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, 1998
-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 re-
quired to file such reports) and (2) has been subject to such filing require-
ments 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. [ X ]
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 20, 1998 was $485.9 million for Class A Common Stock and $412.5 million
for Class B Common Stock.
At November 20, 1998, there were 23,914,132 shares of Class A Common Stock
outstanding and 33,147,471 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, 1998, as specifically described
herein.
Part III.............. Portions of proxy statement and notice of annual
meeting of stockholders on January 28, 1999, as
specifically described herein.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K and the documents incorporated by reference
herein include certain forward- looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Such statements are based on management's current expectations and
assessments of risks and uncertainties and reflect various assumptions
concerning anticipated results, which may or may not prove to be correct. Some
of the factors that could cause actual results to differ materially from
estimates or projections contained in such forward looking statements include
the pattern of brand sales, including variations in sales volume within periods;
competition within the relevant product markets, including pricing, promotional
activities, continuing customer acceptance of existing products and the ability
to develop and successfully introduce new products; risks inherent in
acquisitions and strategic alliances; changes in costs including changes in
labor costs, raw material prices or promotional expenses; the costs and effects
of unanticipated legal or administrative proceedings; variations in political,
economic or other factors such as currency exchange rates, inflation rates,
recessionary or expansive trends, tax changes, legal and regulatory changes or
other external factors over which Alberto-Culver Company has no control.
Alberto-Culver Company disclaims any obligation to update any forward-looking
statement in this Annual Report on From 10-K or any incorporated document.
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 the manufacturing of
custom label products for other companies and products intended for end use by
institutions and industries. The second segment, "Specialty Distribution -
Sally", consists of Sally Beauty Company, a specialty distributor of
professional beauty supplies with 1,998 stores as of September 30, 1998 in the
United States, Puerto Rico, the United Kingdom, Canada, Japan and Germany.
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
company's annual report to stockholders for the year ended September 30, 1998.
PRODUCTS
The classes of products in the "Consumer Products" business segment include
health and beauty care products as well as food and household products. Health
and beauty care products accounted for approximately 41%, 43% and 43% of the
company's consolidated net sales for the years ended September 30, 1998, 1997
and 1996, respectively. Food and household products accounted for approximately
6%, 7% and 8% of the company's consolidated net sales for the years ended
September 30, 1998, 1997 and 1996, 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, CORTEXX hair 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.
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The company's consumer products are sold in more than 120 countries. Through its
Cederroth subsidiary, the company manufactures and markets health and beauty
care products throughout Scandinavia and Europe. Major products include SALVE
adhesive bandages, ALBERTO VO5 hair care products, SAMARIN antacids, SELTIN salt
substitute, LACTACYD liquid soap, TOPZ cotton buds, SAVETTE wet wipes, BLIW
liquid soaps, DATE anti-perspirants and cologne for women, FAMILY FRESH shampoo
and shower products, SUKETTER artificial sweetener, HEMANENT home permanents,
the ST. IVES SWISS FORMULA line of hair and skin care products, 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 hair colors, shampoos, conditioners and
styling products are marketed throughout Europe and other international markets.
Other international markets include Australia, Canada, Italy, Mexico, New
Zealand and Puerto Rico.
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 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 53%, 50% and 49% of the company's
consolidated net sales for the years ended September 30, 1998, 1997 and 1996,
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 are materially affected by these expenditures,
which are charged to income in the period incurred. Advertising, promotion and
market research expenditures were $257.7 million in 1998, $255.3 million in 1997
and $208.4 million in 1996.
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.
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<PAGE>
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 of which are 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 for
Alberto-Culver USA are sold primarily through the company's sales force
consisting of approximately 50 employees and 130 independent 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.
Sally Beauty Company sells professional beauty supplies through full-service
distributors and its 1,998 stores located in 46 states, Puerto Rico, the United
Kingdom, Canada, 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 Alberto-Culver USA'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 120 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 political uncertainties.
EMPLOYEES
In its domestic and foreign operations, the company had approximately 12,700
full-time equivalent employees as of September 30, 1998, consisting of 7,700
hourly personnel and 5,000 salaried employees. At September 30, 1997, the
company had approximately 11,000 full-time equivalent employees. The increase in
employees during fiscal year 1998 is principally due to the growth in the number
of Sally Beauty Company stores.
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.
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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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<PAGE>
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 below:
<TABLE>
<S> <C> <C>
Business
Location Type of Facility Segment
Company-Owned Properties:
Melrose Park, Illinois
(2525 Armitage Avenue) Corporate Headquarters, Manufacturing,
Warehouse (1) (3)
(2020 and 2040 Indian Boundary Drive) Office, Warehouse (1)
(2150 N. 15th Avenue) Manufacturing, Warehouse (1)
(2100 N. 15th Avenue) Warehouse (1)
(1930 George Street) Office, Warehouse (1)
Basingstoke, Hampshire, England Office (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)
Toronto, Ontario, Canada Office, Manufacturing, Warehouse (1)
Leased Properties:
Albertslund, Denmark Office, Warehouse (1)
Atlanta, Georgia Warehouse (1)
Auckland, New Zealand Office, Warehouse (1)
Chatsworth, California Office, Manufacturing, Warehouse (1)
Espoo, Finland Office, Warehouse (1)
Geneva, Switzerland Office (1)
Macedonia, Ohio Warehouse (2)
Ontario, California Warehouse (1)
Rakkestad, Norway Office, Warehouse (1)
Stockholm, Sweden Office, Manufacturing, Warehouse (1)
Various (1,998 locations in 46 states,
Puerto Rico, the United Kingdom, Japan
and Germany) Sally Beauty Company Stores (2)
(1) Consumer Products
(2) Specialty Distribution - Sally
(3) Corporate
</TABLE>
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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, 1998.
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.
<TABLE>
<S> <C> <C>
Name Current Position and Five-Year Business History Age
Leonard H. Lavin (1) October, 1994 - Chairman; previously Chairman and 79
Chief Executive Officer for more than five years.
Howard B. Bernick (1) October, 1994 - President and Chief Executive Officer; 46
previously President and Chief Operating Officer for
more than five years.
Bernice E. Lavin (1) July, 1994 - Vice Chairman, Secretary and Treasurer; 73
previously Vice President, Secretary and Treasurer for
more than five years.
Carol L. Bernick (1) April, 1998 - Vice Chairman and Assistant Secretary, 46
Alberto-Culver Company and President, Alberto-Culver
North America, a division of the registrant; October 1994
to April 1998 - Executive Vice President and Assistant
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.
William J. Cernugel October, 1993 - Senior Vice President, Finance; 56
April, 1982 to October, 1993 - Vice President,
Finance & Controller.
Thomas J. Pallone Vice President, Research and Development. 53
Michael H. Renzulli President, Sally Beauty Company, Inc., a subsidiary of 58
registrant.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Name Current Position and Five-Year Business History Age
Gary P. Schmidt June, 1997 - Vice President, General Counsel and 47
Assistant Secretary; April, 1990 to June, 1998 -
Vice-President, General Counsel and Secretary, Fujisawa
USA, Inc.
Terrence L. Stecz April, 1998 to December, 1998 - President, Alberto-Culver 43
USA, Inc., a subsidiary of the registrant; February, 1994
to March, 1997 - President of Whitehall-Robins Healthcare,
American Home Products Corporation; January, 1990 to
February, 1994 - President and General Manager of A.H.
Robins Consumer Products Division, American Home
Products Corporation. Mr. Stecz resigned from the Company
on December 11, 1998.
Paul H. Stoneham October, 1998 - President, Alberto-Culver International, 37
Inc., a subsidiary of registrant; December, 1997 to September,
1998 - Marketing Director, Hair Care Products - Germany,
Procter and Gamble GmbH; January, 1994 to November,
1996 - Marketing Director, Health and Beauty Care Products
- U.K., Procter and Gamble (UK) Ltd.;
October, 1992 to December, 1993 -
Marketing Director - Strategic Planning,
OTC Health Care Products - Europe,
Procter and Gamble GmbH.
(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.
</TABLE>
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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
notes 3 and 4 of "Notes to Consolidated Financial Statements" in the
registrant's annual report to stockholders for the year ended September 30,
1998.
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, 1998.
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, 1998.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, 1998.
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, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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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 28, 1999. 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 28, 1999.
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 28, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required for this Item is incorporated herein by reference to the
section entitled "Certain Business Relationships" in the registrant's proxy
statement for its annual meeting of stockholders on January 28, 1999.
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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, 1998, 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
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(i)(c) and incorporated herein by
reference from the company's Form 10-Q
Quarterly Report for the quarter ended
March 31, 1997).
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).
4 Certain instruments defining the rights of
holders of long-term obligations of the
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.
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3. Exhibits: (continued)
Exhibit
Number Description
4 (a) Copy of Indenture dated June 10, 1998 between Alberto-Culver Company and
The First National Bank of Chicago, as Trustee (filed as Exhibit 4(a) and
incorporated herein by reference from the company's Form 10-Q Quarterly Report
for the quarter ended June 30, 1998).
4 (b) Specimen of 6.375% Debentures due June 15, 2028 (filed as Exhibit 4(b) and
incorporated herein by reference from the company's Form 10-Q Quarterly Report
for the quarter ended June 30, 1998).
10 (a) Copy of Alberto-Culver Company Management Incentive Plan dated October
27, 1994, as amended * (filed as Exhibit 10(a) and incorporated herein by
reference from the company's Form 10-K Annual Report for the year ended
September 30,1997).
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-Q Quarterly Report for the quarter ended December 31, 1997).
10 (c) Copy of Alberto-Culver Company 1994 Shareholder Value Incentive Plan, as
amended * (filed as Exhibit 10(c) and incorporated herein by reference from the
company's Form 10-K Annual Report for the year ended September 30,1997).
10 (d) Copy of Alberto-Culver Company 1994 Restricted Stock Plan, as amended
*(filed as Exhibit 10(d) and incorporated herein by reference from the company's
Form 10-Q Quarterly Report for the quarter ended December 31, 1996).
10 (e) Copy of Alberto-Culver Company 1994 Stock Option Plan for Non- Employee
Directors, as amended * (filed as Exhibit 10(e) and incorporated herein by
reference from the company's Form 10-Q Quarterly Report for the quarter ended
December 31, 1997).
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).
10 (g) Form of Severance Agreement between Alberto-Culver Company and certain
executive officers * (filed as Exhibit 10(f) and incorporated herein by
reference from the company's Form 10-Q Quarterly Report for the quarter ended
December 31, 1996).
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<PAGE>
3. Exhibits: (continued)
Exhibit
Number Description
10 (h) Copy of Multicurrency Credit Agreement dated as of September 11, 1998
among Alberto-Culver Company, Bank of America National Trust and Savings
Association as U.S. agent and the other financial institutions parties thereto
(filed as Exhibit 10(h) and incorporated herein by reference from the company's
Form 10-K Annual Report for the year ended September 30, 1997).
13 Portions of annual report to stockholders for the year
ended September 30,1998 incorporated herein by reference.
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
27 (a) Amended 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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<PAGE>
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 11th day of
December, 1998.
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>
<S> <C> <C> <C>
Signature Title Date
/s/ Leonard H. Lavin Chairman of the Board December 11, 1998
- ------------------------------------
Leonard H. Lavin and Director
/s/ Howard B. Bernick President, Chief Executive December 11, 1998
- -----------------------------------
Howard B. Bernick Officer and Director
/s/ Bernice E. Lavin Vice Chairman, Secretary, December 11, 1998
- --------------------------------------
Bernice E. Lavin Treasurer and Director
/s/ Carol L. Bernick Vice Chairman, December 11, 1998
- --------------------------------------
Carol L. Bernick Assistant Secretary and Director
/s/ William J. Cernugel Senior Vice President, Finance December 11, 1998
- ------------------------------------
William J. Cernugel (Principal Financial &
Accounting Officer)
/s/ Robert Abboud Director December 11, 1998
A. Robert Abboud
/s/ A.G. Atwater, Jr. Director December 11, 1998
A. G. Atwater, Jr.
/s/ Robert P. Gwinn Director December 11, 1998
- ------------------------------------
Robert P. Gwinn
s/ Allan B. Muchin Director December 11, 1998
- -------------------------------------
Allan B. Muchin
/s/ Robert H. Rock Director December 11, 1998
- --------------------------------------
Robert H. Rock
/s/ Dr. Harold M. Visotsky Director December 11, 1998
- ---------------------------------
Dr. Harold M. Visotsky
/s/ William W. Wirtz Director December 11, 1998
- ------------------------------------
William W. Wirtz
</TABLE>
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Independent Auditors' Report
The Board of Directors and Stockholders
Alberto-Culver Company:
On October 22, 1998, we reported on the consolidated balance sheets of
Alberto-Culver Company and subsidiaries as of September 30, 1998 and
1997 and the related consolidated statements of earnings, cash flows,
and stockholders' equity for each of the years in the three-year period
ended September 30, 1998, as contained in the 1998 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 1998. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule as listed in Item 14(a)2 of the annual report on Form
10-K. That financial statement schedule is the responsibility of the
company's management. Our responsibility is to express an opinion on
that 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 22, 1998
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Schedule II
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<S> <C> <C> <C>
Year Ended September 30,
1998 1997 1996
---- ---- ----
Allowance for doubtful accounts:
Balance at beginning of period $9,042 8,208 5,663
Additions (deductions):
Charged to costs and expenses 7,162 5,664 6,309
Uncollectible accounts written off,
net of recoveries (5,532) (4,820) (4,326)
Allowance for doubtful accounts
of acquired company 266 -- 580
Other (70) (10) (18)
----------- ---------- --------
Balance at end of period $10,868 9,042 8,208
============ ============== ===========
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
Alberto-Culver Company and Subsidiaries
Year Ended September 30,
(In thousands, except per share data) 1998 1997 1996
<S> <C> <C> <C>
Net sales $1,834,711 1,775,258 1,590,409
Costs and expenses:
Cost of products sold 902,095 880,416 805,080
Advertising, promotion, selling and administrative 791,631 766,117 673,247
Interest expense, net of interest income of $3,563 in 1998, $3,588 in 1997
and $3,837 in 1996 8,607 8,238 12,068
Non-recurring gain (note 8) -- (15,634) --
------ ------ ------
Total costs and expenses 1,702,333 1,639,137 1,490,395
Earnings before provision for income taxes 132,378 136,121 100,014
Provision for income taxes (note 6) 49,311 50,704 37,270
- ------ ------ ------
Net earnings $83,067 85,417 62,744
======= ====== ======
Net earnings per share:
Basic $1.46 1.53 1.13
===== ==== ====
Diluted $1.37 1.41 1.06
===== ==== ====
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Alberto-Culver Company and Subsidiaries
(In thousands, except per share data) September 30,
<S> <C> <C>
Assets 1998 1997
Current assets:
Cash and cash equivalents $72,395 76,040
Short-term investments 910 11,560
Receivables, less allowance for doubtful accounts of $10,868 in 1998
and $9,042 in 1997 (note 3) 129,063 120,774
Inventories:
Raw materials 37,316 44,175
Work-in-process 6,119 7,252
Finished goods 325,769 292,441
------- -------
Total inventories 369,204 343,868
Prepaid expenses 19,993 28,017
------ ------
Total current assets 591,565 580,259
Property, plant and equipment (note 7):
Land 11,328 10,357
Buildings and leasehold improvements 139,622 124,920
Machinery and equipment 257,458 214,876
------- -------
Total property, plant and equipment 408,408 350,153
Accumulated depreciation 184,932 159,155
------- -------
Property, plant and equipment, net 223,476 190,998
Goodwill, net 137,599 114,245
Trade names, net 67,158 70,155
Other assets 48,386 44,402
------ ------
$1,068,184 1,000,059
========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $2,279 3,582
Current maturities of long-term debt 959 1,361
Accounts payable 177,564 174,322
Accrued expenses (note 2) 112,015 118,447
Income taxes 20,808 13,540
------ ------
Total current liabilities 313,625 311,252
Long-term debt (note 3) 171,760 149,441
Deferred income taxes 28,260 25,490
Other liabilities 20,548 16,872
Stockholders' equity (note 4): Common stock, par value $.22 per share:
Class A authorized 75,000,000 shares; 30,612,798 shares
and 24,442,931 shares issued at September 30, 1998 and 1997, respectively 6,735 5,378
Class B authorized 75,000,000 shares; 37,710,655 shares
and 37,710,664 shares issued at September 30, 1998 and 1997, respectively 8,296 8,296
Additional paid-in capital 192,610 91,222
Retained earnings 528,733 458,886
Cumulative translation adjustments (note 1) (28,131) (22,555)
------- -------
708,243 541,227
Less treasury stock, at cost (Class A common stock: 1998 -6,549,947 shares
and 1997 - 1,833,315 shares; Class B common stock: 1998 - 4,563,184
shares and 1997 - 4,178,184 shares) (note 4) (174,252) (44,223)
-------- -------
Total stockholders' equity 533,991 497,004
------- -------
$1,068,184 1,000,059
========== =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Alberto-Culver Company and Subsidiaries
(In thousands) Year ended September 30,
<S> <C> <C> <C>
1998 1997 1996
Cash Flows from Operating Activities:
Net earnings $83,067 85,417 62,744
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation 29,054 28,169 26,159
Amortization of goodwill, trade names and other assets 9,051 8,760 6,757
Non-recurring gain -- (15,634) --
Deferred income taxes 9,924 7,420 (1,858)
Other, net (4,724) (1,462) (1,527)
Cash effects of changes in (exclusive of acquisitions):
Receivables, net (4,185) 296 (2,955)
Inventories (15,973) (51,881) (12,287)
Prepaid expenses 3,689 (1,196) 302
Accounts payable and accrued expenses (6,726) 17,665 17,930
Income taxes 7,175 2,174 (2,520)
----- ----- ------
Net cash provided by operating activities 110,352 79,728 92,745
------- ------ ------
Cash Flows from Investing Activities:
Short-term investments 10,650 (6,214) (946)
Capital expenditures (55,934) (58,196) (40,894)
Other assets (3,253) (7,585) (7,313)
Proceeds from sale of business -- -- 12,448
Payments for purchased businesses, net of acquired companies' cash (33,889) (15,628) (130,981)
Proceeds from insurance settlement -- 28,000 --
Proceeds from disposals of assets 1,664 2,044 1,599
----- ----- -----
Net cash used by investing activities (80,762) (57,579) (166,087)
------- ------- --------
Cash Flows from Financing Activities:
Short-term borrowings (5,478) 1,436 (315)
Proceeds from issuance of long-term debt 125,851 550 5,475
Debt issuance costs (2,352) -- --
Repayments of long-term debt (4,009) (6,116) (29,118)
Proceeds from sale of receivables -- -- 30,000
Proceeds from exercise of stock options 11,303 5,560 1,717
Cash dividends paid (13,220) (10,909) (9,724)
Stock purchased for treasury (145,526) (1,138) (759)
-------- ------ ----
Net cash used by financing activities (33,431) (10,617) (2,724)
------- ------- ------
Effect of foreign exchange rate changes on cash 196 (1,703) (308)
--- ------ ----
Net increase (decrease) in cash and cash equivalents (3,645) 9,829 (76,374)
Cash and cash equivalents at beginning of year 76,040 66,211 142,585
------ ------ -------
Cash and cash equivalents at end of year $72,395 76,040 66,211
======= ====== ======
Supplemental Cash Flow Information:
Cash paid for:
Interest $10,709 11,478 16,333
Income taxes $30,791 42,299 42,589
Non-cash investing and financing activities:
Conversion of subordinated debentures into Class A common shares $99,875 -- --
Issuance of Class A common shares for acquisition $4,414 -- --
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Alberto-Culver Company and Subsidiaries
Number of Shares Dollars
Additional Cumulative
Common Stock Treasury Stock Common Stock Paid-in Retained Translation Treasury
(In thousands) Class A Class B Class A Class B Class A Class B Capital Earnings Adjustments Stock
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 13,263 20,944 (2,300) (4,178) $2,918 $4,608 $87,896 $337,506 $(12,966) $(49,059)
Net earnings 62,744
Cash dividends (9,724)
Stock options exercised 84 688 1,029
Stock issued pursuant to
employee incentive plans 25 371 306
Stock purchased for treasury (23) (759)
Foreign currency translation loss (462)
_________________________________________________________________________________________________
Balance at September 30, 1996 13,263 20,944 (2,214) (4,178) 2,918 4,608 88,955 390,526 (13,428) (48,483)
Net earnings 85,417
Cash dividends (10,909)
Stock dividend 11,180 16,767 2,460 3,688 (6,148)
Stock options exercised 359 1,663 4,389
Stock issued pursuant to
employee incentive plans 78 604 1,009
Stock purchased for treasury (56) (1,138)
Foreign currency translation loss (9,127)
_________________________________________________________________________________________________
Balance at September 30, 1997 24,443 37,711 (1,833) (4,178) 5,378 8,296 91,222 458,886 (22,555) (44,223)
Net earnings 83,067
Cash dividends (13,220)
Stock options exercised 918 1,606 12,628
Stock issued pursuant to
employee incentive plans 56 1,108 692
Stock issued for acquisition 171 2,237 2,177
Stock issued upon conversion
of subordinated debentures 6,170 1,357 96,437
Stock purchased for treasury (5,862) (385) (145,526)
Foreign currency translation loss (5,576)
_________________________________________________________________________________________________
Balance at September 30, 1998 30,613 37,711 (6,550) (4,563) $6,735 $8,296 $192,610 $528,733 $(28,131) $(174,252)
====== ====== ====== ====== ====== ====== ======== ======== ======== =========
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. Certain amounts for prior periods have been
reclassified to conform to the current year's presentation.
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. Actual results may differ from these estimates. Management
believes these estimates and assumptions are reasonable.
FINANCIAL INSTRUMENTS
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 are stated at cost which is equal to market value at
September 30, 1998 and 1997.
The carrying amounts of accounts receivable, accounts payable and short-term
borrowings approximate fair value due to the short maturities of these financial
instruments.
The fair value of long-term debt approximates its recorded value.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out 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, 1998 and 1997 was $30.6 million and
$23.8 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.
Realized gains and losses from foreign currency transactions included in the
consolidated statements of earnings resulted in losses of $855,000, $1.2 million
and $17,000 in 1998, 1997 and 1996, respectively.
ADVERTISING, PROMOTION AND MARKET RESEARCH
Advertising, promotion and market research costs are expensed as incurred and
amounted to $257.7 million, $255.3 million and $208.4 million in 1998, 1997 and
1996, 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
Basic earnings per share are based on the weighted average shares outstanding of
56,845,000 in 1998, 55,967,000 in 1997 and 55,571,000 in 1996.
Diluted earnings per share are determined by dividing net earnings plus interest
expense (net of tax benefit) on the convertible subordinated debentures by the
weighted average shares outstanding, after giving effect to common shares to be
issued assuming conversion of the convertible subordinated debentures to common
shares and other common equivalent shares. Diluted weighted average shares
outstanding were 62,420,000 in 1998, 63,377,000 in 1997 and 62,776,000 in 1996.
<PAGE>
The following table provides a reconciliation of basic and diluted earnings per
share:
(In thousands) 1998 1997 1996
Net earnings $83,067 85,417 62,744
Interest expense on convertible
subordinated debentures,
net of tax benefit 2,730 3,640 3,640
----- ----- -----
Diluted net earnings $85,797 89,057 66,384
======= ====== ======
Weighted average shares
outstanding - basic 56,845 55,967 55,571
Effect of dilutive securities:
Assumed conversion of
subordinated debentures 4,633 6,178 6,178
Assumed exercise of stock options 917 1,232 1,027
Other 25 -- --
Weighted average shares
outstanding - diluted 62,420 63,377 62,776
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (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 has elected to continue measuring
compensation expense for its stock-based plans using the intrinsic value method
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees". Pro- forma disclosures assuming the fair value
method prescribed by SFAS No. 123 had been used to measure compensation expense
are provided in note 5.
(2) Accrued Expenses
Accrued expenses consist of the following:
(In thousands) 1998 1997
Compensation and benefits $48,854 51,549
Advertising and promotions 26,250 29,312
Other 36,911 37,586
------ ------
$112,015 118,447
======== =======
(3) Long-Term Debt and Other Financing Arrangements
Long-term debt, exclusive of current maturities, consists of the following:
(In thousands) 1998 1997
6.375% debentures due June, 2028 $120,000 --
5.5% convertible subordinated
debentures due June, 2005 -- 100,000
6.2% term note due
September, 2000 20,000 20,000
Revolving Swedish krona credit
agreements due April, 2000
at 4.4% to 11.7% 30,163 27,736
Other, principally foreign borrowings
and capitalized leases, at weighted
average interest rates of 7.4% in
1998 and 7.6% in 1997 1,597 1,705
----- -----
$171,760 149,441
======== =======
Maturities of debt for the next five years are as follows (in thousands)
1999 - $959; 2000 - $50,657; 2001 - $442; 2002 - $298; 2003 - $81; 2004
and later $120,282.
In June, 1998, the company issued $120 million of 6.375% debentures due June 15,
2028. The debentures are subject to repayment, in whole or in part, on June 15,
2008 at the option of the holders. In addition, the company has the option to
redeem the debentures at any time, in whole or in part, at a price equal to 100%
of the principal amount plus accrued interest and, if applicable, a make-whole
premium.
<PAGE>
In July, 1998, the 5.5% convertible subordinated debentures were converted into
6.2 million Class A common shares at a conversion rate of 61.776 shares per
$1,000 principal amount of debentures (equivalent to a conversion price of
approximately $16.19).
The company has a $200 million revolving credit facility which expires in
September, 2002. The facility, which is unused at September 30, 1998, can be
increased to $300 million under certain conditions and may be drawn in U.S.
dollars or certain foreign currencies.
In January, 1998, the company renewed an agreement to sell, without recourse, up
to $30 million of designated 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, 1998, the facility was fully utilized. Costs
related to this agreement are included in administrative expenses.
The $200 million revolving credit facility, the term note due September, 2000
and the receivables agreement impose restrictions on such items as total debt,
working capital, dividend payments, treasury stock purchases and interest
expense. At September 30, 1998, the company was in compliance with these
arrangements and $220 million of consolidated retained earnings was not
restricted as to the payment of dividends.
(4) Stockholders' Equity
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 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 1998, 1997 and 1996 were $7.6 million
or $.23 per share, $6.5 million or $.195 per share and $5.9 million or $.175 per
share, respectively. Cash dividends for Class A common stock in 1998, 1997 and
1996 were $5.6 million or $.23 per share, $4.4 million or $.195 per share and
$3.9 million or $.175 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.
At the company's annual meeting in January, 1997, stockholders approved an
increase in both Class A and Class B authorized shares from 25,000,000 shares to
75,000,000 shares.
In January, 1997, the Board of Directors declared a 100% stock dividend on both
the Class A and Class B outstanding shares effective February, 1997. The stock
dividend was distributed only on outstanding shares and not on shares held in
the treasury. An amount equal to the twenty-two cents per share par value of the
additional shares was transferred from retained earnings to common stock. All
share and per share information in this report, except for treasury shares and
the twenty-two cents per share par value, has been restated to reflect the 100%
stock dividend.
During fiscal 1998, the Board of Directors authorized the company to purchase up
to 6.0 million shares of its Class A common stock. As of September 30, 1998, the
company had purchased 5,554,600 Class A common shares under this program at a
total cost of $126.1 million. In addition, during fiscal 1998 the Board of
Directors authorized the purchase of 385,000 Class B common shares from a
related party at a total cost of $11.2 million, which was equal to fair market
value on the date of purchase.
(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 non-employee 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 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. A total of 10.6 million shares have been authorized to be issued
under the plans.
The company accounts for its stock option plans under the intrinsic value method
and, accordingly, no compensation cost has been recognized in the consolidated
statements of earnings. Had compensation expense for these plans been determined
based upon the fair value of stock options on the dates of grant and recognized
over the four-year vesting period consistent with SFAS No. 123, the company's
pro-forma net earnings and earnings per share for the years ended September 30,
1998, 1997 and 1996 would have been as follows (in thousands, except per share
amounts):
1998 1997 1996
Net earnings:
As reported $83,067 85,417 62,744
Pro-forma $80,090 83,572 61,688
Basic earning per share:
As reported $1.46 1.53 1.13
Pro-forma $1.41 1.49 1.11
Diluted earnings per share:
As reported $1.37 1.41 1.06
Pro-forma $1.33 1.38 1.04
<PAGE>
The weighted average fair value of options at the date of grant in 1998, 1997
and 1996 was $7.37, $5.72 and $3.67 per option, respectively. The fair value of
each option grant was estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions:
1998 1997 1996
Expected life 5 years 5 year 5 years
Volatility 19.5% 18.7% 18.7%
Risk-free interest rate 5.5%-5.9% 6.7%-6.8% 6.0%-6.9%
Dividend yield 0.8%-1.0% 0.8%-0.9% 1.1%-1.2%
Summarized information on the company's outstanding stock options at September
30, 1998 is as follows (options in thousands):
Options
Options Outstanding Exercisable
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise of Contractual Option of Option
Prices Options Life Price Options Price
$6.63-$9.94 215 3.6 years $ 9.57 215 $ 9.57
$10.73-$13.38 1,243 6.3 years $12.51 645 $12.19
$16.25-$21.72 721 8.1 years $19.69 139 $19.50
$25.09-$26.63 876 9.0 years $26.19 214 $26.19
Stock option activity under the plans is summarized as follows (options in
thousands):
Number Weighted
of Average
Options Option Price
Outstanding at September 30, 1995 2,230 $11.06
Granted 1,031 13.59
Exercised (167) 10.30
Canceled (105) 12.24
Outstanding at September 30, 1996 2,989 11.93
Granted 888 19.80
Exercised (490) 11.35
Canceled (132) 15.33
Outstanding at September 30, 1997 3,255 14.03
Granted 927 26.19
Exercised (918) 12.32
Canceled (209) 18.61
Outstanding at September 30, 1998 3,055 $17.92
Exercisable at September 30:
1996 1,054 $10.80
1997 1,296 $11.38
1998 1,213 $15.04
The company is also authorized to grant up to 500,000 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. During 1998, employees were granted 73,000 restricted
shares at a weighted average fair value of $26.18 per share on the date of
grant. At September 30, 1998, there were 194,500 restricted shares outstanding.
<PAGE>
(6) Income Taxes
The provisions for income taxes consist of the following:
(In thousands) 1998 1997 1996
Current:
Federal $28,176 31,553 27,651
Foreign 6,089 5,716 5,566
State 5,122 6,015 5,911
----- ----- -----
39,387 43,284 39,128
------ ------ ------
Deferred:
Federal 6,928 4,849 (2,349)
Foreign 2,716 2,549 1,268
State 280 22 (777)
--- -- ----
9,924 7,420 (1,858)
----- ----- ------
$49,311 50,704 37,270
======= ====== ======
The difference between the effective income tax rate and the United States
statutory federal income tax rate is summarized below:
1998 1997 1996
Statutory tax rate 35.0% 35.0% 35.0%
Effect of foreign
income tax rates (.8) (1.3) (1.5)
State income taxes, net
of federal tax benefit 2.7 2.9 3.3
Other, net .4 .7 .5
-- -- --
Effective tax rate 37.3% 37.3% 37.3%
==== ==== ====
Significant components of the company's deferred tax assets and liabilities at
September 30, 1998 and 1997 are as follows:
(In thousands) 1998 1997
Deferred tax assets attributable to:
Accrued expenses $11,713 16,456
Inventory adjustments -- 996
Other 380 2,352
--- -----
Total deferred tax assets 12,093 19,804
------ ------
Deferred tax liabilities attributable to:
Depreciation and amortization 28,021 27,503
Inventory adjustments 1,600 --
State income taxes 619 339
--- ---
Total deferred tax liabilities 30,240 27,842
------ ------
Net deferred tax liabilities ($18,147) (8,038)
======== ======
Prepaid expenses at September 30, 1998 and 1997 include $10.1 million and $17.5
million, respectively, of net deferred tax assets.
Domestic earnings before income taxes were $105.0 million, $110.9 million
(including the non-recurring gain) and $77.9 million in 1998, 1997 and 1996,
respectively. Foreign operations had earnings before income taxes of $27.4
million, $25.2 million and $22.1 million in 1998, 1997 and 1996, respectively.
Undistributed earnings of the company's foreign operations amounting to $134.9
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, 1998. Should such earnings be distributed, the credits
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, 1998,
future minimum payments under noncancelable leases are as follows:
Operating Capital
(In thousands) Leases Leases
1999 $46,813 402
2000 38,773 235
2001 30,044 131
2002 21,295 62
2003 11,597 8
2004 and later 7,863 --
- ---- -----
Total minimum lease payments $156,385 838
======== ===
Total rental expense for operating leases amounted to $63.1 million in 1998,
$59.6 million in 1997 and $53.0 million in 1996. Certain leases require
the company to pay real estate taxes, insurance, maintenance and special
assessments.
(8) Non-Recurring Gain
In the first quarter of 1997, the company received a $28.0 million insurance
settlement from the loss of its corporate airplane. The effect on the company's
earnings was a non-recurring pre-tax gain of $15.6 million and an increase in
net earnings of $9.8 million. Accordingly, basic earnings per share increased
$.18 and diluted earnings per share increased $.16.
The following table provides pro-forma information excluding the non-recurring
gain (in thousands, except per share data):
1998 1997
Pre-tax earnings $132,378 120,487
Net earnings $83,067 75,606
Net earnings per share:
Basic $1.46 1.35
Diluted $1.37 1.25
(9) 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.
<PAGE>
Notes Continued
<TABLE>
<CAPTION>
(9) Business Segments and Geographic Area Information (continued)
Segment data for the years ended September 30, 1998, 1997 and 1996 is as
follows:
Business Segments Information (In thousands) 1998 1997 1996
<S> <C> <C> <C>
Net sales:
Consumer products:
Alberto-Culver USA $ 418,190 444,204 377,468
Alberto-Culver International 460,507 466,530 452,030
------- ------- -------
Total consumer products 878,697 910,734 829,498
Specialty distribution - Sally 972,792 879,209 771,868
Eliminations (16,778) (14,685) (10,957)
------- ------- -------
$1,834,711 1,775,258 1,590,409
========== ========= =========
Earnings before provision for income taxes:
Consumer products:
Alberto-Culver USA $ 25,539 29,243 21,445
Alberto-Culver International 27,194 24,680 21,737
------ ------ ------
Total consumer products 52,733 53,923 43,182
Specialty distribution - Sally 100,716 89,456 78,871
------- ------ ------
Operating profit 153,449 143,379 122,053
Non-recurring gain (note 8) -- 15,634 --
Unallocated expenses, net* (12,464) (14,654) (9,971)
Interest expense, net of interest income (8,607) (8,238) (12,068)
------ ------ -------
$132,378 136,121 100,014
======== ======= =======
Identifiable assets:
Consumer products:
Alberto-Culver USA $ 186,729 205,804 197,478
Alberto-Culver International 341,943 329,887 333,738
------- ------- -------
Total consumer products 528,672 535,691 531,216
Specialty distribution - Sally 421,050 373,111 308,869
Corporate** 118,462 91,257 69,181
------- ------ ------
$1,068,184 1,000,059 909,266
========== ========= =======
Depreciation and amortization expense:
Consumer products:
Alberto-Culver USA $ 9,949 10,008 7,601
Alberto-Culver International 10,904 11,454 11,376
------ ------ ------
Total consumer products 20,853 21,462 18,977
Specialty distribution - Sally 16,202 14,001 11,780
Corporate 1,050 1,466 2,159
----- ----- -----
$38,105 36,929 32,916
======= ====== ======
Capital expenditures:
Consumer products:
Alberto-Culver USA $14,594 7,434 11,419
Alberto-Culver International 10,397 16,694 8,885
------ ------ -----
Total consumer products 24,991 24,128 20,304
Specialty distribution - Sally 15,158 18,608 20,872
Corporate 16,000 15,700 --
------ ------ ------
56,149 58,436 41,176
======= ====== ======
* "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.
Geographic data for the years ended September 30, 1998, 1997 and 1996 is as
follows:
Geographic Area Information (In thousands) 1998 1997 1996
Net sales:
United States $1,344,592 1,309,016 1,148,268
Foreign 505,319 484,978 453,709
Eliminations (15,200) (18,736) (11,568)
------- ------- -------
$1,834,711 1,775,258 1,590,409
========== ========= =========
Operating profit:
United States $119,879 113,402 98,288
Foreign 33,570 29,977 23,765
------ ------ ------
$153,449 143,379 122,053
======== ======= =======
Identifiable assets:
United States $ 568,627 565,578 507,545
Foreign 381,095 343,224 332,540
Corporate* 118,462 91,257 69,181
------- ------ ------
$1,068,184 1,000,059 909,266
========== ========= =======
* Corporate identifiable assets are primarily cash, cash equivalents, short-term
investments and equipment.
</TABLE>
<PAGE>
Notes Continued
(10) Quarterly Financial Data
Unaudited quarterly consolidated statement of earnings information for the years
ended September 30, 1998 and 1997 is summarized below (in thousands, except per
share amounts):
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1998:
Net sales $445,400 455,195 467,480 466,636
Cost of products sold $218,040 225,770 227,104 231,181
Net earnings $19,692 19,583 21,155 22,637
Earnings per share:
Basic $.35 .34 .38 .39
Diluted $.32 .32 .35 .38
1997 As Reported:
Net sales $426,105 439,577 456,210 453,366
Cost of products sold $215,388 218,057 226,734 220,237
Net earnings $ 26,588 17,781 19,210 21,838
Earnings per share:
Basic $.48 .32 .34 .39
Diluted $.44 .29 .32 . 36
1997 Pro Forma:
Net earnings before
non-recurring gain $16,777* 17,781 19,210 21,838
Earnings per share before
non-recurring gain:
Basic $.30* .32 .34 .39
Diluted $.28* .29 .32 . 36
* Excludes a non-recurring gain of $9.8 million or $.18 basic earnings per
share and $.16 diluted earnings per share (note 8).
(11) Acquisitions and Divestiture
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 St. Ives 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 of $100 million of 5.5% convertible subordinated debentures
and from the sale of certain trade accounts receivable in January, 1996.
The acquisition was 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 $51
million is being amortized over 40 years.
The company also made several other acquisitions during fiscal years 1998, 1997
and 1996, primarily related to Sally Beauty Company's operations, that were
insignificant to the consolidated financial statements.
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.
<PAGE>
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, 1998 and 1997, and the related
consolidated statements of earnings, cash flows and stockholders' equity for
each of the years in the three-year period ended September 30, 1998. 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1998, in conformity with generally accepted
accounting principles.
Chicago, Illinois
October 22, 1998 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 1998 marked the company's seventh consecutive year of record sales
and record operating earnings. Net sales for the year ended September 30, 1998
were $1.83 billion, an increase of 3.3% over prior year sales of $1.78 billion.
Net sales in 1996 were $1.59 billion.
Record net earnings of $83.1 million in 1998 increased 9.9% from 1997 net
earnings of $75.6 million before a non-recurring gain. Excluding the 1997
non-recurring gain, basic earnings per share of $1.46 were 11 cents or 8.1%
higher than 1997 and diluted earnings per share were $1.37, an increase of 12
cents or 9.6% from 1997. Net earnings in 1996 were $62.7 million, representing
basic earnings per share of $1.13 and diluted earnings per share of $1.06.
As described in "note 8" to the consolidated financial statements, during fiscal
1997 the company received a $28.0 million insurance settlement from the loss of
its corporate airplane. As a result, the company recognized a non-recurring
pre-tax gain of $15.6 million and an increase in net earnings of $9.8 million.
Accordingly, basic earnings per share in 1997 increased 18 cents and diluted
earnings per share increased 16 cents as a result of the non-recurring gain.
Fiscal 1998 net earnings decreased $2.4 million or 2.8% compared to fiscal 1997
net earnings including the non-recurring gain.
Sales of Alberto-Culver USA consumer products in 1998 were $418.2 million, a
decrease of 5.9% from prior year sales of $444.2 million. The 1998 decrease
primarily resulted from lower sales for custom label filling operations, St.
Ives Swiss Formula facial products and Alberto VO5 shampoo and conditioner. In
1997, sales increased 17.7% over 1996 sales of $377.5 million primarily due to
higher sales of St. Ives products in addition to sales increases for TRESemme,
TCB, Mrs. Dash, Alberto VO5 Hot Oil and the introduction of new products.
Alberto-Culver International consumer products sales were $460.5 million in 1998
compared to $466.5 million in 1997 and $452.0 million in 1996. The fiscal 1998
results were negatively impacted by the effect of foreign exchange rates. Had
foreign exchange rates this year been the same as fiscal 1997, Alberto-Culver
International sales would have increased 4.3%. The sales increase in 1997
primarily resulted from higher sales of St. Ives products.
Sales of the "Specialty distribution - Sally" business segment increased to
$972.8 million in 1998 compared to $879.2 million and $771.9 million in 1997 and
1996, respectively. The sales increases of 10.6% in 1998 and 13.9% in 1997 were
attributable to sales gains for established Sally Beauty Company outlets, the
addition of stores during the year and the expansion of Sally's full service and
foreign operations through acquisitions and internal growth. The number of Sally
stores increased 33.7% during the last three fiscal years to a total of 1,998 at
the end of fiscal 1998 compared to 1,833 and 1,656 at the end of 1997 and 1996,
respectively.
Cost of products sold as a percentage of sales was 49.2% in fiscal year 1998
compared to 49.6% in 1997 and 50.6% in 1996. The lower cost of products sold
percentages in 1998 and 1997 were primarily due to cost savings and changes in
product mix favoring higher margin products, offset in part by Sally Beauty
Company's relatively higher cost of goods sold percentage.
Advertising, promotion, selling and administrative expenses increased 3.3% in
1998 and 13.8% in 1997. The increase in 1998 primarily resulted from the higher
selling and administration costs associated with the growth of the Sally Beauty
business. The higher 1997 expenses were also attributable to Sally's growth as
well as the acquisition of St. Ives and higher advertising, promotion and market
research expenses for Alberto-Culver USA.
Advertising, promotion and market research expenditures were $257.7 million,
$255.3 million and $208.4 million in 1998, 1997 and 1996, respectively. The
higher expenses in 1998 were mainly attributable to increased advertising and
promotion expenditures for Alberto-Culver International. The increase in 1997
expenses mainly resulted from the acquisition of St. Ives and increased
marketing expenditures for Alberto-Culver USA, including the introduction of new
products.
Interest expense, net of interest income, was $8.6 million, $8.2 million and
$12.1 million in 1998, 1997 and 1996, respectively. Interest expense was $12.2
million in 1998 versus $11.8 million in 1997 and $15.9 million in 1996. The
decrease in interest expense in 1997 was attributable to the prepayment of $20
million of 9.73% term notes in August, 1996 and a reduction in outstanding
revolving Swedish krona debt, including the impact of foreign exchange rates.
The provision for income taxes as a percentage of earnings before income taxes
was 37.3% in 1998, 1997 and 1996. 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, 1998 was $277.9 million, an increase of $8.9
million from the prior year's working capital of $269.0 million. The resulting
current ratio was 1.89 to 1.00 at September 30, 1998 compared to 1.86 to 1.00
last year.
Accounts receivable increased 6.9% to $129.1 million from $120.8 million last
year. The increase was principally due to the growth of Sally's full
service operations.
<PAGE>
Inventories were $369.2 million at September 30, 1998, up 7.3% compared to
$343.9 million last year. The increase was primarily due to higher inventories
needed to support the growth of the Sally Beauty business.
Net property, plant and equipment increased $32.4 million to $223.5 million at
September 30, 1998. The increase resulted primarily from additional Sally
stores, warehouse and office expenditures, outlays for machinery, equipment and
information systems and the purchase of a replacement corporate airplane,
partially offset by depreciation during fiscal 1998.
Goodwill and trade names, net of amortization, was $204.8 million as of
September 30, 1998, up $20.4 million from 1997. The increase in goodwill and
trade names was due to additional goodwill from acquisitions by Sally Beauty
Company and Alberto-Culver International partially offset by amortization and
the effects of foreign exchange rates.
Long-term debt increased $22.3 million principally due to the issuance of $120
million of 6.375% debentures in June, 1998, substantially offset by the
conversion of the $100 of million subordinated debentures into Class A common
shares in July, 1998.
Total stockholders' equity increased $37.0 million to $534.0 million at
September 30, 1998. The increase was primarily due to net earnings for the
fiscal year and the conversion of the subordinated debentures into Class A
common shares, substantially offset by the repurchase of 5.9 million Class A
common shares and 385,000 Class B common shares and dividend payments.
LIQUIDITY AND CAPITAL RESOURCES
The company's primary sources of cash over the past three years have been from
funds provided by operating activities, the issuance of $120 million of 6.375%
debentures in June, 1998 and the 1996 sale of $30 million of trade accounts
receivable. Operating activities provided cash of $110.4 million, $79.7 million
and $92.7 million in 1998, 1997 and 1996, respectively.
The company has obtained long-term financing as needed to fund acquisitions and
other growth opportunities. Funds are occasionally obtained prior to their
actual need in order to take advantage of opportunities in the debt markets. In
June, 1998, the company issued $120 million of 6.375% debentures due June, 2028.
As a result, the company has $230 million remaining on its $350 million shelf
registration of debt securities that was filed with the Securities and Exchange
Commission in April, 1998. In September, 1997, the company obtained a five-year,
$200 million revolving credit facility. The facility, which is unused at
September 30, 1998, can be increased to $300 million under certain conditions
and may be drawn in U.S. dollars or in certain foreign currencies. Under debt
covenants, the company has the ability to incur up to $646 million of additional
debt.
The primary uses of cash during the three-year period ending September 30, 1998
have been acquisitions of $180.5 million, purchases of treasury stock of $147.4
million, capital expenditures of $155.0 million and cash dividends of $33.9
million.
Compared to 1995, cash dividends per share increased 48.4% over the three-year
period ended September 30, 1998. Cash dividends paid on Class A and Class B
common stock were $.230 per share in 1998, $.195 per share in 1997 and $.175 per
share in 1996.
The company anticipates that cash flows from operations and available credit
will be sufficient to fund operational requirements in future years. During
1999, 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. During fiscal 1998, the Board of Directors
authorized the company to purchase up to 6.0 million shares of its Class A
common stock. As of September 30, 1998, 445,400 shares remained available for
purchase under this authorization. In October, 1998, the Board of Directors
authorized the purchase of an additional 3.0 million Class A shares.
YEAR 2000 READINESS DISCLOSURES
Many computer systems use only two digits to represent the year and they may be
unable to process accurately information that contains dates before, during or
after the year 2000. As a result, organizations that depend on computers are at
risk for possible date-based computation errors which could result in erroneous
information or system failures that may disrupt their business operations. This
is commonly known as the Year 2000 ("Y2K") problem.
Most of the software purchased by the company within the last five years is
either Y2K compliant or the vendor has certified that Y2K compliant upgrades
will be available sufficiently in advance of December 31, 1999. In late 1995,
the company inventoried and assessed key financial and operational information
systems and prepared a prioritized plan for Y2K systems modifications or
replacements. The plan is revised periodically and progress against the plan is
monitored and periodically reported to management and the Audit Committee of the
Board of Directors. Implementation of required changes to the company's critical
systems is currently scheduled to be completed by August, 1999. Certification of
critical systems, which includes testing by technicians and key users, is
expected to be completed before December 31, 1999. The company's assessment of
non-information technology systems (e.g., manufacturing equipment) is expected
to be completed by February, 1999, and an action plan will be prepared based on
the results.
<PAGE>
As part of the Y2K readiness plan, the company's most important suppliers and
customers have been queried (e.g., by questionnaires) about their Y2K readiness.
Additional steps will be taken to reassess their Y2K readiness through
additional questionnaires, interviews, on-site visits and other means. The
company expects to have a better understanding of the Y2K readiness of these
third parties over the next several months.
Because of the number of computer systems used by the company, the number of key
suppliers and customers and the company's operations around the world, the
company presently believes that it could experience some disruption in its
business due to the Y2K problem. The company could be materially affected if
utilities, governmental entities, suppliers, customers or other third parties
with which it does business or that provide essential services are not Y2K
compliant. The company currently believes that the greatest risk of disruption
in its businesses may exist outside the United States with suppliers or other
third-parties that are not Y2K compliant. In addition, both the assessment and
mitigation of Y2K exposure outside the US may be complicated by any unrelated
foreign entities' unwillingness to provide information about their state of Y2K
readiness. The possible consequences of the company, key suppliers or customers
not being Y2K complaint by January 1, 2000 include, among other things,
temporary plant closings, delays in the delivery of products, delays in the
receipt of supplies, and invoice and collection errors. Consequently, the
business and results of operations of the company could be materially affected
by the inability of the company to conduct its businesses in an ordinary course
for a period of time after January 1, 2000. However, the company believes that
its Y2K readiness plan, including the contingency planning discussed below,
should significantly reduce the adverse effect any such disruptions may have.
The company is developing a contingency plan to be followed in the event of a
Y2K-related failure of a business-critical system. This plan should be complete
by June, 1999 and is expected to include, for example, identification of
alternate suppliers and possible increases in inventory levels, including raw
materials and packaging. Once developed, contingency plans and related cost
estimates will be refined as additional information becomes available.
Incremental costs, which include contractor costs to modify existing systems and
costs of internal resources dedicated to achieving Y2K compliance, are charged
to expense as incurred. These costs are currently expected to total
approximately $2.3 million, of which approximately 40% has been spent to date.
Incremental costs are presently being funded through operating cash flow. The
amounts do not include any costs associated with the implementation of
contingency plans, which are in the process of being developed, as discussed
above. The costs associated with replacement of computerized systems, hardware
and related equipment (currently estimated to be approximately $6.2 million),
substantially all of which will be capitalized, are not included in the above
estimates.
The company's Y2K readiness program is an evolving and ongoing process.
Accordingly, our current conclusions as to what constitutes areas of the
company's greatest Y2K exposure and the estimates of costs and completion dates,
as described above, are subject to change. The Y2K problem has many aspects and
potential consequences, some of which are not reasonably foreseeable, and there
can be no assurance that unforeseen consequences will not arise.
IMPACT OF NEW ACCOUNTING STANDARDS
In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires the prominent display of comprehensive income and its components
in the financial statements. The company is required to comply with SFAS No. 130
in fiscal year 1999 and currently believes its adoption will not have a material
effect on the consolidated financial statements.
In June, 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in financial statements. The
company is required to comply with SFAS No. 131 in fiscal year 1999 and does not
expect its adoption to have a material effect on the consolidated financial
statements.
In March, 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 revises the accounting
treatment of software development costs and requires capitalization of certain
costs which the company has historically expensed as incurred. The company is
required to comply with SOP 98-1 in fiscal year 2000 and currently believes 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.
MARKET RISK
As a multinational corporation that manufactures and markets products in
countries throughout the world, the company is subject to certain market risks,
including foreign currency, interest rates and government actions. The company
uses a variety of practices to manage these market risks, including, when
considered appropriate, derivative financial instruments. The company uses
derivative financial instruments only for risk management and does not use them
for trading or speculative purposes.
The company is exposed to potential gains or losses from foreign currency
fluctuations affecting net investments and earnings denominated in foreign
currencies. The company's primary exposures are to changes in exchange rates for
the U.S. dollar versus the Swedish krona, the British pound sterling, the
Canadian dollar, the Australian dollar and the Mexican peso.
<PAGE>
The company's various currency exposures often offset each other, providing a
natural hedge against currency risk. Periodically, specific foreign currency
transactions (e.g. inventory purchases, royalty payments, etc.) are hedged with
forward contracts to reduce the foreign currency risk. Gains and losses on these
foreign currency hedges are included in the basis of the underlying hedged
transactions. As of September 30, 1998, the company had an outstanding foreign
currency contract to sell the equivalent of $1.3 million of Japanese yen to
hedge a third-party royalty agreement. The fair value of this agreement results
in an immaterial unrecognized gain at September 30, 1998.
Interest rate risk is managed through a combination of fixed rate and variable
rate debt with varying maturities. At September 30, 1998, variable rate
long-term debt was $11.0 million or 6.4% of total long-term debt.
The company periodically uses interest rate swaps to manage interest rate risk
on debt securities. These instruments allow the company to exchange variable
rate debt into fixed rate or fixed rate debt into variable rate. Interest rate
differentials paid or received on these arrangements are recognized as
adjustments to interest expense over the life of the agreement. At September 30,
1998, the company had one interest rate swap outstanding, which expires in
November 1998, in a notional amount of $5.0 million. The fair value of this
agreement results in an immaterial unrecognized loss at September 30, 1998.
The company is exposed to credit risk on certain assets, primarily cash
equivalents, short-term investments and accounts receivable. The credit risk
associated with cash equivalents and short-term investments is mitigated by the
company's policy of investing in securities with high credit ratings and
investing through major financial institutions with high credit ratings.
The company provides credit to customers in the ordinary course of business and
performs ongoing credit evaluations. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of customers comprising
the company's customer base. The company currently believes its allowance for
doubtful accounts is sufficient to cover customer credit risks.
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
Alberto-Culver Company and Subsidiaries
Year ended September 30,
(In thousands, except per share data) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Operating Results:
Net sales $1,834,711 1,775,258 1,590,409 1,358,219 1,216,119
Cost of products sold 902,095 880,416 805,080 682,589 602,749
Interest expense 12,170 11,826 15,905 9,946 8,630
Earnings before non-recurring gain and income taxes (1) 132,378 120,487 100,014 84,242 71,078
Provision for income taxes (1) 49,311 44,881 37,270 31,591 27,010
Net earnings before non-recurring gain (1) 83,067 75,606 62,744 52,651 44,068
Net earnings per share before non-recurring gain (1) (2):
Basic 1.46 1.35 1.13 .95 .79
Diluted 1.37 1.25 1.06 .94 .79
Weighted average shares outstanding: (2)
Basic 56,845 55,967 55,571 55,430 56,063
Diluted 62,420 63,377 62,776 57,053 56,083
Shares outstanding at year end: (2)
Class A 24,063 22,610 22,229 22,143 22,093
Class B 33,148 33,533 33,533 33,533 33,534
Financial Condition:
Current ratio 1.89 to 1 1.86 to 1 1.79 to 1 2.28 to 1 1.86 to 1
Working capital $ 277,940 269,007 226,123 301,706 185,747
Cash, cash equivalents and short-term investments 73,305 87,600 71,557 146,985 50,362
Property, plant and equipment, net 223,476 190,998 175,920 157,791 132,881
Total assets 1,068,184 1,000,059 909,266 815,086 610,208
Long-term debt including debentures 171,760 149,441 161,548 183,094 142,976
Stockholders' equity 533,991 497,004 425,096 370,903 326,970
Cash dividends 13,220 10,909 9,724 8,590 7,708
Cash dividends per share (3) .230 .195 .175 .155 .1375
</TABLE>
(1) 1997 excludes a non-recurring gain from an insurance settlement for the
loss of the company's corporate airplane (note 8). Pre-tax earnings
including the non-recurring gain were $136.1 million. Net earnings
including the gain were $85.4 million, after deducting income taxes of
$50.7 million, resulting in basic per share of $1.53 and diluted earnings
per share of $1.41.
(2) Net earnings per share and shares outstanding have been restated to reflect
the 100% stock dividend on the company's Class A and Class B
outstanding shares in February, 1997.
(3) 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.
Annual 10-K Report
Stockholders may obtain a copy of the company's 1998 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>
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 1998 and 1997 are as follows:
<TABLE>
Cash
Market Price Range Dividends
1998 1997 Per Share
High Low High Low 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Class A (NYSE Symbol ACVA):
First Quarter $27-7/8 24-1/2 21-3/8 18-3/8 $ .05 .045
Second Quarter $27-3/4 25 24 20 .06 .050
Third Quarter $28-1/2 25 25-5/8 21 .06 .050
Fourth Quarter $25-7/8 17-15/16 26-11/16 21-13/16 .06 .050
$.23 .195
Class B (NYSE Symbol ACV):
First Quarter $32-9/16 27-9/16 25 21-3/8 $.05 .045
Second Quarter $32-7/16 29 28-5/8 23-9/16 .06 .050
Third Quarter $32-5/16 28-1/4 30 25 .06 .050
Fourth Quarter $29-3/8 19-3/4 31-9/16 26-1/16 .06 .050
$.23 .195
</TABLE>
As of November 20, 1998, stockholders of record totaled 1,084 for Class A shares
and 1,097 for Class B shares.
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, 33-62701,
333-35795, 333-51527, 333-51529 and 333-60059) and Form S-3 (Numbers
333-43711 and 333-49649) of Alberto-Culver Company of our reports dated
October 22, 1998, relating to the consolidated balance sheets of
Alberto-Culver Company and subsidiaries as of September 30, 1998 and 1997
and the related consolidated statements of earnings, cash flows, and
stockholders' equity and related schedule for each of the years in the
three-year period ended September 30, 1998, which reports appear or are
incorporated by reference in the September 30, 1998 annual report on Form
10-K of Alberto-Culver Company.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Chicago, Illinois
December 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Financial Data Schedule
Year Ended September 30, 1998
(in thousands)
This schedule contains summary financial information extracted from the
consolidated balance sheet as of September 30, 1998 and the consolidated
statement of earnings for the year ended September 30, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000003327
<NAME> ALBERTO-CULVER
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1.00
<CASH> 72,395
<SECURITIES> 910
<RECEIVABLES> 129,063
<ALLOWANCES> 10,868
<INVENTORY> 369,204
<CURRENT-ASSETS> 591,565
<PP&E> 408,408
<DEPRECIATION> 184,932
<TOTAL-ASSETS> 1,068,184
<CURRENT-LIABILITIES> 313,625
<BONDS> 171,760
0
0
<COMMON> 15,031
<OTHER-SE> 518,960
<TOTAL-LIABILITY-AND-EQUITY> 1,068,184
<SALES> 1,834,711
<TOTAL-REVENUES> 1,834,711
<CGS> 902,095
<TOTAL-COSTS> 902,095
<OTHER-EXPENSES> 791,631
<LOSS-PROVISION> 7,162
<INTEREST-EXPENSE> 12,170
<INCOME-PRETAX> 132,378
<INCOME-TAX> 49,311
<INCOME-CONTINUING> 83,067
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,067
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27 (a)
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Amended Financial Data Schedule
Year Ended September 30, 1997
(in thousands)
This schedule contains summary financial information extracted from the
consolidated balance sheet as of September 30, 1997 and the consolidated
statement of earnings for the year ended September 30,7 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000003327
<NAME> ALBERTO-CULVER
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 76,040
<SECURITIES> 11,560
<RECEIVABLES> 129,816
<ALLOWANCES> 9,042
<INVENTORY> 343,868
<CURRENT-ASSETS> 580,259
<PP&E> 350,153
<DEPRECIATION> 159,155
<TOTAL-ASSETS> 1,000,059
<CURRENT-LIABILITIES> 311,252
<BONDS> 149,441
0
0
<COMMON> 13,674
<OTHER-SE> 483,330
<TOTAL-LIABILITY-AND-EQUITY> 1,000,059
<SALES> 1,775,258
<TOTAL-REVENUES> 1,775,258
<CGS> 880,416
<TOTAL-COSTS> 880,416
<OTHER-EXPENSES> 766,117
<LOSS-PROVISION> 5,813
<INTEREST-EXPENSE> 11,826
<INCOME-PRETAX> 136,121
<INCOME-TAX> 50,704
<INCOME-CONTINUING> 85,417
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,417
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.41
</TABLE>
