warehouse (1)
Auckland, New Zealand Office (1)
Basingstoke, Hampshire, England Office (1)
Chatsworth, California Office, Manufacturing, Warehouse (1)
Espoo, Finland Office, Warehouse (1)
Macedonia, Ohio Warehouse (2)
Morrow, Georgia Warehouse (2)
Rakkestad, Norway Office, Warehouse (1)
Sparks, Nevada Office, Warehouse (1)
Stockholm, Sweden Office, Manufacturing, Warehouse (1)
Various (1,656 locations in 46 states,
Puerto Rico, the United Kingdom, Japan
and Germany) Sally Beauty Company Stores (2)
(1) Consumer Products
(2) Specialty Distribution - Sally
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
ended September 30, 1996.
EXECUTIVE OFFICERS
The following table sets forth the names and current positions of the
registrant's executive officers, including their five-year business history and
ages. Executive officers of the company and its subsidiaries are elected
annually.
Name Current Position and Five-Year Business History Age
Leonard H. Lavin (1) October, 1994 - Chairman; previously Chairman and 77
Chief Executive Officer for more than five years
Howard B. Bernick (1) October, 1994 - President and Chief Executive Officer; 44
previously President and Chief Operating Officer for
more than five years
Bernice E. Lavin (1) July, 1994 - Vice Chairman, Secretary and Treasurer; 71
previously Vice President, Secretary and Treasurer for
more than five years
Carol L. Bernick (1) October, 1994 - Executive Vice President and Assistant 44
Secretary, Alberto-Culver Company and President,
Alberto-Culver USA, Inc., a subsidiary of registrant;
September, 1992 to October, 1994-Executive Vice President
and Assistant Secretary; October, 1990 to September, 1992
- Executive Vice President, Worldwide Marketing and
Assistant Secretary
John T. Boone June, 1994 - Group Vice President, Domestic Consumer 61
Products, Alberto-Culver USA, Inc., a subsidiary of
registrant; August, 1993 to June, 1994 - Vice President,
Operations, Modami Services, Inc.; August, 1991 to
August, 1993 - President, JTB Management, Inc.
William J. Cernugel October, 1993 - Senior Vice President, Finance & 54
Controller; April, 1982 to October, 1993 -Vice President,
Finance & Controller
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<PAGE>
Name Current Position and Five-Year Business History Age
David D. DeTomaso October, 1993 - Senior Vice President, Professional 53
Domestic Division, Alberto-Culver USA, Inc., a
subsidiary of registrant; May, 1983 to October, 1993 -
Vice President, Professional Domestic Division
Raymond W. Gass Vice President and General Counsel 59
John G. Horsman, Jr. January, 1994 -President, Alberto-Culver International, 58
Inc., a subsidiary of registrant;
January, 1992 to January, 1994 -
Retired; 1978 to January, 1992 - Group
Vice President, American Home Products
Corporation
Thomas J. Pallone Vice President, Research and Development 51
Michael H. Renzulli President, Sally Beauty Company, Inc., a subsidiary of 56
registrant
(1) Leonard H. Lavin and Bernice E. Lavin are husband and wife. Carol L.
Bernick is the wife of Howard B. Bernick and the daughter of Mr. and Mrs.
Lavin.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required for this Item is incorporated herein by reference to the
section entitled "Market Price of Common Stock and Cash Dividends Per Share" and
note 4 of "Notes to Consolidated Financial Statements" in the registrant's
annual report to stockholders for the year ended September 30, 1996.
ITEM 6. SELECTED FINANCIAL DATA
Information required for this Item is incorporated herein by reference to the
section entitled "Selected Financial Data" in the registrant's annual report to
stockholders for the year ended September 30, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required for this Item is incorporated herein by reference to the
section entitled "Management's Discussion and Analysis of Results of Operations
and Financial Condition" in the registrant's annual report to stockholders for
the year ended September 30, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required for this Item is incorporated herein by reference to the
consolidated financial statements and notes and "Independent Auditors' Report"
of KPMG Peat Marwick LLP in the registrant's annual report to stockholders for
the year ended September 30, 1996.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required for this Item regarding the directors of the company and
regarding delinquent filers pursuant to Item 405 of Regulation S-K is
incorporated herein by reference to the sections entitled "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance",
respectively, in the registrant's proxy statement for its annual meeting of
stockholders on January 23, 1997. Information concerning Executive Officers of
the registrant is included in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required for this Item is incorporated herein by reference to the
section entitled "Executive Compensation" in the registrant's proxy statement
for its annual meeting of stockholders on January 23, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required for this Item is incorporated herein by reference to the
sections entitled "Share Ownership of Directors and Executive Officers" and
"Principal Stockholders" in the registrant's proxy statement for its annual
meeting of stockholders on January 23, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial statements:
The consolidated financial statements and notes to be
included in Part II, Item 8 are incorporated by reference
to the registrant's annual report to stockholders for the
year ended September 30, 1996, which is filed as an exhibit
to this report.
2. Financial statement schedules:
Description Schedule
Valuation and Qualifying Accounts II
Schedules I, III, IV, and V are omitted as the information
required by these schedules is not applicable.
3. Exhibits:
Exhibit
Number Description
2 (a) Copy of Agreement and Plan of Merger,
dated as of October 30, 1995, between
Alberto- Culver Company, AC Acquiring Co.,
and St. Ives Laboratories, Inc. (filed as
Exhibit 2 and incorporated herein by
reference from the company's Schedule 13D
filed on November 7, 1995).
2 (b) Copy of stockholders stock option
agreement, dated as of october 30, 1995,
among alberto-culver company, gary h.
Worth, john r. Worth, the house of worth
trust dated july 9, 1982 as amended,
the worth family trust under an agreement
dated november 24, 1990 and the worth
family partnership, l.P. (Filed as exhibit
1 and incorporated herein by reference
from the company's schedule 13d filed on
november 7, 1995).
3(i)(a) Copy of Restated Certificate of
Incorporation of Alberto-Culver Company
(filed as Exhibit 3(a) and incorporated
herein by reference from the company's
Form 10-K Annual Report for the year ended
September 30, 1988).
3(i)(b) Copy of the amendment to the Restated
Certificate of Incorporation of
Alberto-Culver Company (filed as Exhibit
3(a)(1) and incorporated herein by
reference from the company's Form 10-Q
Quarterly Report for the quarter ended
December 31, 1989).
3(ii) Copy of the By-Laws of Alberto-Culver
Company, as amended and in effect as of
January 17, 1990 (filed as Exhibit 3(b)(1)
and incorporated herein by reference from
the company's Form 10-Q Quarterly Report
for the quarter ended December 31, 1989).
3. Exhibits: (continued)
Exhibit
Number Description
4 Certain instruments defining the rights
of holders of long-term obligations of the
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<PAGE>
registrant and certain of its
subsidiaries (the total amount of
securities authorized under each of
which does not exceed ten percent of
the registrant's consolidated assets)
are omitted pursuant to part 4 (iii)
(A) of Item 601 (b) of Regulation
S-K. The registrant agrees to furnish
copies of any such instruments to the
Securities and Exchange Commission
upon request.
4 (a) Copy of Note Agreement dated
September 28, 1993 among
Alberto-Culver Company and
Institutional Investors (filed as
Exhibit 4(f) and incorporated herein
by reference from the company's Form
10-K Annual Report for the year
ended September 30, 1993).
4 (b) Copy of Indenture dated June 30, 1995
by and between Alberto-Culver Company
as Issuer and Bankers Trustee Company
Limited as Trustee of 5-1/2%
Convertible Subordinated Debentures
due June 30, 2005 (filed as Exhibit
4(C)and incorporated herein by
reference from the company's Form
10-K Annual Report for the year ended
September 30, 1995).
10 (a) Copy of Alberto-Culver Company
Management Incentive Plan dated
October 27, 1994 *(filed as Exhibit
10(a) and incorporated herein by
reference from the company's Form
10-Q Quarterly Report for the quarter
ended March 31, 1995).
10 (b) Copy of Alberto-Culver Company
Employee Stock Option Plan of 1988,
as amended. *(filed as Exhibit 10(b)
and incorporated herein by reference
from the company's Form 10-K Annual
Report for the year ended September
30, 1995).
10 (c) Copy of Alberto-Culver Company 1994
Shareholder Value Incentive Plan
* (filed as Exhibit 10(C)and
incorporated herein by reference from
the company's Form 10-Q Quarterly
Report for the quarter ended March
31, 1995).
10 (d) Copy of Alberto-Culver Company 1994
Restricted Stock Plan *(filed as
Exhibit 10(d) and incorporated herein
by reference from the company's Form
10-Q Quarterly Report for the quarter
ended March 31, 1995.)
10 (e) Copy of Alberto-Culver Company 1994
Stock Option Plan for Non-Employee
Directors *(filed as Exhibit 10(e)
and incorporated herein by reference
from the company's Form 10-Q
Quarterly Report for the quarter
ended March 31, 1995).
10 (f) Copy of Split Dollar Life Insurance
Agreement dated September 30, 1993
between Alberto-Culver company and
the trustee of the Lavin Survivorship
Insurance Trust * (filed as Exhibit
10(e) and incorporated herein by
reference from the company's Form
10-K Annual Report for the year ended
September 30, 1993).
3. Exhibits: (continued)
Exhibit
Number Description
- 11 -
11 Computation of net earnings per share
13 Portions of annual report to
stockholders for the year ended
September 30, 1996 incorporated
herein by reference.
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
* This exhibit is a management contract or compensatory plan or
arrangement of the registrant.
(b) Reports on Form 8-K: None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 12th day of
December, 1996.
ALBERTO-CULVER COMPANY
By /s/ Howard B. Bernick
Howard B. Bernick
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Leonard H. Lavin Chairman of the Board December 12, 1996
Leonard H. Lavin and Director
/s/ Howard B. Bernick President, Chief Executive December 12, 1996
Howard B. Bernick Officer and Director
/s/ Bernice E. Lavin Vice Chairman, Secretary, December 12, 1996
Bernice E. Lavin Treasurer and Director
/s/ Carol L. Bernick Executive Vice President, December 12, 1996
Carol L. Bernick Assistant Secretary and Director
/s/ William J. Cernugel Senior Vice President, December 12, 1996
William J. Cernugel Finance & Controller (Principal
Financial & Accounting Officer)
/s/ Robert Abboud Director December 12, 1996
A. Robert Abboud
/s/ A.G. Atwater Director December 12, 1996
A. G. Atwater
Director December 12, 1996
Robert P. Gwinn
/s/ Leander W. Jennings Director December 12, 1996
Leander W. Jennings
/s/ Allan B. Muchin Director December 12, 1996
Allan B. Muchin
/s/ Robert H. Rock Director December 12, 1996
Robert H. Rock
/s/ Dr. Harold M. Visotsky Director December 12, 1996
Dr. Harold M. Visotsky
/s/ William W. Wirtz Director December 12, 1996
William W. Wirtz
</TABLE>
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Independent Auditors' Report
The Board of Directors and Stockholders
Alberto-Culver Company:
Under date of October 23, 1996, we reported on the consolidated balance
sheets of Alberto-Culver Company and subsidiaries as of September 30,
1996 and 1995 and the related consolidated statements of earnings,
retained earnings, and cash flows for each of the years in the
three-year period ended September 30, 1996, as contained in the 1996
annual report to stockholders. These consolidated financial statements
and our report thereon are incorporated by reference in the annual
report on Form 10-K for the year 1996. In connection with our audits of
the aforementioned consolidated financial statements, we also have
audited the related financial statement schedule as listed in Item
14(a)2 of the annual report on Form 10-K. This financial statement
schedule is the responsibility of the company's management. Our
responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Chicago, Illinois
October 23, 1996
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Schedule II
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Thousands)
Year Ended September 30,
1996 1995 1994
Allowance for doubtful accounts:
Balance at beginning of period $5,663 5,497 5,493
Additions (deductions):
Charged to costs and expenses 6,309 3,277 3,412
Uncollectible accounts
written off, net of
recoveries (4,326) (3,187) (3,588)
Allowance for doubtful accounts
of acquired company 580 -- 83
Other (18) 76 97
Balance at end of period $8,208 5,663 5,497
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Exhibit 11
<TABLE>
<CAPTION>
ALBERTO-CULVER COMPANY
Computation of Net Earnings Per Share
Years Ended September 30, 1996, 1995 and 1994
(Amounts in thousands, except per share amounts)
1996 1995 1994
PRIMARY:
<S> <C> <C> <C>
Net earnings ............................................... $62,744 52,651 44,068
Weighted average shares outstanding ........................ 27,786 27,715 28,031
Add:
Net additional shares from the assumed exercise
of stock options ..................................... 427 134 11
Weighted average shares outstanding including common
stock equivalents .................................... 28,213 27,849 28,042
Net earnings per share ..................................... $ 2.22 1.89 1.57
FULLY-DILUTED:
Net earnings ............................................... $62,744 52,651 44,068
Add:
Interest expense on convertible subordinated debentures,
net of tax benefit ................................... 3,635 783 --
Adjusted net earnings ...................................... $66,379 53,434 44,068
Weighted average shares outstanding ........................ 27,786 27,715 28,031
Add:
Net additional shares from the assumed exercise
of stock options ..................................... 513 184 50
Weighted average shares from the assumed conversion
of the subordinated debentures ....................... 3,089 677 --
Weighted average shares outstanding including common
stock equivalents .................................... 31,388 28,576 28,081
Net earnings per share ..................................... $ 2.11 1.87 1.57
</TABLE>
EXHIBIT 13
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
Alberto-Culver Company and Subsidiaries
Year ended September 30,
(Dollars in thousands, except per share data) ....................... 1996 1995 1994
<S> <C> <C> <C>
Net sales ............................................................. $1,590,409 1,358,219 1,216,119
Costs and expenses:
Cost of products sold ................................................. 805,080 682,589 602,749
Advertising, promotion, selling and administrative .................... 673,247 584,856 536,441
Interest expense, net of interest income
of $3,837 in 1996, $3,414 in 1995
and $2,779 in 1994 ................................................ 12,068 6,532 5,851
Total costs and expenses ........................................... 1,490,395 1,273,977 1,145,041
Earnings before provision for income taxes ............................ 100,014 84,242 71,078
Provision for income taxes (note 6) ................................... 37,270 31,591 27,010
Net earnings .......................................................... $ 62,744 52,651 44,068
Net earnings per share:
Primary ............................................................. $ 2.22 1.89 1.57
Fully-diluted ....................................................... 2.11 1.87 1.57
See accompanying notes to consolidated financial statements
</TABLE>
Consolidated Statements of Retained Earnings
Alberto-Culver Company and Subsidiaries
<TABLE>
<CAPTION>
Year ended September 30,
(Dollars in thousands) 1996 1995 1994
<S> <C> <C> <C>
Retained earnings, beginning of year ..................................... $ 337,506 293,445 257,085
Net earnings ............................................................. 62,744 52,651 44,068
400,250 346,096 301,153
Cash dividends (note 4) ................................................. (9,724) (8,590) (7,708)
Retained earnings, end of year ........................................... $ 390,526 337,506 293,445
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Alberto-Culver Company and Subsidiaries
(Dollars in thousands, except per share data) September 30,
<S> <C> <C>
Assets 1996 1995
Current assets:
Cash and cash equivalents ......................................... $ 66,211 142,585
Short-term investments ............................................ 5,346 4,400
Receivables, less allowance for doubtful
accounts of $8,208 in 1996
and $5,663 in 1995 (note 3) .................................... 125,718 128,482
Inventories:
Raw materials .................................................. 31,286 32,408
Work-in-process ................................................ 5,622 4,897
Finished goods ................................................. 251,617 211,224
Total inventories ........................................... 288,525 248,529
Prepaid expenses .................................................. 26,918 12,549
Total current assets ........................................ 512,718 536,545
Property, plant and equipment (note 7):
Land .............................................................. 9,310 8,396
Buildings ......................................................... 113,775 100,954
Machinery and equipment ........................................... 196,781 176,684
Total property, plant and equipment ............................ 319,866 286,034
Accumulated depreciation .......................................... 143,946 128,243
Property, plant and equipment, net ............................. 175,920 157,791
Goodwill, net ........................................................ 107,603 55,225
Trade names, net ..................................................... 76,877 34,198
Other assets ......................................................... 36,148 31,327
$ 909,266 815,086
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings ............................................. $ 2,337 103
Current maturities of long-term debt .............................. 1,313 1,286
Accounts payable .................................................. 154,634 144,253
Accrued expenses (note 2) ......................................... 115,139 76,141
Income taxes ...................................................... 13,172 13,056
Total current liabilities ...................................... 286,595 234,839
Long-term debt (note 3) .............................................. 61,548 83,094
Convertible subordinated debentures (note 3) ......................... 100,000 100,000
Deferred income taxes ................................................ 16,582 15,365
Other liabilities .................................................... 19,445 10,885
Stockholders' equity (note 4): Common stock, par value $.22 per share:
Class A authorized 25,000,000 shares; issued 13,262,624 shares . 2,918 2,918
Class B authorized 25,000,000 shares; issued 20,944,424 shares . 4,608 4,608
Additional paid-in capital ........................................ 88,955 87,896
Retained earnings ................................................. 390,526 337,506
Foreign currency translation (note 1) ............................. (13,428) (12,966)
473,579 419,962
Less treasury stock, at cost (Class A common stock:
1996 - 2,214,024 shares and 1995 - 2,299,618 shares;
Class B common stock: 1996 and 1995 - 4,178,184 shares)
(note 4) ........................................................... 48,483 49,059
Total stockholders' equity ..................................... 425,096 370,903
$ 909,266 815,086
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Alberto-Culver Company and Subsidiaries
(Dollars in thousands) Year ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings ............................................ $ 62,744 52,651 44,068
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation ......................................... 26,159 20,712 17,234
Amortization of goodwill, trade names and other assets 6,757 3,967 3,668
Deferred income taxes ................................ (1,858) 243 (158)
Other, net ........................................... (1,527) 852 447
Cash effects of changes in:
Receivables, net ................................... (2,955) (20,144) 5,995
Inventories ........................................ (12,287) (7,783) (21,972)
Prepaid expenses ................................... 302 (1,940) (348)
Accounts payable and accrued expenses .............. 17,930 29,420 16,815
Income taxes ....................................... (2,520) 3,852 (347)
Net cash provided by operating activities ......... 92,745 81,830 65,402
Cash Flows from Investing Activities:
Short-term investments .................................. (946) 4,129 (329)
Capital expenditures .................................... (40,894) (31,002) (26,184)
Other assets ............................................ (7,313) (8,143) (6,842)
Proceeds from sales of businesses ....................... 12,448 -- 1,592
Payments for purchased businesses, net of acquired
companies' cash ........................................ (130,981) (41,635) (7,618)
Proceeds from disposals of assets ....................... 1,599 1,006 2,096
Net cash used by investing activities .............. (166,087) (75,645) (37,285)
Cash Flows from Financing Activities:
Short-term borrowings ................................... (315) (2,091) (4,147)
Proceeds from issuance of long-term debt ................ 5,475 45,001 5,776
Repayments of long-term debt ............................ (29,118) (37,773) (33,757)
Issuance of convertible subordinated debentures ......... -- 100,000 --
Convertible subordinated debentures issuance costs ...... -- (2,945) --
Proceeds from sale of receivables ....................... 30,000 -- --
Proceeds from exercise of stock options ................. 1,717 659 651
Cash dividends paid ..................................... (9,724) (8,590) (7,708)
Stock purchased for treasury ............................ (759) -- (13,729)
Net cash provided (used) by financing activities ... (2,724) 94,261 (52,914)
Effect of foreign exchange rate changes on cash ......... (308) 306 883
Net increase (decrease) in cash and cash equivalents .... (76,374) 100,752 (23,914)
Cash and cash equivalents at beginning of year .......... 142,585 41,833 65,747
Cash and cash equivalents at end of year ................ $ 66,211 142,585 41,833
Supplemental Cash Flow Information:
Cash paid for:
Interest ............................................. $ 12,206 6,831 7,643
Income taxes ......................................... 42,589 26,801 27,387
Capital lease obligations assumed ....................... 282 1,393 843
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include accounts of Alberto-Culver Company
and its subsidiaries ("company"). All significant intercompany accounts and
transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses in the
financial statements. Management believes these estimates and assumptions are
reasonable.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents. These investments are
stated at cost which approximates market value.
SHORT-TERM INVESTMENTS
Short-term investments are stated at cost which is equal to market value at
September 30, 1996 and 1995, respectively.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method or
retail method) or market (net realizable value).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation is provided
primarily on the straight-line method based on the estimated useful lives of
assets. Expenditures for maintenance and repairs are expensed as incurred.
GOODWILL AND TRADE NAMES
The cost of goodwill and trade names is amortized on a straight-line basis over
periods ranging from ten to forty years. Management periodically considers
whether there has been a permanent impairment to the value of goodwill and trade
names by evaluating various factors including current operating results, market
and economic conditions and anticipated future results and cash flows.
Accumulated amortization at September 30, 1996 and 1995, was $17.3 million and
$12.9 million respectively.
FOREIGN CURRENCY TRANSLATION
Foreign currency balance sheet accounts are translated at rates of exchange in
effect at the balance sheet date. Results of operations are translated using the
average exchange rates during the period.
The following is an analysis of changes in the foreign currency translation
account:
(Thousands) 1996 1995
Balance, beginning of year $(12,966) (11,793)
Foreign currency translation loss (462) (1,173)
Balance, end of year $(13,428) (12,966)
Realized gains and losses from foreign currency transactions included in the
consolidated statements of earnings resulted in losses of $17,000, $359,000 and
$323,000 in 1996, 1995 and 1994, respectively.
ADVERTISING, PROMOTION AND MARKET RESEARCH
<PAGE>
Advertising, promotion and market research costs are expensed as incurred and
amounted to $208.4 million, $188.0 million and $178.5 million in 1996, 1995 and
1994, respectively.
INCOME TAXES
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which temporary differences are estimated to be
recovered or settled.
CALCULATION OF EARNINGS PER SHARE
Primary earnings per share are based on the weighted average shares outstanding,
including common stock equivalents, of 28,213,000 in 1996, 27,849,000 in 1995
and 28,042,000 in 1994.
Fully-diluted earnings per share are determined by dividing net earnings plus
the interest expense on the convertible subordinated debentures (net of tax
benefit) by the weighted average shares outstanding, including common stock
equivalents, after giving effect for common shares to be issued assuming
conversion of the convertible subordinated debentures to common shares.
Fully-diluted weighted average shares outstanding were 31,388,000 in 1996,
28,576,000 in 1995 and 28,081,000 in 1994.
(2) Accrued Expenses
Accrued expenses consist of the following:
(Thousands) 1996 1995
Compensation and be $ 48,960 31,597
Advertising and promotions 28,085 21,320
Other 38,094 23,224
--------- -------
$115,139 76,141
(3) Debt and Other Financing Arrangements
Long-term debt, exclusive of current maturities, consists of the following:
(Thousands) 1996 1995
5.5% convertible subordinated
debentures due June, 2005 $100,000 100,000
Term notes payable:
9.73% due November, 1998 ---- 20,000
6.2% due September, 2000 20,000 20,000
Revolving Swedish krona credit
agreements at 5.3% - 11.7% 39,200 40,302
Other, principally foreign borrowings
and capitalized leases, at weighted
average interest rates of 8.2% in
1996 and 9.0% in 1995 2,348 2,792
--------- --------
$161,548 183,094
<PAGE>
Notes Continued
Maturities of debt for the next five years are as follows (in thousands):
1997 - $1,313; 1998 - $1,172; 1999 - $558; 2000 - $59,433; 2001- $175 and later
- - $100,210. The fair value of long-term debt approximates its recorded value.
In July, 1995, the company issued $100 million of 5.5% convertible subordinated
debentures maturing on June 30, 2005. The debentures are convertible into Class
A common shares at a conversion rate of 30.888 shares per $1,000 principal
amount of debentures (equivalent to a conversion price of approximately
$32-3/8). The debentures are redeemable, in whole but not in part, at the option
of the company any time on or after June 30, 1998 at par plus accrued interest.
In August, 1996, the company prepaid $20 million of 9.73% term notes scheduled
to mature in November, 1998 and incurred a prepayment penalty. Due to
immateriality, the penalty is not reported as an extraordinary item, but is
included in net interest expense.
The term notes due September, 2000 impose restrictions on such items as total
debt, working capital, dividend payments, treasury stock purchases and interest
expense. At September 30, 1996, the company was in compliance with these
arrangements and $132.5 million of consolidated retained earnings was not
restricted as to the payment of dividends or purchases of treasury stock.
The company had available lines of credit of approximately $109 million with
various banks at September 30, 1996. The credit lines, which require no
compensating balances, may be terminated at the option of the banks or the
company.
In January, 1996, the company entered into an agreement to sell, without
recourse, up to $30 million of a designated pool of trade receivables on an
ongoing basis. The agreement expires in one year and is renewable annually upon
the mutual consent of both parties. At September 30, 1996, the facility was
fully utilized. Costs related to this agreement are included in administrative
expenses.
(4) Treasury Stock and Additional Paid-In Capital
Changes in treasury stock and additional paid-in capital during 1996, 1995 and
1994 were as follows:
Additional
Treasury Stock Paid-In
(Thousands) Shares Amount Capital
Balance at September 30, 1993 5,842 $ 36,392 $ 87,262
Stock options exercised ..... (46) (461) 190
Stock purchased for treasury 731 13,729 --
Balance at September 30, 1994 6,527 49,660 87,452
Stock options exercised ..... (33) (399) 260
Stock issued pursuant to
employee incentive plans .. (16) (202) 184
Balance at September 30, 1995 6,478 49,059 87,896
Stock options exercised ..... (84) (1,029) 688
Stock purchased for treasury 23 759 --
Stock issued pursuant to
employee incentive plans ... (25) (306) 371
Balance at September 30,1996 6,392 $ 48,483 $ 88,955
The company has two classes of common stock, both of which are listed on the New
York Stock Exchange. Except for voting, dividend and conversion rights, the
Class A and Class B common stock are identical. Class A has one-tenth vote per
share and Class B has one vote per share. No dividend may be paid on the Class B
unless an equal or greater dividend is paid on the Class A, and dividends may be
paid on the Class A in excess of dividends paid, or without paying
<PAGE>
dividends, on the Class B. All, and not less than all, of the Class A may at any
time be converted into Class B on a share-for-share basis at the option of the
company. The Class B is convertible into Class A on a share-for-share basis at
the option of the holders.
Cash dividends for Class B common stock in 1996, 1995 and 1994 were $5.9 million
or $.35 per share, $5.2 million or $.31 per share and $4.6 million or $.275 per
share, respectively. Cash dividends for Class A common stock in 1996, 1995 and
1994 were $3.9 million or $.35 per share, $3.4 million or $.31 per share and
$3.1 million or $.275 per share, respectively. Class A common stock dividends
per share have been equal to those of Class B common stock since the Class A
shares were issued in April, 1986.
(5) Stock Option and Restricted Stock Plans
Pursuant to its stock option plans, the company is authorized to issue
non-qualified options to employees and directors to purchase a limited number of
shares of the company's Class A common stock at a price not less than the fair
market value of the stock on the date of grant. Options under the plans expire
five or ten years from date of grant and are exercisable on a cumulative basis
in four equal annual increments commencing one year after the date of grant.
Shares under option at September 30, 1996 are summarized as follows:
Shares Per Share Total
Year Under Option Option Price
Granted Option Price (Thousands)
1989 4,250 $13.25 $ 56
1990 69,366 18.75 1,301
1991 33,250 19.88 661
1992 109,800 21.50 - 23.65 2,371
1993 136,875 23.69 - 26.06 3,252
1994 183,750 19.50 - 21.63 3,616
1995 462,358 23.69 10,952
1996 494,800 26.75 - 34.13 13,462
1,494,449 $35,671
Options for 83,442 shares were exercised in 1996 whereas options for 32,634
shares were exercised in the prior year. During 1996 and 1995, options for
52,675 and 35,525 shares, respectively, were terminated. Options for 526,787
shares were exercisable at September 30, 1996.
The company is also authorized to grant shares of Class A common stock to
employees under its restricted stock plan. The restricted shares vest on a
cumulative basis in four equal annual installments commencing four years after
the date of grant. At September 30, 1996, there were 40,500 restricted shares
outstanding.
<PAGE>
Notes Continued
(6) Income Taxes
The provisions for income taxes consist of the following:
(Thousands) 1996 1995 1994
Current:
Federal $27,651 20,820 19,477
Foreign 5,566 5,310 3,768
State 5,911 5,218 3,923
------- ------- -------
39,128 31,348 27,168
Deferred:
Federal (2,349) (213) (1,315)
Foreign 1,268 561 974
State (777) (105) 183
(1,858) 243 (158)
-------- ------- -------
$37,270 31,591 27,010
The difference between the effective income tax rate and the United States
statutory federal income tax rate is summarized below:
1996 1995 1994
Statutory tax rate 35.0% 35.0% 35.0%
Effect of foreign
income tax rates (1.5) (1.0) .1
State income taxes, net
of federal tax benefit 3.3 3.9 3.7
Other, net .5 (.4) (.8)
Effective tax rate 37.3% 37.5% 38.0%
Significant components of the company's deferred tax assets and liabilities as
of September 30, 1996 and 1995 are as follows:
(Thousands) ....................................... 1996 1995
Deferred tax assets attributable to:
Accrued expenses ................................. $15,802 5,220
Inventory adjustments ............................ 2,045 --
Total deferred tax assets ........................ 17,847 5,220
Deferred tax liabilities attributable to:
Depreciation and amortization .............. 15,785 13,956
Inventory adjustments ...................... -- 983
State income taxes ......................... 18 1,095
Other ...................................... 479 313
Total deferred tax liabilities .................... 16,582 16,347
Net deferred tax assets (liabilities) ............. $ 1,265 (11,127)
Prepaid expenses at September 30, 1996 and 1995 include $17.8 million and $4.2
million, respectively, of net deferred tax assets.
Domestic earnings before income taxes were $77.9 million, $72.0 million and
$62.3 million in 1996, 1995 and 1994, respectively. Foreign operations had
earnings before income taxes of $22.1 million, $12.2 million and $8.8 million in
1996, 1995 and 1994, respectively.
Undistributed earnings of the company's foreign operations amounting to $99.3
million are intended to remain permanently invested to finance future growth and
expansion. Accordingly, no U.S. income taxes have been provided on those
earnings at September 30, 1996. Should such earnings be distributed, the credit
for foreign income taxes paid would substantially offset applicable U.S.
income taxes.
<PAGE>
(7) Lease Commitments
The major portion of the company's leases are for Sally Beauty Company stores.
Other leases cover certain manufacturing and warehousing properties, office
facilities, data processing equipment and automobiles. At September 30, 1996,
future minimum payments under noncancelable leases are as follows:
Operating Capital
(Thousands) Leases Leases
1997 $ 39,160 1,031
1998 29,498 746
1999 20,846 211
2000 13,093 101
2001 6,435 17
2002 and later 7,469 --
Total minimum lease payments $116,501 2,106
Total rental expense for operating leases amounted to $53.0 million in
1996, $47.4 million in 1995 and $44.2 million in 1994. Certain leases require
the company to pay real estate taxes, insurance, maintenance and special
assessments.
<PAGE>
(8) Business Segments and Geographic Area Information
The "consumer products" business segment principally includes developing,
manufacturing, distributing and marketing branded consumer products worldwide
and includes the company's Alberto-Culver USA and Alberto-Culver International
business units. This segment also includes products intended for end use by
institutions and industries and the manufacturing of custom label products for
other companies. The "specialty distribution - Sally" business segment consists
of Sally Beauty Company, a specialty distributor of professional beauty
supplies.
Segment and geographic data for the years ended September 30, 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
Business Segments Information (Thousands) 1996 1995 1994
<S> <C> <C> <C>
Net sales:
Consumer products:
Alberto-Culver USA .................. $ 377,468 305,681 293,685
Alberto-Culver International ........ 452,030 363,294 300,605
Total consumer products ............. 829,498 668,975 594,290
Specialty distribution - Sally ......... 771,868 697,668 631,529
Eliminations ........................... (10,957) (8,424) (9,700)
$ 1,590,409 1,358,219 1,216,119
Earnings before provision for income taxes:
Consumer products:
Alberto-Culver USA .................. $ 21,445 16,011 11,867
Alberto-Culver International ........ 21,737 16,604 12,241
Total consumer products ............. 43,182 32,615 24,108
Specialty distribution - Sally ......... 78,871 71,889 63,907
Operating profit ..................... 122,053 104,504 88,015
Unallocated expenses, net* ............. (9,971) (13,730) (11,086)
Interest expense, net of interest income (12,068) (6,532) (5,851)
$ 100,014 84,242 71,078
Identifiable assets:
Consumer products:
Alberto-Culver USA .................. $ 197,478 130,592 128,189
Alberto-Culver International ........ 333,738 284,750 208,545
Total consumer products ............. 531,216 415,342 336,734
Specialty distribution - Sally ......... 308,869 257,437 229,543
Corporate** ............................ 69,181 142,307 43,931
$ 909,266 815,086 610,208
Depreciation and amortization expense:
Consumer products:
Alberto-Culver USA .................. $ 7,601 4,616 4,041
Alberto-Culver International ........ 11,376 8,433 6,217
Total consumer products ............. 18,977 13,049 10,258
Specialty distribution - Sally ......... 11,780 9,953 9,077
Corporate .............................. 2,159 1,677 1,567
$ 32,916 24,679 20,902
Capital expenditures:
Consumer products:
Alberto-Culver USA .................. $ 11,419 11,975 6,107
Alberto-Culver International ........ 8,885 6,293 4,978
Total consumer products ............. 20,304 18,268 11,085
Specialty distribution - Sally ......... 20,872 13,746 15,482
Corporate .............................. -- 381 460
$ 41,176 32,395 27,027
Geographic Area Information (Thousands) 1996 1995 1994
Net sales:
United States .......................... $ 1,148,268 997,065 918,870
Foreign ................................ 453,709 364,543 300,850
Eliminations ........................... (11,568) (3,389) (3,601)
$ 1,590,409 1,358,219 1,216,119
Operating profit:
United States .......................... $ 97,628 88,025 77,248
Foreign ................................ 24,425 16,479 10,767
$ 122,053 104,504 88,015
Identifiable assets:
United States .......................... $ 507,545 390,763 362,781
Foreign ................................ 332,540 282,016 203,496
Corporate** ............................ 69,181 142,307 43,931
$ 909,266 815,086 610,208
* "Unallocated expenses, net" principally consists of general corporate
expenses and foreign exchange gains and losses.
** Corporate identifiable assets are primarily cash, cash equivalents,
short-term investments and equipment.
</TABLE>
(9) Quarterly Financial Data
Unaudited quarterly consolidated statement of earnings information for the years
ended September 30, 1996 and 1995 are summarized below (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1996:
Net sales ................................................. $347,638 396,146 415,554 431,071
Cost of products sold ..................................... 178,343 200,459 208,526 217,752
Net earnings .............................................. 12,875 14,469 16,452 18,948
Earnings per share:
Primary .............................................. .46 .51 .58 . 67
Fully-diluted ........................................ .44 .49 .55 . 63
1995:
Net sales ................................................. $311,474 324,208 357,678 364,859
Cost of products sold ..................................... 155,548 161,597 180,590 184,854
Net earnings .............................................. 11,195 12,230 13,634 15,592
Earnings per share:
Primary ........................................... .40 .44 .49 .56
Fully-diluted ..................................... .40 .44 .49 .54
</TABLE>
(10) Acquisitions and Divestiture
In April, 1995, the company's Sweden-based subsidiary, Cederroth International
AB, completed the acquisition of the Toiletries Division of Molnlycke AB. The
acquired division develops, manufactures and markets body and skin care, hair
care, oral care and household products in Scandinavia. The acquisition, valued
at approximately $50 million, was accounted for as a purchase and was funded
with local bank borrowings payable in Swedish krona.
The operations of the Molnlycke Toiletries business have been included in the
company's consolidated financial statements since April, 1995. Had Molnlycke
Toiletries been acquired at the beginning of fiscal year 1994, the pro-forma
inclusion of its operating results would not have had a significant effect on
the reported consolidated net earnings for the two year period ended September
30, 1995.
In February, 1996, the company acquired St. Ives Laboratories, Inc. ("St.
Ives") for approximately $110 million. St. Ives develops, manufactures and
markets personal care products under its Swiss Formula brand and manufactures
custom label products for other companies.
The purchase of St. Ives was funded with the net proceeds available from the
July, 1995 issuance
<PAGE>
of $100 million of 5.5% convertible subordinated debentures and from the sale of
certain trade accounts receivable in January, 1996.
The acquisition has been accounted for as a purchase and, accordingly, the
operating results of St. Ives have been included in the company's consolidated
financial statements since the date of acquisition. The excess of the aggregate
purchase price over the fair market value of net assets acquired of
approximately $47 million is being amortized over 40 years.
The following unaudited pro forma consolidated results of operations for the
years ended September 30, 1996 and 1995 assume the St. Ives acquisition occurred
as of October 1, 1994 (in thousands, except per share data):
1996 1995
Net sales $1,647,063 1,518,487
Net earning 63,056 48,875
Earnings per share:
Primary 2.23 1.76
Fully-diluted 2.12 1.74
In July, 1996, Alberto-Culver USA sold its Milani, DiaFoods, Thick-It and
Smithers institutional food lines and granted the purchaser a master
distribution license to sell the company's other institutional food products.
The transaction resulted in an immaterial gain and is included in administrative
expense.
Independent Auditors' Report
The Board of Directors and Stockholders
Alberto-Culver Company:
We have audited the accompanying consolidated balance sheets of Alberto-Culver
Company and subsidiaries as of September 30, 1996 and 1995, and the related
consolidated statements of earnings, retained earnings and cash flows for each
of the years in the three-year period ended September 30, 1996. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Alberto-Culver
Company and subsidiaries as of September 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1996, in conformity with generally accepted
accounting principles.
Chicago, Illinois
October 23, 1996 KPMG Peat Marwick LLP
<PAGE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition Alberto-Culver Company and Subsidiaries
RESULTS OF OPERATIONS
Fiscal year 1996 marked the company's thirteenth consecutive year of record
sales. Net sales for the year ended September 30, 1996 were $1.59 billion, an
increase of 17.1% over prior year sales of $1.36 billion. Net sales in 1994 were
$1.22 billion.
Record net earnings of $62.7 million in 1996 increased 19.2% from 1995 net
earnings of $52.7 million. Primary earnings per share of $2.22 were 33 cents or
17.5% higher than 1995. Fully-diluted earnings per share were $2.11, an increase
of 24 cents or 12.8% from 1995. Net earnings in 1994 were $44.1 million or $1.57
per share on a primary and fully-diluted basis.
Prior to 1996, the Consumer Products Division of Alberto-Culver USA recorded
certain promotional allowances that were shown as a deduction from the list
price reported on customer invoices as promotion expenses. Effective October 1,
1995, the division changed its method of reporting to a net sales basis thereby
reducing sales and promotion expense by $12.6 million for 1996. This change had
no effect on net income and prior periods have not been reclassified due to
immateriality. The change is in conformity with industry practice and also
provides management with financial information that is consistent across other
divisions of Alberto-Culver USA and Alberto-Culver International.
Sales of Alberto-Culver USA consumer products in 1996 were $377.5 million, an
increase of 23.5% from prior year sales of $305.7 million. The 1996 increase
primarily resulted from the acquisition of St. Ives Laboratories, Inc. ("St.
Ives") in February, 1996, which added $87.7 million of sales, partially offset
by lower sales due to the change in the classification of certain off-invoice
promotional allowances discussed above. In 1995, sales increased 4.1% from 1994
sales of $293.7 million primarily due to higher sales of Alberto VO5 and
TRESemme shampoo and conditioner products, FDS feminine deodorant spray and Mrs.
Dash seasoning products, partially offset by lower sales for the Alberto,
Alberto VO5 and Bold Hold hair styling lines and the discontinuation of Village
Saucerie sauce and recipe mixes.
Alberto-Culver International consumer products sales were $452.0 million in 1996
compared to $363.3 million in 1995 and $300.6 million in 1994. The sales
increases in 1996 and 1995 primarily resulted from acquisitions. The Toiletries
Division of Sweden-based Molnlycke AB was purchased in April, 1995 and St. Ives
was acquired in February, 1996.
Sales of the "Specialty distribution - Sally" business segment increased to
$771.9 million in 1996 compared to $697.7 million and $631.5 million in 1995 and
1994, respectively. The higher sales in 1996 were attributable to sales gains
for established Sally Beauty Company outlets and the addition of 162 stores
during the year. The number of Sally stores increased 34.1% over the last three
years to a total of 1,656 at the end of 1996 compared to 1,494 and 1,363 at the
end of 1995 and 1994, respectively.
Cost of products sold as a percentage of sales was 50.6% in fiscal year 1996
compared to 50.3% in 1995 and 49.6% in 1994. The increase in the cost of
products sold percentage over the last three years primarily resulted from
changes in product mix, higher raw material costs and the 1996 addition of St.
Ives' custom label business which has a higher cost of goods sold percentage. In
1996, the cost of products sold percentage was also higher due to the reduction
in sales resulting from the change in recording certain off-invoice promotional
allowances.
Advertising, promotion, selling and administrative expenses increased 15.1% in
1996 and 9.0% in 1995. The increase in 1996 resulted from the acquisition of St.
Ives in February, 1996, the inclusion of the operations of Molnlycke Toiletries
for a full year, higher selling and administrative costs associated with the
increase in the number of Sally Beauty Company stores and the discount on the
sale of certain trade receivables. These increases were partially offset by an
immaterial, non-recurring gain on the sale of certain Alberto-Culver USA
institutional food lines in July, 1996. The higher costs in 1995 were primarily
due to selling and administrative costs associated with the increase in the
number of Sally stores and higher advertising and promotional expenditures for
consumer products.
<PAGE>
Advertising, promotion and market research expenditures were $208.4 million,
$188.0 million and $178.5 million in 1996, 1995 and 1994, respectively. The
increase in 1996 mainly resulted from the acquisition of St. Ives in February,
1996 and the inclusion of the operations of Molnlycke Toiletries for a full
year, partially offset by the reclassification of certain off-invoice
promotional allowances.
Interest expense, net of interest income, was $12.1 million, $6.5 million and
$5.9 million in 1996, 1995 and 1994, respectively. Interest expense was $15.9
million in 1996 versus $9.9 million in 1995 and $8.6 million in 1994. The
increase in interest expense in 1996 was attributable to the convertible
subordinated debentures and borrowings related to the Molnlycke acquisition
being outstanding for the full year along with the penalty incurred on the
August, 1996 prepayment of the $20 million, 9.73% term notes. These increases
were mitigated by the elimination of interest expense on the $30.0 million of
term loans retired in July, 1995.
Interest income was $3.8 million, $3.4 million and $2.8 million in 1996, 1995
and 1994, respectively. The increases in 1996 and 1995 principally resulted from
investing the July, 1995 net proceeds of the $100 million convertible
subordinated debentures until the funds were used for the acquisition of St.
Ives in February, 1996.
The provision for income taxes as a percentage of earnings before income taxes
was 37.3%, 37.5% and 38.0% in 1996, 1995 and 1994, respectively. Factors which
influenced the effective tax rates for those years are described in "note 6" to
the consolidated financial statements.
FINANCIAL CONDITION
Working capital at September 30, 1996 was $226.1 million, a decrease of $75.6
million from the prior year's working capital of $301.7 million. The resulting
current ratio was 1.79 to 1.00 at September 30, 1996 compared to 2.28 to 1.00
last year. The decrease was primarily due to the acquisition of St. Ives in
February, 1996, the prepayment of the $20 million term notes in August, 1996,
capital expenditures and dividend payments, partially offset by the net
after-tax proceeds from the sale of certain Alberto-Culver USA institutional
food lines in July, 1996 and cash provided by operating activities.
Accounts receivable and inventories less accounts payable were $259.6 million at
September 30, 1996 compared to $232.8 million last year. The increase was
primarily due to inventories needed to support the 10.8% increase in the number
of Sally stores in 1996 and the acquisition of St. Ives in February, 1996,
partially offset by the sale of $30 million of certain trade accounts receivable
in January, 1996.
Prepaid expenses in 1996 increased $14.4 million to $26.9 million primarily due
to current deferred tax assets. Components of deferred tax assets are described
in "note 6" to the consolidated financial statements.
Net property, plant and equipment increased $18.1 million to $175.9 million at
September 30, 1996. The increase resulted primarily from the acquisition of St.
Ives, additional Sally stores, a new Sally warehouse and other capital
expenditures for machinery, equipment and information systems.
Goodwill and trade names, net of amortization, increased $130.2 million over the
last two years to a total of $184.5 million as of September 30, 1996. The
primary reasons for the increase were the acquisitions of St. Ives in 1996 and
the Toiletries Division of Molnlycke AB in 1995.
Long-term debt decreased $21.5 million principally due to the August, 1996
prepayment of the $20 million, 9.73% term notes which were scheduled to mature
in November, 1998.
Total stockholders' equity increased $54.2 million to $425.1 million at
September 30, 1996, primarily due to net earnings for the fiscal year partially
offset by dividend payments.
LIQUIDITY AND CAPITAL RESOURCES
The company's primary sources of cash over the past three years have been funds
provided by
<PAGE>
operating activities and the July, 1995 issuance of convertible subordinated
debentures. Operating activities provided cash of $92.7 million, $81.8 million
and $65.4 million in 1996, 1995 and 1994, respectively.
The company has obtained long-term financing as needed to fund acquisitions and
other growth opportunities. As evidenced by the issuance of the $100 million of
convertible subordinated debentures in July, 1995, funds are occasionally
obtained prior to their actual need in order to take advantage of opportunities
in the debt markets. The company also obtained funds in 1996 through the sale of
$30 million of trade accounts receivable.
Under existing debt covenants, the company has the ability to enter into new
financing arrangements aggregating up to $685 million. At September 30, 1996,
the company had available lines of credit of $109 million with various financial
institutions. The credit lines, which require no compensating balances, may be
terminated at the option of the respective banks or the company.
The primary uses of cash have been to repay long-term debt and fund
acquisitions. Over the three year period ending September 30, 1996, debt
repayments exceeded proceeds from new borrowings, excluding the convertible
subordinated debentures, by $44.4 million. Other major uses of cash during the
three year period included payments for acquired companies of $180.2 million,
capital expenditures of $98.1 million, cash dividends of $26.0 million and
common stock purchases for the treasury of $14.5 million.
Compared to 1993, cash dividends per share increased 27.3% over the three-year
period ended September 30, 1996. Cash dividends paid on Class A and Class B
common stock were 35 cents per share in 1996, 31 cents per share in 1995 and
27.5 cents per share in 1994.
The company anticipates that cash flows from operations and available credit
will be sufficient to fund operational requirements in future years. During
1997, the company expects that cash will continue to be used for acquisitions,
capital expenditures, new product development, market expansion, retirement of
debt and dividend payments. The company may also purchase shares of its common
stock depending on market conditions.
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", requires that long-lived assets and certain identifiable intangibles of an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
company is required to comply with SFAS No. 121 in fiscal year 1997 and
estimates that its adoption will not have a material effect on the consolidated
financial statements.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires either the
adoption of a fair value based method of accounting for stock-based compensation
or pro forma disclosures as if the fair value method was adopted. The company
will implement SFAS No. 123 in fiscal year 1997 by providing the required pro
forma disclosures.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", requires an entity, after a transfer of
financial assets, to recognize the assets it controls and the liabilities it has
incurred, and to write-off assets when control has been surrendered and remove
liabilities when obligations have been extinguished. The company is required to
comply with SFAS No. 125 in fiscal year 1997 and estimates that its adoption
will not have a material effect on the consolidated financial statements.
INFLATION
The company was not significantly affected by inflation during the past three
years. Management continuously attempts to resist cost increases and counteract
the effects of inflation through productivity improvements, cost reduction
programs and price increases within the constraints of the highly competitive
markets in which the company operates.
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
Alberto-Culver Company and Subsidiaries
Year ended September 30,
(In thousands, except per share data) ............................ 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating Results:
Net sales ........................................................ $1,590,409 1,358,219 1,216,119 1,147,990 1,091,286
Cost of products sold ............................................ 805,080 682,589 602,749 564,260 534,979
Interest expense ................................................. 15,905 9,946 8,630 9,661 11,665
Earnings before income taxes ..................................... 100,014 84,242 71,078 65,129 61,356
Provision for income taxes ....................................... 37,270 31,591 27,010 23,857 22,740
Net earnings ..................................................... 62,744 52,651 44,068 41,272 38,616
Net earnings per share:
Primary ..................................................... 2.22 1.89 1.57 1.44 1.36
Fully-diluted ............................................... 2.11 1.87 1.57 1.44 1.36
Weighted average shares outstanding:
Primary ..................................................... 28,213 27,849 28,042 28,717 28,363
Fully-diluted ............................................... 31,388 28,576 28,081 28,717 28,363
Financial Condition:
Cash, cash equivalents and
short-term investments .......................................... $ 71,557 146,985 50,362 73,947 80,158
Working capital .................................................. 226,123 301,706 185,747 205,050 193,080
Current ratio .................................................... 1.79 to 1 2.28 to 1 1.86 to 1 2.05 to 1 1.88 to 1
Property, plant and equipment, net ............................... 175,920 157,791 132,881 124,449 121,703
Total assets ..................................................... 909,266 815,086 610,208 593,046 610,400
Long-term debt ................................................... 61,548 83,094 42,976 80,184 84,549
Convertible subordinated debentures .............................. 100,000 100,000 -- -- --
Stockholders' equity ............................................. 425,096 370,903 326,970 298,857 286,222
Cash dividends per share* ........................................ .35 .31 .275 .275 .235
* Dividends per share on Class A common stock and Class B common stock have
been equal since the Class A shares were issued in April,1986. Dividends
paid in fiscal 1993 include a one-time extraordinary dividend of two cents
per share in recognition of the company surpassing one billion dollars in
sales for the fiscal year ended September 30, 1992.
</TABLE>
Annual 10-K Report
Stockholders may obtain a copy of the company's 1996 Form 10-K Report filed with
the Securities and Exchange Commission without charge by writing to the
Corporate Secretary, Alberto-Culver Company, 2525 Armitage Avenue, Melrose Park,
Illinois 60160.
<PAGE>
<TABLE>
<CAPTION>
Market Price of Common Stock and Cash Dividends Per Share
Alberto-Culver Company and Subsidiaries
The high and low sales prices of both classes of the company's common stock on
the New York Stock Exchange and cash dividends per share in each quarter of
fiscal years 1996 and 1995 are as follows:
Market Price Range Cash Dividends
1996 1995 Per Share
High Low High Low 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Class A (NYSE Symbol ACVA):
First Quarter .......... $32-3/8 25-3/4 24-7/8 20-7/8 $ .08 .07
Second Quarter ......... 38-7/8 29-5/8 26-5/8 23 .09 .08
Third Quarter .......... 40-1/8 32-7/8 28 24-7/8 .09 .08
Fourth Quarter ......... 40-1/4 33-7/8 27-1/4 24-3/4 .09 .08
---- ----
$ .35 .31
Class B (NYSE Symbol ACV):
First Quarter .......... $36-1/2 29-7/8 27-3/8 21-3/4 $ .08 .07
Second Quarter ......... 43-3/4 32-1/2 30-7/8 25-7/8 .09 .08
Third Quarter .......... 46-3/4 36-3/4 32-1/2 29-5/8 .09 .08
Fourth Quarter ......... 47-1/2 40 31-1/2 27-7/8 .09 .08
---- ----
$ .35 .31
As of November 21, 1996, stockholders of record totaled 1,107 for Class A shares
and 1,221 for Class B shares.
</TABLE>
Exhibit 21
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant
State or
Other
Jurisdiction
of
Subsidiary Incorporation
Alberto-Culver (Australia) Pty. Ltd. Australia
Alberto-Culver Canada, Inc. Canada
Alberto-Culver Company (U.K.), Limited United Kingdom
Alberto-Culver International, Inc. Delaware
Alberto-Culver de Mexico, S.A. de C.V. Mexico
Alberto-Culver (P.R.), Inc. Delaware
Alberto-Culver USA, Inc. Delaware
BDM Grange, Ltd. New Zealand
Cederroth Holding B.V. Holland
Cederroth International AB Sweden
CIFCO, Inc. Delaware
Indola Cosmetics, B.V. The Netherlands
Indola SpA Italy
Sally Beauty Company, Inc. Delaware
St. Ives Laboratories, Inc. Delaware
Subsidiaries of the company omitted from the above table, considered in the
aggregate, would not be considered significant.
Exhibit 23
Consent of KPMG Peat Marwick LLP
The Board of Directors and Stockholders
Alberto-Culver Company:
We consent to incorporation by reference in the Registration Statements on
Form S-8 (Numbers 33-36051, 33-47748, 33-62693, 33- 62699 and 33-62701)
and Form S-3 (Number 333-00619) of Alberto-Culver Company of our reports
dated October 23, 1996, relating to the consolidated balance sheets of
Alberto-Culver Company and subsidiaries as of September 30, 1996 and 1995
and the related consolidated statements of earnings, retained earnings and
cash flows and related schedule for each of the years in the three-year
period ended September 30, 1996 which reports appear or are incorporated
by reference in the September 30, 1996 annual report on Form 10-K of
Alberto-Culver Company.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Chicago, Illinois
December 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of September 30, 1996 and the consolidated
statement of earnings for the year ended September 30, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000003327
<NAME> ALBERTO-CULVER COMPANY AND SUBSIDIARIES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<EXCHANGE-RATE> 1.00
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> $ 66,211
<SECURITIES> 5,346
<RECEIVABLES> 133,926
<ALLOWANCES> (8,208)
<INVENTORY> 288,525
<CURRENT-ASSETS> 512,718
<PP&E> 319,866
<DEPRECIATION> 143,946
<TOTAL-ASSETS> 909,266
<CURRENT-LIABILITIES> 286,595
<BONDS> 161,548
0
0
<COMMON> 7,526
<OTHER-SE> 417,570
<TOTAL-LIABILITY-AND-EQUITY> 909,266
<SALES> 1,590,409
<TOTAL-REVENUES> 1,590,409
<CGS> 805,080
<TOTAL-COSTS> 805,080
<OTHER-EXPENSES> 673,247
<LOSS-PROVISION> 6,309
<INTEREST-EXPENSE> 15,905
<INCOME-PRETAX> 100,014
<INCOME-TAX> 37,270
<INCOME-CONTINUING> 62,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,744
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.11
</TABLE>
