SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED:
March 31, 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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
At March 31, 1998, there were 23,325,895 shares of Class A common stock
outstanding and 33,532,480 shares of Class B common stock outstanding.
1
<PAGE>
PART I
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended March 31, 1998 and 1997
(dollar amounts in thousands, except per share figures)
(Unaudited)
<CAPTION>
1998 1997
<S> <C> <C>
Net sales $455,195 439,577
Costs and expenses:
Cost of products sold 225,770 218,057
Advertising, promotion, selling and administrative 196,054 191,118
Interest expense, net of interest income of $619
in 1998 and $857 in 1997 2,163 2,067
----- -----
Total costs and expenses 423,987 411,242
------- -------
Earnings before provision for income taxes 31,208 28,335
Provision for income taxes 11,625 10,554
------ ------
Net earnings $ 19,583 17,781
========== ======
Net earnings per share (Notes 2 and 3)
Basic $ .34 .32
========== ===
Diluted $ .32 .29
========== ===
Cash dividends paid per share (Note 2) $ .06 .05
========== ===
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
Six Months Ended March 31, 1998 and 1997
(dollar amounts in thousands, except per share figures)
(Unaudited)
<CAPTION>
1998 1997
<S> <C> <C>
Net sales $900,595 865,682
Costs and expenses:
Cost of products sold 443,810 433,445
Advertising, promotion, selling and administrative 389,951 372,705
Interest expense, net of interest income of $1,382
in 1998 and $1,644 in 1997 4,244 4,459
----- -----
Total costs and expenses 838,005 810,609
------- -------
Earnings before non-recurring gain and provision for income taxes 62,590 55,073
Non-recurring gain (Note 5) -- 15,634
------ ------
Earnings before provision for income taxes 62,590 70,707
Provision for income taxes (Note 5) 23,315 26,338
------ ------
Net earnings (Note 5) $ 39,275 44,369
======== ======
Net earnings per share of common stock (Notes 2, 3 and 5)
Basic $ .69 .80
======== ===
Diluted $ .64 .73
======== ===
Cash dividends paid per share (Note 2) $ .11 .095
======== ====
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1998 and September 30, 1997
(dollar amounts in thousands, except per share figures)
<CAPTION>
(Unaudited)
March 31, September 30,
ASSETS 1998 1997
<S> <C>
Current assets:
Cash and cash equivalents $ 78,811 76,040
Short-term investments 5,009 11,560
Receivables, less allowance for doubtful
accounts ($9,567 at 3/31/98 and $9,042 at 9/30/97) 114,718 120,774
Inventories (Note 4) 357,552 343,868
Other current assets 25,925 28,017
------ ------
Total current assets 582,015 580,259
------- -------
Property, plant and equipment at cost, less accumulated
depreciation ($171,277 at 3/31/98 and $159,155 at 9/30/97) 201,991 190,998
Goodwill, net 116,215 114,245
Trade names and other intangible assets, net 67,658 70,155
Other assets 45,392 44,402
------ ------
Total assets $1,013,271 $1,000,059
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and short-term borrowings $ 3,730 4,943
Accounts payable 155,892 174,322
Accrued expenses 108,837 118,447
Income taxes 22,052 13,540
------ ------
Total current liabilities 290,511 311,252
------- -------
Long-term debt 46,330 49,441
Convertible subordinated debentures 100,000 100,000
Deferred income taxes 25,690 25,490
Other liabilities 16,274 16,872
Stockholders' equity (Note 2): Common stock, par value $.22 per share:
Class A authorized 75,000,000 shares; issued 24,442,931 shares 5,378 5,378
Class B authorized 75,000,000 shares; issued 37,710,664 shares 8,296 8,296
Additional paid-in capital 96,550 91,222
Retained earnings 491,949 458,886
Foreign currency translation (27,583) (22,555)
------- -------
574,590 541,227
Less treasury stock at cost (Class A common shares: 1,117,036
at 3/31/98 and 1,833,315 at 9/30/97; Class B common
shares: 4,178,184 at 3/31/98 and at 9/30/97) (Note 6) (40,124) (44,223)
------- -------
Total stockholders' equity 534,466 497,004
------- -------
Total liabilities and stockholders' equity $1,013,271 $1,000,059
========== ==========
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six months Ended March 31, 1998 and 1997
(dollar amounts in thousands)
<CAPTION>
(Unaudited)
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $39,275 44,369
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 19,721 17,888
Non-recurring gain -- (15,634)
Other, net (1,216) (2,114)
Cash effects of changes in:
Receivables, net 5,210 (2,949)
Inventories (9,792) (18,422)
Other current assets 662 (3,172)
Accounts payable and accrued expenses (27,165) 6,713
Income taxes 12,038 9,134
------ -----
Net cash provided by operating activities 38,733 35,813
------ ------
Cash Flows from Investing Activities:
Short-term investments 6,551 (2,154)
Capital expenditures (26,249) (30,074)
Payments for purchased businesses, net of acquired companies' cash (7,050) (13,670)
Proceeds from insurance settlement -- 28,000
Other, net 622 1,621
--- -----
Net cash used by investing activities (26,126) (16,277)
------- -------
Cash Flows from Financing Activities:
Short-term borrowings (773) 2,527
Proceeds from long-term debt 404 927
Repayments of long-term debt (3,540) (826)
Cash dividends paid (6,222) (5,298)
Cash proceeds from exercise of stock options 10,644 4,314
Stock purchased for treasury (10,650) (1,138)
------- ------
Net cash provided (used) by financing activities (10,137) 506
------- ---
Effect of foreign exchange rate changes on cash 301 (816)
--- ----
Net increase in cash and cash equivalents 2,771 19,226
Cash and cash equivalents at beginning of period 76,040 66,211
------ ------
Cash and cash equivalents at end of period $ 78,811 85,437
======== ======
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l) The consolidated financial statements contained in this report have not
been examined by independent public accountants, except for balance sheet
information presented at September 30, 1997. However, in the opinion of
the company, the consolidated financial statements reflect all
adjustments, which include only normal adjustments, necessary to present
fairly the data contained therein. The results of operations for the
periods covered are not necessarily indicative of results for a full year.
(2) On January 23, 1997, the company announced a 100% stock dividend on its
Class A and Class B outstanding shares. The new shares were distributed
February 20, 1997 to shareholders of record at the close of business on
February 3, 1997. The stock dividend was distributed only on outstanding
shares and not on shares held in the treasury. All share and per share
information in this report, except for treasury shares, has been restated
to reflect the 100% stock dividend.
(3) The company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share" which requires the dual
presentation of basic and diluted earnings per share, replacing the
primary and fully-diluted disclosures previously required. As a result,
all prior period earnings per share amounts have been restated to conform
to the current year's presentation.
Basic earnings per share are calculated using the weighted average of
actual shares outstanding of 56,886,000 and 56,006,000 for the three
months ended March 31, 1998 and 1997, respectively, and 56,646,000 and
55,866,000 for the six months ended March 31, 1998 and 1997, respectively,
after giving effect to the 100% stock dividend described in Note 2.
Diluted earnings per share are determined by dividing net earnings before
interest expense (net of tax benefit) on the convertible subordinated
debentures by the weighted average shares outstanding, including common
stock equivalents, after giving effect to common shares to be issued
assuming conversion of the convertible subordinated debentures to Class A
common stock. Diluted weighted average shares outstanding were 64,124,000
and 63,494,000 for the three months ended March 31, 1998 and 1997,
respectively, and 63,884,000 and 63,229,000 for the six months ended March
31, 1998 and 1997, respectively, after giving effect to the 100% stock
dividend described in Note 2.
(4) Inventories consist of the following:
(in thousands)
March 31, September 30,
1998 1997
---- ----
Finished $307,456 292,441
Work-in-proces 7,010 7,252
Raw materials 43,086 44,175
------ ------
$357,552 343,868
======== =======
6
<PAGE>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) In the first quarter of fiscal year 1997, the company received a $28.0
million insurance settlement from the loss of its corporate airplane. The
effect on the company's earnings in fiscal 1997 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 $0.18 and on a
diluted basis rose $0.16.
The following table provides pro-forma information for the first six
months of the fiscal year excluding the non-recurring gain (in thousands,
except per share data):
1998 1997
Pre-tax earnings $ 62,590 55,073
======== ======
Net earnings $ 39,275 34,558
======== ======
Net earnings per share:
Basic $ 0.69 0.62
====== ====
Diluted $ 0.64 0.57
====== ====
(6) On January 22, 1998, the Board of Directors authorized the purchase of up
to 3.0 million shares of the Company's Class A common stock within the
next 24 months. As of March 31, 1998, the company had purchased 94,300
Class A shares under the stock buyback program.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
SECOND QUARTER AND SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO QUARTER AND SIX
MONTHS ENDED MARCH 31, 1997
The company achieved record net sales of $455.2 million in the second quarter of
fiscal year 1998, up $15.6 million or 3.6% over the comparable quarter of fiscal
year 1997. For the six month period ending March 31, 1998, net sales reached a
new high of $900.6 million, representing a 4.0% increase compared to last year's
six month period.
As described in Note 5, during the first quarter of fiscal year 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 to net earnings of $9.8 million.
Accordingly, last year's basic earnings per share for the first half increased
18 cents and diluted earnings per share increased 16 cents as a result of the
non-recurring gain.
Net earnings for the three months ended March 31, 1998 were also a record for
the second quarter at $19.6 million or 10.1% higher than the same period of the
prior year. Basic earnings per share of 34 cents were 2 cents or 6.3% higher
than the same period last year. Diluted earnings per share were 32 cents, up 3
cents or 10.3% from the prior year.
On a pro-forma basis for the six months ended March 31, 1998, net earnings
before the non-recurring gain were a record at $39.3 million or 13.6% higher
than the same period of the prior year. Pro-forma basic earnings per share were
69 cents, representing a 7 cent or 11.3% increase over last year. Pro-forma
diluted earnings per share increased 7 cents or 12.3% to 64 cents.
The following table presents net sales information by business segment for the
second quarter and first six months of fiscal years 1998 and 1997 (dollars in
millions):
SECOND QUARTER
Fiscal Year Dollar Percent
Net sales: 1998 1997 Change Change
---- ----
Consumer products:
Alberto-Culver USA $105.5 117.2 (11.7) (10.0)%
Alberto-Culver International 111.9 110.2 1.7 1.5
----- ----- ---
Total consumer products 217.4 227.4 (10.0) (4.4)
Specialty distribution - Sally 241.6 215.6 26.0 12.1
Eliminations (3.8) (3.4) (0.4) (10.0)
---- ---- ----
$455.2 439.6 15.6 3.6%
====== ===== ====
SIX MONTHS
Fiscal Year Dollar Percent
Net sales: 1998 1997 Change Change
---- ----
Consumer products:
Alberto-Culver USA $211.7 224.8 (13.1) (5.8)%
Alberto-Culver International 224.4 223.1 1.3 0.6
----- ----- ---
Total consumer products 436.1 447.9 (11.8) ( 2.6)
Specialty distribution - Sally 472.4 424.3 48.1 11.3
Eliminations (7.9) (6.5) ( 1.4) (20.8)
---- ---- ----
$900.6 865.7 34.9 4.0%
====== ===== ====
Compared to the same periods of the prior year, sales of Alberto-Culver USA
consumer products decreased 10.0% and 5.8% for the current quarter and first
half of fiscal 1998, respectively. The 1998 decreases were primarily due to
lower sales for custom label filling operations and Alberto VO5 hair care
products, partially offset by higher sales of the TRESemme and TCB hair care
lines and St. Ives Swiss Formula lotions.
Sales of Alberto-Culver International consumer products increased 1.5% in the
second quarter and 0.6% in the first half compared to last year. The fiscal 1998
results were negatively impacted by the effect of foreign exchange rates. Had
foreign exchange rates
8
<PAGE>
this year been the same as the second quarter and first half of fiscal 1997,
Alberto-Culver International sales would have increased 8.1% in the second
quarter and 8.0% for the first half primarily due to strong sales increases in
Latin America, Europe and Scandinavia.
The "Specialty distribution-Sally" business segment experienced sales increases
of $26.0 million or 12.1% for the second quarter of fiscal 1998 and $48.1
million or 11.3% for the first half. The gains were attributable to higher sales
for established Sally Beauty Company outlets, the addition of new stores during
the year and the expansion of Sally's full service and foreign operations. At
March 31, 1998, Sally Beauty Company had 1,926 stores offering a full range of
professional beauty supplies.
Cost of products sold as a percent of net sales was 49.6% for the second quarter
of 1998 and 1997. Cost of products sold as a percent of net sales for the first
half decreased to 49.3% compared to 50.1% in the prior year. The decrease for
the first half was primarily due to cost savings and a change in product mix
favoring higher margin products for Alberto-Culver USA.
Compared to the prior year, advertising, promotion, selling and administrative
expenses rose 2.6% or $4.9 million for the second quarter and 4.6% or $17.2
million for the six months ended March 31, 1998. The second quarter increase
resulted from higher selling and administrative costs associated with the
increase in the number of Sally Beauty Company stores and a charge to provide
for the closing of a Cederroth manufacturing facility in Holland. In addition,
first half expenses were higher due to increased advertising, promotion and
market research expenses.
Advertising, promotion and market research expenditures totaled $63.3 million in
the second quarter of 1998, a decrease of 0.2% versus the prior year.
Advertising, promotion and market research expenditures for the first half of
fiscal year 1998 were $125.4 million, an increase of 5.0% over last year. The
first half increase was primarily due to higher expenditures for Alberto-Culver
USA and Alberto-Culver International, principally in Latin America, Europe and
Canada.
Interest expense decreased $142,000 or 4.9% for the second quarter and $477,000
or 7.8% for the first half versus the comparable periods of last year. The
decreases were primarily attributable to a reduction in outstanding revolving
debt and the effect of foreign exchange rates. Interest income decreased
$238,000 or 27.8% in the second quarter and $262,000 or 15.9% in the first half
versus the same periods of fiscal 1997. The decreases principally resulted from
lower investment balances in fiscal 1998.
The provision for income taxes as a percentage of earnings before income taxes
was 37.25% for the second quarter and first half of fiscal years 1998 and 1997.
FINANCIAL CONDITION
MARCH 31, 1998 COMPARED TO SEPTEMBER 30, 1997
Working capital of $291.5 million increased $22.5 million since September 30,
1997. The ratio of current assets to current liabilities was 2.00 to 1.00 at
March 31, 1998 compared to 1.86 to 1.00 at September 30, 1997. Working capital
increased primarily due to higher inventories and lower accounts payable and
accrued expenses.
Total borrowings decreased $4.3 million during the first six months of fiscal
year 1998 primarily due to a decrease in outstanding revolving debt. At March
31, 1998, the company had $200 million available under its domestic revolving
credit facility.
9
<PAGE>
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders on January 22, 1998, Robert P. Gwinn,
William W. Wirtz and A.G. Atwater, Jr. were elected as directors of the company.
Mr. Gwinn received a Class A and Class B common stockholder vote of 18,668,579
and 28,227,278 shares "for" and 1,163,211 and 2, 643,171 shares "withheld",
respectively. Mr. Wirtz received a Class A and Class B common stockholder vote
of 19,800,480 and 30,799,953 shares "for" and 31,310 and 70,496 shares
"withheld", respectively. Mr. Atwater received a Class A and Class B common
stockholder vote of 19,804,406 and 30,806,010 shares "for" and 27,384 and 64,439
"withheld", respectively.
Class A common stock has a one-tenth vote per share and Class B common stock has
one vote per share.
Stockholders at the annual meeting voted on an amendment to the company's
Employee Stock Option Plan of 1988 to increase the total number of Class A
shares available for grant by 4,000,000 shares. The amendment was approved by a
Class A and Class B stockholder vote of 12,598,684 and 25,118,966 shares "for";
3,354,938 and 3,538,349 shares "against"; and 45,947 and 94,664 shares
"abstaining", respectively.
In addition, stockholders at the annual meeting voted on an amendment to the
company's 1994 Stock Option Plan for Non- Employee Directors to increase the
total number of Class A shares available for grant by 60,000 shares. The
amendment was approved by a Class A and Class B stockholder vote of 14,409,510
and 28,161,387 shares "for"; 1,539,894 and 486,450 shares "against"; and 50,165
and 104,141 shares "abstaining", respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
27a Amended Financial Data Schedule
(b) Reports on Form 8-K:
No report on Form 8-K was filed by the registrant during the quarter
ended March 31, 1998.
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALBERTO-CULVER COMPANY
(Registrant)
By:/s/ William J. Cernugel
----------------------------
William J. Cernugel
Senior Vice President, Finance
(Principal Financial Officer)
May 13, 1998
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Financial Data Schedule
Six Months Ended March 31, 1998
(in thousands)
This schedule contains summary financial information extracted from the
consolidated balance sheet as of March 31, 1998 and the consolidated statement
of earnings for the three months ended March 31, 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-30-1997
<PERIOD-START> Oct-1-1997
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1.00
<CASH> 78,811
<SECURITIES> 5,009
<RECEIVABLES> 124,285
<ALLOWANCES> 9,567
<INVENTORY> 357,552
<CURRENT-ASSETS> 582,015
<PP&E> 373,268
<DEPRECIATION> 171,277
<TOTAL-ASSETS> 1,013,271
<CURRENT-LIABILITIES> 290,511
<BONDS> 146,330
0
0
<COMMON> 13,674
<OTHER-SE> 520,792
<TOTAL-LIABILITY-AND-EQUITY> 1,013,271
<SALES> 900,595
<TOTAL-REVENUES> 900,595
<CGS> 443,810
<TOTAL-COSTS> 443,810
<OTHER-EXPENSES> 394,195
<LOSS-PROVISION> 2,890
<INTEREST-EXPENSE> 5,626
<INCOME-PRETAX> 62,590
<INCOME-TAX> 23,315
<INCOME-CONTINUING> 39,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,275
<EPS-PRIMARY> .69
<EPS-DILUTED> .64
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Amended Financial Data Schedule
Six Months Ended March 31, 1997
(in thousands)
This schedule contains summary financial information extracted from the
consolidated balance sheet as of March 31, 1997 and the consolidated statement
of earnings for the six months ended March 31, 1997 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-30-1996
<PERIOD-START> Oct-1-1996
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 85,437
<SECURITIES> 7,500
<RECEIVABLES> 134,753
<ALLOWANCES> 8,708
<INVENTORY> 310,929
<CURRENT-ASSETS> 561,023
<PP&E> 327,157
<DEPRECIATION> 145,258
<TOTAL-ASSETS> 968,262
<CURRENT-LIABILITIES> 304,585
<BONDS> 157,125
0
0
<COMMON> 13,645
<OTHER-SE> 451,347
<TOTAL-LIABILITY-AND-EQUITY> 968,262
<SALES> 865,682
<TOTAL-REVENUES> 865,682
<CGS> 433,445
<TOTAL-COSTS> 433,445
<OTHER-EXPENSES> 377,164
<LOSS-PROVISION> 2,693
<INTEREST-EXPENSE> 6,103
<INCOME-PRETAX> 70,707
<INCOME-TAX> 26,338
<INCOME-CONTINUING> 44,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,369
<EPS-PRIMARY> .80
<EPS-DILUTED> .73
</TABLE>
