<PAGE>
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, 1999
-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
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (708)450-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ----------------------
Class A Common Stock, par value $.22 per share New York Stock Exchange
Class B Common Stock, par value $.22 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ 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 15, 1999 was $415.8 million for Class A Common Stock and $395.8 million
for Class B Common Stock.
At November 15, 1999, there were 22,635,692 shares of Class A Common Stock
outstanding and 32,957,471 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, 1999, as specifically described
herein.
Part III ............ Portions of proxy statement and notice of annual meeting
of stockholders on January 27, 2000, as specifically
described herein .
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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; uncertainties pertaining to
Y2K computer exposures; 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
Form 10-K or any incorporated document.
PART I
ITEM 1. BUSINESS
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BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION
- -------------------------------------------------
Alberto-Culver Company and its consolidated subsidiaries (herein referred to
collectively as the "company," unless indicated otherwise) have three principal
business segments. The company's consumer products business includes two
segments, "Alberto-Culver North America" and "Alberto-Culver International," and
includes developing, manufacturing, distributing and marketing branded consumer
products worldwide. Alberto-Culver North America includes the company's
consumer products operations in the United States and Canada while Alberto-
Culver International sells consumer products in more than 120 other countries.
The classes of products in the Alberto-Culver North America and the Alberto-
Culver International business segments include health and beauty care products
as well as food and household products. Health and beauty care products
accounted for approximately 39%, 41% and 44% of the company's consolidated net
sales for the years ended September 30, 1999, 1998 and 1997, respectively. Food
and household products accounted for approximately 6%, 7% and 7% of the
company's consolidated net sales for the years ended September 30, 1999, 1998
and 1997, respectively.
The third segment, "Specialty Distribution - Sally", consists of Sally Beauty
Company ("Sally Beauty"), a distributor of professional beauty supplies through
its Sally Beauty Supply stores and its full service operations. Sales of the
Specialty Distribution - Sally business segment accounted for approximately 56%,
53% and 50% of the company's consolidated net sales for the years ended
September 30, 1999, 1998 and 1997, respectively.
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, 1999.
ALBERTO-CULVER NORTH AMERICA
- ----------------------------
The company's major health and beauty care products marketed in the United
States include the ALBERTO V05, TRESemme and CONSORT lines of hair care
products, the ST. IVES SWISS FORMULA line of hair and skin care products, FDS
feminine deodorant sprays and the TCB and MOTIONS lines of hair care products
for the ethnic market. Food and household products sold in the United States
include MRS. DASH
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salt alternatives, MOLLY MCBUTTER butter flavor sprinkles, SUGARTWIN sugar
substitute and STATIC GUARD anti-static spray.
In Canada, the company sells most of the products marketed in the United States
along with the ALBERTO and ALBERTO BALSAM lines of hair care products.
The Alberto-Culver North America segment also includes the manufacturing of
custom label products in the United States for other companies.
ALBERTO-CULVER INTERNATIONAL
- ----------------------------
The company manufactures and markets health and beauty products throughout
Scandinavia and Europe through its Cederroth International subsidiary
headquartered in Sweden. Major products include SALVE adhesive bandages, SAMARIN
antacids, SELTIN salt substitute, JORDAN toothbrushes, 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, ALBERTO
V05 hair care products, the ST. IVES SWISS FORMULA line of hair and skin care
products, HTH and L300 skin care products, GRUMME TVATTSAPA detergents and
PHARBIO natural pharmaceuticals.
In the United Kingdom, the company markets, among other products, the ALBERTO
V05, ALBERTO BALSAM and TRESemme lines of hair care products and the ST. IVES
SWISS FORMULA line of hair and skin care products. INDOLA professional hair
colors, shampoos, conditioners and styling products are marketed throughout
Europe and other international markets.
In Latin America, the significant products sold by the company include the
ALBERTO V05, GET SET and ANTIALL lines of hair care products, the ST. IVES SWISS
FORMULA line of hair and skin care products, VERITAS soap and deodorant body
powder products and FARMACO soap products. Other large international markets for
the company include Australia, Italy and New Zealand.
SPECIALTY DISTRIBUTION - SALLY
- ------------------------------
Sally Beauty Company 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 operations. Sally Beauty
Supply 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. Sally's Beauty Systems Group sells exclusive professional
beauty lines directly to the salon market through its own sales force and
stores. As of September 30, 1999, Sally Beauty had 2,157 stores in the United
States, Puerto Rico, the United Kingdom, Canada, Japan and Germany.
PRODUCT DEVELOPMENT AND MARKETING
- ---------------------------------
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.
The company allocates a large portion of its revenues to the advertising,
promotion and market research of consumer products. Net earnings are materially
affected by these expenditures, which are charged to income in the period
incurred. Advertising, promotion and market research expenditures were $259.7
million in 1999, $257.7 million in 1998 and $255.3 million in 1997.
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.
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The company regards television as the best medium for its advertising and uses
it to conduct extensive network, spot and cable television advertising
campaigns. The company also advertises through other media such as newspapers,
magazines and radio as well as through Sally Beauty Company's direct mailings to
professional customers.
Extensive advertising and promotion are required to build and protect a
product's market position. The company believes there is significant consumer
awareness of its major brands and that such awareness is an important factor in
the company's operating results.
COMPETITION
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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 are sold
primarily through the company's sales force consisting of approximately 50
employees and 120 independent brokers calling upon wholesale drug establishments
and retail outlets such as supermarkets, drug stores, mass merchandisers and
variety stores.
Professional hair care products 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 DISTRIBUTION
- ---------------------------------
Sally Beauty Company sells professional beauty supplies through full-service
distributors and its 2,157 stores located in 47 states, Puerto Rico, the United
Kingdom, Canada, Japan and Germany. Sally Beauty'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 North America'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.
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EMPLOYEES
- ---------
In its domestic and foreign operations, the company had approximately 13,400
full-time equivalent employees as of September 30, 1999, consisting of 8,000
hourly personnel and 5,400 salaried employees. At September 30, 1998, the
company had approximately 12,700 full-time equivalent employees. The increase in
employees during fiscal year 1999 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.
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.
-5-
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ITEM 2. PROPERTIES
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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>
<CAPTION>
Business
Location Type of Facility Segment
- -------- ---------------- --------
<S> <C> <C>
Company-Owned Properties:
- -------------------------
Melrose Park, Illinois
. 2525 Armitage Avenue Corporate Office, Manufacturing, Warehouse (1)
. 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 (2)
Buenos Aires, Argentina Office, Manufacturing, Warehouse (2)
Columbus, Ohio Warehouse (3)
Denton, Texas Office, Warehouse (3)
Falun, Sweden Office, Manufacturing, Warehouse (2)
Jacksonville, Florida Warehouse (3)
Madrid, Spain Office, Manufacturing, Warehouse (2)
Naguabo, Puerto Rico Manufacturing, Warehouse (1)(2)
Naucalpan de Juarez, Mexico Office, Manufacturing, Warehouse (2)
North Rocks, New South Wales, Australia Office, Manufacturing, Warehouse (2)
Reno, Nevada Warehouse (3)
Rochester, New York Office, Warehouse (3)
Swansea, Wales, England Office, Manufacturing, Warehouse (2)
Toronto, Ontario, Canada Office, Manufacturing, Warehouse (1)
Leased Properties:
- ------------------
Albertslund, Denmark Office, Warehouse (2)
Atlanta, Georgia Warehouse (1)
Auckland, New Zealand Office, Warehouse (2)
Buffalo, New York Office, Warehouse (3)
Chatsworth, California Office, Manufacturing, Warehouse (1)
Espoo, Finland Office, Warehouse (2)
Geneva, Switzerland Office (2)
Greenville, Ohio Warehouse (3)
Macedonia, Ohio Office, Warehouse (3)
Monroe, Connecticut Office, Warehouse (3)
Ontario, California Warehouse (1)
Rakkestad, Norway Office, Warehouse (2)
Stockholm, Sweden Office, Manufacturing, Warehouse (2)
Various (2,157 locations in 47 states,
Puerto Rico, the United Kingdom, Canada,
Japan and Germany) Sally Beauty Company Stores (3)
</TABLE>
(1) Alberto-Culver North America
(2) Alberto-Culver International
(3) Specialty Distribution - Sally
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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, 1999.
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>
<CAPTION>
Name Current Position and Five-Year Business History Age
- ---- ----------------------------------------------- ---
<S> <C> <C>
Leonard H. Lavin (1) October, 1994 - Chairman; previously Chairman and 80
Chief Executive Officer for more than five years.
Howard B. Bernick (1) October, 1994 - President and Chief Executive Officer; 47
previously President and Chief Operating Officer for
more than five years.
Bernice E. Lavin (1) July, 1994 - Vice Chairman, Secretary and Treasurer; 74
previously Vice President, Secretary and Treasurer for
more than five years.
Carol L. Bernick (1) April, 1998 - Vice Chairman and Assistant Secretary, 47
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.
William J. Cernugel Senior Vice President, Finance. 57
Thomas J. Pallone Vice President, Research and Development. 54
Michael H. Renzulli President, Sally Beauty Company, Inc., a subsidiary of 59
registrant.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name Current Position and Five-Year Business History Age
- ---- ----------------------------------------------- ---
<S> <C> <C>
Gary P. Schmidt June, 1997 - Vice President, General Counsel and 48
Assistant Secretary; April, 1990 to June, 1997 -
Vice-President, General Counsel and Secretary,
Fujisawa USA, Inc.
Paul H. Stoneham October, 1998 - President, Alberto-Culver International, 38
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.
</TABLE>
(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.
-8-
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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,
1999.
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, 1999.
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, 1999.
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, 1999.
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 LLP in the registrant's annual report to stockholders for the year ended
September 30, 1999.
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 27, 2000. 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 27, 2000.
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 27, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Information required for this Item is incorporated herein by reference to the
sections entitled "Certain Relationships and Related Transactions" and "Certain
Business Relationships" in the registrant's proxy statement for its annual
meeting of stockholders on January 27, 2000.
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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,
1999, 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
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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) Copy 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 1, 1998, as amended.*
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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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 being
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).
10(i) Copy of the Alberto-Culver Company Executive Deferred
Compensation Plan dated January 1, 1999* (filed as
Exhibit 10(i) and incorporated herein by reference
from the company's Form 10-Q Quarterly Report for the
quarter ended December 31, 1998).
10(j) Form of Amendment of Severance Agreement between
Alberto-Culver Company and certain executive
officers.*
13 Portions of annual report to stockholders for the
year ended September 30, 1999 incorporated herein by
reference.
21 Subsidiaries of the Registrant.
23 Consent of KPMG LLP
27 Financial Data Schedule
*This exhibit is a management contract or compensatory plan
or arrangement of the registrant.
(b) Reports on Form 8-K: None
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 14th day of
December, 1999.
ALBERTO-CULVER COMPANY
By /s/ Howard B. Bernick
--------------------------------------
Howard B. Bernick
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------- ------------------------------- --------------------------------
<S> <C> <C>
/s/ Leonard H. Lavin Chairman of the Board December 14, 1999
- ---------------------------- and Director
Leonard H. Lavin
/s/ Howard B. Bernick President, Chief Executive December 14, 1999
- ---------------------------- Officer and Director
Howard B. Bernick
/s/ Bernice E. Lavin Vice Chairman, Secretary, December 14, 1999
- ---------------------------- Treasurer and Director
Bernice E. Lavin
/s/ Carol L. Bernick Vice Chairman, December 14, 1999
- ---------------------------- Assistant Secretary and Director
Carol L. Bernick
/s/ William J. Cernugel Senior Vice President, Finance December 14, 1999
- ---------------------------- (Principal Financial &
William J. Cernugel Accounting Officer)
/s/ A. Robert Abboud Director December 14, 1999
- ----------------------------
A. Robert Abboud
/s/ A.G. Atwater, Jr. Director December 14, 1999
- ----------------------------
A. G. Atwater, Jr.
/s/ Robert P. Gwinn Director December 14, 1999
- ----------------------------
Robert P. Gwinn
/s/ Allan B. Muchin Director December 14, 1999
- ----------------------------
Allan B. Muchin
/s/ Robert H. Rock Director December 14, 1999
- ----------------------------
Robert H. Rock
/s/ Dr. Harold M. Visotsky Director December 14, 1999
- ----------------------------
Dr. Harold M. Visotsky
/s/ William W. Wirtz Director December 14, 1999
- ----------------------------
William W. Wirtz
</TABLE>
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Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Alberto-Culver Company:
On October 22, 1999, we reported on the consolidated balance sheets of Alberto-
Culver Company and subsidiaries as of September 30, 1999 and 1998 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, 1999, as
contained in the 1999 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 fiscal year 1999. 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 LLP
Chicago, Illinois
October 22, 1999
-15-
<PAGE>
Schedule II
-----------
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
<S> <C> <C> <C>
1999 1998 1997
-------- -------- --------
Allowance for doubtful accounts:
Balance at beginning of period $10,868 9,042 8,208
Additions (deductions):
Charged to costs and expenses 3,166 7,162 5,664
Uncollectible accounts written off,
net of recoveries (5,585) (5,532) (4,820)
Allowance for doubtful accounts
of acquired companies 104 266 --
Other (112) (70) (10)
-------- -------- --------
Balance at end of period $ 8,441 10,868 9,042
======== ======== ========
</TABLE>
-16-
<PAGE>
Exhibit 10(a)
ALBERTO-CULVER COMPANY
MANAGEMENT INCENTIVE PLAN
(as amended and restated through October 1, 1998)
1. Establishment. Alberto-Culver Company and its subsidiaries hereby establish
the Management Incentive Plan ("MIP") for key salaried employees of the
Company. The MIP provides for annual awards to be made to Participants
based upon financial performance and achievement of Individual Bonus
Objectives. This MIP is established as an unfunded, non-qualified incentive
compensation plan intended for the benefit of employees who are among a
select group of management and/or highly compensated participants. Nothing
contained in this MIP and no action taken pursuant to the provisions of
this MIP shall create or be construed to create a trust of any kind, or a
fiduciary relationship between the Company and the Participant, his
designated beneficiary or any other person. Any funds which may be invested
under the provisions of this MIP shall continue for all purposes to be a
part of the general assets of the Company and no person other than the
Company shall by virtue of the provisions of this MIP have any interest in
such funds. To the extent that any person acquires a right to receive
payments from the Company under this MIP, such right shall be no greater
than the right of any unsecured general creditor of the Company.
2. Purpose. The purpose of the MIP is to attract and retain in the employ of
the Company persons possessing outstanding management skills and competence
who will contribute substantially to the success of the Company. The MIP is
intended to provide incentives to such persons to exert their maximum
efforts on behalf of the Company by rewarding them with additional
compensation when the Company or Profit Center and/or the Participant have
achieved the financial performance and Individual Business Objectives,
respectively, provided for in the MIP.
3. Effective Date and Performance Periods. The effective date of the amended
and restated MIP is October 1, 1998, subject to stockholder approval. The
Plan Year shall be the 12 consecutive-month period ending September 30 of
each year. The MIP will continue in effect until and unless terminated by
the Board of Directors.
4. Definitions. The definition of key terms are as follows:
a. "Base Salary" means the base salary, as set by the Company, paid to
the Participant during the Plan Year, exclusive of any amounts payable
under bonus and incentive plans, severance plans, option plans, and
any other benefit or welfare plan of the Company now or hereafter
existing.
<PAGE>
Exhibit 10(a)
b. "Bonus Award Opportunity" means 200% of Base Salary.
c. "Change in Control" shall have the meaning set forth in Section
14.d.1.
d. "Committee" means the Compensation Committee of the Board of Directors
of the Company or, if any member of the Compensation Committee is not
(i) an "outside director" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986 and the rules and regulations thereunder
or (ii) a "non-employee director" within the meaning of Section 16 of
the Securities Exchange Act of 1934 and the rules and regulations
thereunder, the Committee shall set up a subcommittee comprised solely
of outside directors and non-employee directors for purposes of all
matters arising under this MIP involving "Executive Officers" within
the meaning of Item 401(b) of Regulation S-K ("Executive Officer") and
Covered Employees as defined herein.
e. "Company" means Alberto-Culver Company or a Subsidiary.
f. "Covered Employee" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Internal Revenue Code of
1986 and the rules and regulations thereunder during the Plan Year at
issue.
g. "Employee" means any person, including an officer or director, who is
employed on a permanent basis by, and receives a regular salary from,
the Company.
h. "Exempt Person" and "Exempt Persons" shall have the meaning set forth
in Section 14.d.2.
i. "Incumbent Board" shall have the meaning set forth in Section 14.d.3.
j. "Individual Business Objectives" means the objectives as set forth in
a letter of recommendation prepared by the Participant and agreed upon
by (i) the Chairman, any Vice Chairman or the President of the
Company, (ii) the President of Alberto-Culver International, Inc.,
Alberto-Culver USA, Inc. or Sally Beauty Company, Inc. or (iii) the
Committee.
k. "Participant" means any Employee of the Company who has been selected
to participate in the MIP.
l. "Plan Year" shall be the Company's fiscal year for financial reporting
purposes (i.e., the 12 consecutive-month period ended September 30).
m. "Profit Center" means a division or Subsidiary of the Company which is
responsible for preparing and submitting annual sales and pre-tax
profit (loss)
2
<PAGE>
Exhibit 10(a)
objectives.
n. "Subsidiary" means any corporation in which the Company owns (directly
or indirectly) 50% or more of the outstanding stock entitled to vote
for directors.
5. Eligibility. Participation in the MIP is limited to key salaried Employees
of the Company and its Subsidiaries. Each Plan Year, the Committee shall
designate those eligible Employees who will participate in the MIP during
that Plan Year. In the event an employee who would be eligible to
participate in the MIP is hired after the beginning of the Plan Year, the
Committee may, but need not, designate such employee as a Participant for
such Plan Year; provided, however, that no employee shall be eligible to
participate in the MIP for any Plan Year in which he or she was employed
with the Company for less than four months. In the event a new employee is
designated as a Participant, the Committee shall notify the new Participant
of his or her financial performance award opportunities and his or her
Individual Business Objectives on which any cash award will be based. The
Committee shall make such adjustments to the new Participant's actual cash
award as the Committee deems necessary or appropriate to take into account
the fact that such Participant was not employed for the entire Plan Year.
6. Award Opportunities. Actual awards can range from 0% to 100% of the Bonus
Award Opportunity (a maximum of 200% of Base Salary or $4.0 million,
whichever is less) based on actual performance compared to the performance
objectives established for the Plan Year. The total Bonus Award Opportunity
will relate to the financial performance of the Company, one or more Profit
Centers, or Individual Business Objectives or any combination thereof.
Notwithstanding anything to the contrary hereinabove set forth in this
Section 6 or in Section 8 or 9 of the MIP, but subject in all respects to
Sections 7 and 14 of the MIP, any Bonus Award Opportunity and the amount of
any annual award, other than a Change in Control Award (as such term is
defined in Section 14.b of the MIP), payable to any Participant other than
a Covered Employee may be increased or decreased as the Committee, in its
sole discretion, shall determine based on such factors and circumstances as
the Committee shall deem appropriate, provided, however, that no such
increase or decrease of a Participant's award shall be greater than 25% of
such Participant's Base Salary.
7. Maximum Award Payable. The maximum award payable under the MIP to a single
Participant may not exceed the lesser of $4.0 million or 200% of such
Participant's Base Salary per fiscal year of the Company.
8. Financial Performance Award Opportunities. Each Participant will be
assigned financial performance award opportunities for the Company and/or
the Profit Center for the Plan Year. Financial performance award
opportunities will be based upon sales, pre-tax earnings, and, except for
Covered Employees, any other measurements the Committee
3
<PAGE>
Exhibit 10(a)
shall deem appropriate.
Each Participant will be notified in writing ("Participant Letter") of his
or her Bonus Award Opportunity, the Participant's financial performance
opportunities set for the Company and/or his or her Profit Center, if
applicable, and the portion of his or her Bonus Award Opportunity allocated
to the Participant's Individual Business Objectives, if any. The
Participant Letter will specify the percentage of the Bonus Award
Opportunity that will be earned based upon the extent to which such
objectives are achieved, subject to adjustment pursuant to Section 6.
At the end of each Plan Year, the Committee shall certify the awards that
have been attained by each Participant. Except as otherwise provided in
Section 14 hereof, no award may be payable to a Participant prior to such
certification.
The Committee shall have the sole authority to set all financial
performance opportunities and to modify such financial performance
opportunities during the Plan Year as deemed appropriate; provided,
however, that the Committee may not modify the performance objectives
during a Plan Year to increase the award payable to a Covered Employee.
9. Individual Business Objectives. Except for Covered Employees, the
Committee, at its sole discretion, may allocate a portion of a
Participant's Bonus Award Opportunity for the Plan Year to the
Participant's Individual Business Objectives. Subject to Section 7, awards
for the achievement of these objectives can range from 0% to 150% of the
Bonus Award Opportunity assigned thereto. The Committee shall determine the
actual level of performance achieved by Participants for their Individual
Business Objectives.
10. Administration--Powers and Duties of the Committee.
a. Administration. The Committee shall be responsible for the
administration of the MIP. The Committee, by majority action, is authorized
to interpret the MIP, to prescribe, amend, and rescind rules and
regulations relating to the MIP, to provide for conditions and assurances
deemed necessary or advisable to protect the interest of the Company and to
make all other determinations necessary or advisable for the administration
of the MIP. Determinations, interpretations, or other actions made or taken
by the Committee pursuant to the provisions of the MIP shall be final and
binding and conclusive for all purposes and upon all persons whomsoever. No
member of the Committee shall be liable for any action or determination
made in good faith with respect to the MIP or any annual award made
hereunder.
b. Amendment, Modification, and Termination of MIP. The Board of
Directors or the Committee may at any time terminate, and from time to time
may amend or modify the MIP, except that no amendment by the Committee
shall increase the amount of an
4
<PAGE>
Exhibit 10(a)
annual award payable to a Covered Employee for performance achieved during
the Plan Year of such amendment or any previous Plan Year or allow a member
of the Committee to be a Participant. Termination of the MIP shall not be
effective with respect to the Plan Year in which it occurs.
11. Payment of Annual Award.
a. Payment of Award. The Company shall pay the annual award to the
Participant after the award has been determined and certified by the
Committee, but no later than December 15th of each year.
b. Changes in Employment Status. Except as set forth in the following
sentence, if a Participant's employment terminates during a Plan Year or
after the end of the Plan Year, but prior to the payment of the annual
award, no award will be payable for that Plan Year. If the Participant's
employment terminates during the Plan Year or after the end of the Plan
Year but prior to the payment of the annual award due to death, disability
or retirement, the Committee shall have the sole authority and discretion
to award a Participant (or his or her beneficiary) a portion of the annual
award that would otherwise be payable with respect to that Plan Year.
c. Deferral of Award. A Participant may, in writing filed with the
Committee within 30 days following the receipt of his or her Participant
Letter (but in no event later than December 15, of the applicable Plan
Year), elect to defer payment of all or a portion of his or her annual cash
award so that it shall be paid in not more than ten equal annual
installments commencing the January 15th, or such other date selected by
the Participant and approved by the Committee, following his or her (i)
retirement or termination of employment with the Company or (ii) attainment
of the age specified by the Participant. Any election to defer until the
attainment of a specified age shall have a payment commencement date no
sooner than three years from the date of the applicable Participant Letter.
Such election to defer shall designate the number of annual installments
and the timing of such installments and shall, except as provided below, be
irrevocable. If such election fails to specify a time for payment, such
payment shall be paid in a lump sum on the January 15th following the
Participant's retirement or termination of employment with the Company. The
deferral of any annual award shall not be less than $10,000, which amount
may be changed by the Committee from time to time in its sole discretion.
The Participant may request to receive an early distribution of all or a
portion of any amounts deferred hereunder. A single-sum payment will be
paid to Participants who request such distribution. An early distribution
paid to a Participant shall cause the Participant to forfeit all right,
title or claim to an amount equal to 10% of such early distribution. Such
10% penalty shall first reduce the remaining balance of the amounts
deferred hereunder immediately following the early distribution and then
shall reduce the
5
<PAGE>
Exhibit 10(a)
early distribution payable to the Participant.
Notwithstanding the preceding paragraph, any request for an early
distribution on account of an "unforeseeable emergency" shall not bear the
10% early distribution penalty. For purposes of this Section 11(c), an
unforeseeable emergency is a severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in Section 152(a) of the Internal
Revenue Code) of the Participant, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstances
beyond the control of the Participant. The determination of whether a
request for an early distribution is on account of an unforeseeable
emergency shall be made by the sole discretion of the Committee, who shall
apply the standards of Section 457 of the Internal Revenue Code.
Any early distribution on account of an unforeseeable emergency may not be
made to the extent such hardship is or may be relieved by (i) reimbursement
or compensation by insurance or otherwise, (ii) liquidation of the
Participant's assets, to the extent the liquidation of such assets would
not itself cause severe financial hardship, (iii) obtaining a loan either
within the provisions of any benefit plan of the Company or its
subsidiaries or from a third party lender or (iv) cessation of deferrals
under the MIP. Early distributions because of an unforeseeable emergency
will only be permitted to the extent reasonably needed to satisfy the
emergency need in addition to any amounts necessary to pay any federal,
state or local income taxes reasonably anticipated to result from the early
distribution.
d. Interest Payable on Deferred Payments. Any annual award to which a
Participant shall have elected deferred payment hereunder shall bear
interest, compounded annually, at the prime rate of interest as such rate
is set, from time to time, by the First National Bank of Chicago or its
successor, but in no event shall such rate exceed 10%. A separate
accounting shall be maintained for each Participant with respect to the
deferred payments hereunder.
e. Investment in Alberto-Culver Company Stock. As an additional
alternative to lump sum cash payment, a Participant may elect, within 30
days following the receipt of his or her Participant Letter (but in no
event later than December 15, of the applicable Plan Year), to receive all
or a portion of his or her annual award, less withholding taxes, in
Alberto-Culver Company Class A Common Stock, but this shall not constitute
a deferred payment for purposes of this MIP. Awards payable, in whole or in
part, in Class A Common Stock shall be the number of shares of Class A
Common Stock that a Participant could have purchased based upon the closing
price of such shares on the last trading day of the applicable fiscal year.
12. Beneficiary. If a Participant dies before receiving the annual award and/or
any
6
<PAGE>
Exhibit 10(a)
previously deferred awards to which he or she is entitled to under the MIP,
such awards shall be paid to such person whom the Participant has
designated by an instrument in writing, and in a form acceptable to the
Board of Directors, executed by the Participant and delivered to the Board
of Directors in care of the Secretary of the Company during the
Participant's lifetime. Such designation may be revoked or modified by the
Participant from time to time by an instrument in writing in a form
acceptable to the Board of Directors, executed by the Participant and
delivered to the Board of Directors in care of the Secretary of the Company
during the Participant's lifetime. If no such designation is delivered to
the Board of Directors, or if no such designated beneficiary is then
living, the annual award shall be paid to the surviving spouse of the
Participant, or in the event there is no such surviving spouse, to the
estate of the Participant.
13. Withholding Payroll Taxes. To the extent required by the laws in effect at
the time payments are made or earned, the Company shall withhold from the
annual cash, stock or deferred award made hereunder an amount necessary to
satisfy any taxes required to be withheld for federal, state, or local
governmental purposes.
14. Change in Control.
a. Application. Notwithstanding any other provision of the Plan, the
provisions of this Section 14 shall apply on and after the date that a
Change in Control (as defined in Section 14.d.1.) occurs. Any award payable
to a Participant pursuant to this Section 14 for a Plan Year shall be in
lieu of any award otherwise payable under the Plan.
b. Determination of Awards. Upon the occurrence of a Change in Control,
each Participant shall be eligible to receive an award (a "Change in
Control Award") equal to an amount calculated by multiplying (i) the bonus
award percentage obtained by taking (a) the financial performance of the
Company or Profit Center, as the case may be, from the start of the
applicable fiscal year to the date of the Change in Control (or, in the
case of the date of the Change in Control not being as of a month end, to
the end of the month immediately preceding the date of the Change in
Control) and comparing it to the performance during the same period in the
preceding fiscal year and assuming such financial performance (increases or
decreases in sales and pre-tax earnings or other relevant measurements) has
been achieved for the full fiscal year plus (b) the achievement of 100% of
the Participant's Individual Business Objectives, if any, for such Plan
Year by (ii) the Base Salary of the Participant up to and including the
date of the Change in Control. The amount of any such Change in Control
Award shall not be subject to revision or adjustment.
c. Payment of Awards.
1. Payment. Notwithstanding anything in this Plan to the contrary,
each
7
<PAGE>
Exhibit 10(a)
Participant (or Beneficiary thereof) shall be paid the Change in
Control Award, determined pursuant to Section 14.b., no later than 30
days after the date of the occurrence of the Change in Control (the
"Payment Date"), in the form of a single lump sum cash payment. Such
award shall not be subject to forfeiture for any reason.
2. Interest on Late Payment. If any amount to be paid to a
Participant (or Beneficiary thereof) pursuant to Section 14.c.1. is
not paid in full by the Payment Date, then the Company shall also pay
to that Participant (or Beneficiary) interest on the unpaid amount for
the period beginning on the Payment Date and ending on the date that
the amount is paid in full. The amount of interest to be paid to a
Participant (or Beneficiary thereof) pursuant to this Section 14.c.2.
shall be computed using an annual rate equal to two percent above the
prime rate from time to time in effect, as published under "Money
Rates" in The Wall Street Journal, but in no event higher than the
maximum legal rate permissible under applicable law. Payments received
by a Participant (or Beneficiary thereof) under the Plan shall be
credited first against accrued interest until all accrued interest is
paid in full before any such payment is credited against the amount
payable pursuant to Section 14.c.1.
d. Definitions.
1. The term "Change in Control" means:
A. The occurrence of any one or more of the following events:
(i) The acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), of beneficial
ownership within the meaning of Rule 13d-3 promulgated under
the Exchange Act of both (x) 20% or more of the combined
voting power of the then outstanding securities of the
Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities") and
(y) combined voting power of Outstanding Company Voting
Securities in excess of the combined voting power of the
Outstanding Company Voting Securities held by the Exempt
Persons (as such term is defined in Section 14.d.2.);
provided, however, that a Change in Control shall not result
from an acquisition of Company Voting Securities:
(a) directly from the Company, except as otherwise
8
<PAGE>
Exhibit 10(a)
provided in Section 14.d.1.B(i);
(b) by the Company, except as otherwise provided in
Section 14.d.1.B(ii);
(c) by an Exempt Person;
(d) by an employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company; or
(e) by any corporation pursuant to a reorganization,
merger or consolidation involving the Company, if,
immediately after such reorganization, merger or
consolidation, each of the conditions described in
clauses (a) and (b) of Section 14.d.1.A(iii) shall be
satisfied.
(ii) The cessation for any reason of the members of the
Incumbent Board (as such term is defined below) to
constitute at least a majority of the Board of Directors.
(iii) Approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such
case, immediately after such reorganization, merger or
consolidation:
(a) more than 60% of the combined voting power of the
then outstanding securities of the corporation
resulting from such reorganization, merger or
consolidation entitled to vote generally in the
election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of
the individuals or entities who were the beneficial
owners of the combined voting power of all of the
Outstanding Company Voting Securities immediately prior
to such reorganization, merger or consolidation; and
(b) at least a majority of the members of the board of
directors of the corporation resulting from such
reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the
initial agreement or action of the Board of Directors
providing for such reorganization, merger or
consolidation.
(iv) Approval by the stockholders of the Company of the
sale or other disposition of all or substantially all of the
assets of the Company other than (x) pursuant to a tax-free
spin-off of a
9
<PAGE>
Exhibit 10(a)
subsidiary or other business unit of the Company or (y) to a
corporation with respect to which, immediately after such
sale or other disposition:
(a) more than 60% of the combined voting power of the
then outstanding securities thereof entitled to vote
generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who
were the beneficial owners of the combined voting power
of all of the Outstanding Company Voting Securities
immediately prior to such sale or other disposition;
and
(b) at least a majority of the members of the board of
directors thereof were members of the Incumbent Board
at the time of the execution of the initial agreement
or action of the Board of Directors providing for such
sale or other disposition.
(v) Approval by the stockholders of the Company of a plan
of complete liquidation or dissolution of the Company.
B. Notwithstanding the provisions of Section 14.d.1.A(i):
(i) no acquisition of Company Voting Securities shall be
subject to the exception from the definition of Change in
Control contained in clause (a) of Section 14.d.1.A(i) if
such acquisition results from the exercise of an exercise,
conversion or exchange privilege unless the security being
so exercised, converted or exchanged was acquired directly
from the Company; and
(ii) for purposes of clause (b) of Section 14.d.1.A(i), if
any Person (other than the Company, an Exempt Person or any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company) shall, by reason of an acquisition of Company
Voting Securities by the Company, become the beneficial
owner of (x) 20% or more of the combined voting power of the
Outstanding Company Voting Securities and (y) combined
voting power of Outstanding Company Voting Securities in
excess of the combined voting power of the Outstanding
Company Voting Securities held by the Exempt Persons, and
such Person shall, after such acquisition of Company Voting
Securities by the Company, become the beneficial owner of
any additional Outstanding Company Voting
10
<PAGE>
Exhibit 10(a)
Securities and such beneficial ownership is publicly
announced, such additional beneficial ownership shall
constitute a Change in Control.
2. The term "Exempt Person" (and collectively, the "Exempt
Persons") means:
A. Leonard H. Lavin or Bernice E. Lavin;
B. any descendant of Leonard H. Lavin and Bernice E. Lavin
or the spouse of any such descendant;
C. the estate of any of the persons described in Section
14.d.2.A. or B.;
D. any trust or similar arrangement for the benefit of any
person described in Section 14.d.2.A. or B.; or
E. the Lavin Family Foundation or any other charitable
organization established by any person described in Section
14.d.2.A. or B.
3. The term "Incumbent Board" means those individuals who, as
of October 24, 1996, constitute the Board of Directors, provided
that:
A. any individual who becomes a director of the Company
subsequent to such date whose election, or nomination for
election by the Company's stockholders, was approved either
by the vote of at least a majority of the directors then
comprising the Incumbent Board or by the vote of at least a
majority of the combined voting power of the Outstanding
Company Voting Securities held by the Exempt Persons shall
be deemed to have been a member of the Incumbent Board; and
B. no individual who was initially elected as a director of
the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act, or any other actual
or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board of Directors or
the Exempt Persons shall be deemed to have been a member of
the Incumbent Board.
15. No Employment Rights. Nothing in this MIP shall interfere with or limit in
any way the right of the Company to terminate any Participant's employment
at any time for any
11
<PAGE>
Exhibit 10(a)
reason, or confer upon any Participant any right to continue in the employ
of the Company or its Subsidiaries.
16. Non-Assignability. Except as provided herein upon the death of a
Participant, no right or interest of a Participant in any annual award
shall be (a) assignable or transferable in whole or in part, either
directly or by operation of law or otherwise; (b) subject to any obligation
or liability of any person; or (c) subject to seizure or assignment or
transfer through execution, levy, garnishment, attachment, pledge,
bankruptcy, or in any other manner.
17. Stockholder Adoption. The MIP was approved and adopted at the annual
meeting of stockholders held on January 26, 1995. The MIP shall be
submitted to the stockholders of the Company for their re-approval and re-
adoption at the annual meeting of stockholders to be held on January 28,
1999, or any adjournment thereof. No award shall be payable hereunder for
grants made on or after October 1, 1998 unless and until the MIP has been
so re-approved and re-adopted. Thereafter, the MIP shall be submitted to
stockholders for re-approval no less often than every five years.
12
<PAGE>
EXHIBIT 10(j)
AMENDMENT TO
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, dated as of ________________, to the Severance Agreement, dated
as of__________, 19___ (the "Severance Agreement"), is entered into between
Alberto-Culver Company, a Delaware corporation (the "Company"), and
______________________________________ (the "Executive").
WHEREAS, the Company and the Executive desire to amend the Severance Agreement
as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the Company and the Executive hereby agree that the Severance
Agreement shall be amended as set forth below:
1. Section 3(a)(2) of the Severance Agreement is hereby amended to read in its
entirety as follows:
"(2) a lump-sum cash amount which, when added to any other payments that
must be taken into account for purposes of any computation relating to the
Executive under Section 280G(b)(2)(A)(ii) of the Internal Revenue Code of 1986,
as amended (the "Code"), equals, in the aggregate, 2.99* times the Executive's
"base amount," as such term is defined in Section 280G(b)(3) of the Code;
provided, that any amount paid pursuant to this Section 3(a)(2) shall be paid in
lieu of any other amount of severance relating to salary or bonus continuation
to be received by the Executive upon termination of employment of the Executive
under any severance plan, policy or arrangement of the Company.
2. Section 4 of the Severance Agreement is hereby amended by deleting the
words "Internal Revenue Code of 1986, as amended (the "Code")" and substituting
therefor the word "Code".
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by a
duly authorized officer of the Company and the Executive has executed this
Amendment as of the day and year first above written.
*1.99 for certain non-named executive officers.
ALBERTO-CULVER COMPANY
By
------------------------------
EXECUTIVE:
--------------------------------
Subscribed and Sworn to before me
this day of
------ --------------
- ---------------------------------
Notary Public
<PAGE>
EXHIBIT 13
Consolidated Statements of Earnings
Alberto-Culver Company and Subsidiaries
<TABLE>
<CAPTION>
=================================================================================================================
Year ended September 30,
---------------------------
(In thousands, except per share data) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,975,928 1,834,711 1,775,258
Costs and expenses:
Cost of products sold 973,702 902,095 880,416
Advertising, promotion, selling and administrative 855,724 791,631 766,117
Interest expense, net of interest income of $2,130 in 1999, $3,563 in 1998
and $3,588 in 1997 12,719 8,607 8,238
Non-recurring gain (note 8) -- -- (15,634)
- -----------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,842,145 1,702,333 1,639,137
- -----------------------------------------------------------------------------------------------------------------
Earnings before provision for income taxes 133,783 132,378 136,121
Provision for income taxes 47,493 49,311 50,704
- -----------------------------------------------------------------------------------------------------------------
Net earnings $ 86,290 83,067 85,417
=================================================================================================================
Net earnings per share:
Basic $1.53 1.46 1.53
Diluted $1.51 1.37 1.41
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Balance Sheets
Alberto-Culver Company and Subsidiaries
<TABLE>
<CAPTION>
==================================================================================================
(In thousands, except share data) September 30,
-----------------------
Assets 1999 1998
==================================================================================================
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 55,931 72,395
Short-term investments 1,885 910
Receivables, less allowance for doubtful accounts of $8,441 in 1999
and $10,868 in 1998 144,075 129,063
Inventories:
Raw materials 43,399 37,316
Work-in-process 4,582 6,119
Finished goods 373,907 325,769
- --------------------------------------------------------------------------------------------------
Total inventories 421,888 369,204
Prepaid expenses 21,775 19,993
- --------------------------------------------------------------------------------------------------
Total current assets 645,554 591,565
Property, plant and equipment:
Land 13,412 11,328
Buildings and leasehold improvements 142,042 139,622
Machinery and equipment 274,107 257,458
- --------------------------------------------------------------------------------------------------
Total property, plant and equipment 429,561 408,408
Accumulated depreciation 190,808 184,932
- --------------------------------------------------------------------------------------------------
Property, plant and equipment, net 238,753 223,476
Goodwill, net 172,109 137,599
Trade names, net 72,975 67,158
Other assets 55,143 48,386
- --------------------------------------------------------------------------------------------------
$1,184,534 1,068,184
==================================================================================================
Liabilities and Stockholders' Equity
==================================================================================================
Current liabilities:
Short-term borrowings $ 2,992 2,279
Current maturities of long-term debt 727 959
Accounts payable 198,887 177,564
Accrued expenses 114,382 112,015
Income taxes 19,413 20,808
- --------------------------------------------------------------------------------------------------
Total current liabilities 336,401 313,625
Long-term debt 225,173 171,760
Deferred income taxes 33,833 28,260
Other liabilities 20,307 20,548
Stockholders' equity:
Common stock, par value $.22 per share:
Class A authorized 75,000,000 shares; 30,612,798
shares issued at September 30, 1999 and 1998 6,735 6,735
Class B authorized 75,000,000 shares; 37,710,655
shares issued at September 30, 1999 and 1998 8,296 8,296
Additional paid-in capital 191,063 192,610
Retained earnings 600,629 528,733
Accumulated other comprehensive income - foreign
currency translation (31,160) (28,131)
- --------------------------------------------------------------------------------------------------
Less treasury stock, at cost (Class A common stock:
1999 - 7,844,756 shares and 1998 - 6,549,947 shares; 775,563 708,243
Class B common stock: 1999 - 4,753,184 shares and 1998 - 4,563,184
shares) (206,743) (174,252)
- --------------------------------------------------------------------------------------------------
Total stockholders' equity 568,820 533,991
- --------------------------------------------------------------------------------------------------
$1,184,534 1,068,184
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
Alberto-Culver Company and Subsidiaries
<TABLE>
<CAPTION>
=============================================================================================
Year ended September 30
--------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 86,290 83,067 85,417
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 32,336 29,054 28,169
Amortization of goodwill, trade names and other assets 9,838 9,051 8,760
Non-recurring gain -- -- (15,634)
Deferred income taxes 2,082 9,924 7,420
Other, net 621 (4,724) (1,462)
Cash effects of changes in (exclusive of acquisitions):
Receivables, net (15,868) (4,185) 296
Inventories (42,656) (15,973) (51,881)
Other current assets (1,034) 3,689 (1,196)
Accounts payable and accrued expenses 18,031 (6,726) 17,665
Income taxes 305 7,175 2,174
- ---------------------------------------------------------------------------------------------
Net cash provided by operating activities 89,945 110,352 79,728
- ---------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Short-term investments (398) 10,650 (6,214)
Capital expenditures (47,822) (55,934) (58,196)
Other assets (7,412) (3,253) (7,585)
Payments for purchased businesses, net of acquired (62,304) (33,889) (15,628)
companies' cash
Proceeds from insurance settlement -- -- 28,000
Proceeds from disposals of assets 2,891 1,664 2,044
- ---------------------------------------------------------------------------------------------
Net cash used by investing activities (115,045) (80,762) (57,579)
- ---------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Short-term borrowings 1,156 (5,478) 1,436
Proceeds from issuance of long-term debt 65,276 125,851 550
Debt issuance costs -- (2,352) --
Repayments of long-term debt (11,988) (4,009) (6,116)
Proceeds from sale of receivables 5,000 -- --
Proceeds from exercise of stock options 3,264 11,303 5,560
Cash dividends paid (14,394) (13,220) (10,909)
Stock purchased for treasury (39,049) (145,526) (1,138)
- ---------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 9,265 (33,431) (10,617)
- ---------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash (629) 196 (1,703)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (16,464) (3,645) 9,829
Cash and cash equivalents at beginning of year 72,395 76,040 66,211
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 55,931 72,395 76,040
=============================================================================================
Supplemental Cash Flow Information:
Cash paid for:
Interest $ 13,870 10,709 11,478
Income taxes $ 45,755 30,791 42,299
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 --
=============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Stockholders' Equity
Alberto-Culver Company and Subsidiaries
<TABLE>
<CAPTION>
Number of Shares Dollars
------------------------------------------ --------------------------------
Additional
Common Stock Issued Treasury Stock Common Stock Issued Paid-in
---------------------- --------------------- ----------------------------------
(In thousands) Class A Class B Class A Class B Class A Class B Capital
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 13,263 20,944 (2,214) (4,178) $ 2,918 $4,608 $ 88,955
Comprehensive income (loss):
Net earnings
Foreign currency translation
- --------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss)
Cash dividends
Stock dividend 11,180 16,767 2,460 3,688
Stock options exercised 359 1,663
Stock issued pursuant to
employee incentive plans 78 604
Stock purchased for treasury (56)
Balance at September 30, 1997 24,443 37,711 (1,833) (4,178) 5,378 8,296 91,222
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss):
Net earnings
Foreign currency translation
- --------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss)
Cash dividends
Stock options exercised 918 1,606
Stock issued pursuant to
employee incentive plans 56 1,108
Stock issued for acquisition 171 2,237
Stock issued upon conversion
of subordinated debentures 6,170 1,357 96,437
Stock purchased for treasury (5,862) (385)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 30,613 37,711 (6,550) (4,563) 6,735 8,296 192,610
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss):
Net earnings
Foreign currency translation
- --------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss)
Cash dividends
Stock options exercised 244 (1,560)
Stock issued pursuant to
employee incentive plans 58 13
Stock purchased for treasury (1,597) (190)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 30,613 37,711 (7,845) (4,753) $ 6,735 $8,296 $191,063
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Dollars
----------------------------------------------------------
Accumulated
Other Total
Retained Comprehensive Treasury Stockholders'
(In thousands) Earnings Income (Loss) Stock Equity
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1996 $390,526 $(13,428) $ (48,483) $425,096
Comprehensive income (loss):
Net earnings 85,417 85,417
Foreign currency translation (9,127) (9,127)
- -----------------------------------------------------------------------------------------------------
Total comprehensive income (loss) 85,417 (9,127) 76,290
Cash dividends (10,909) (10,909)
Stock dividend (6,148) --
Stock options exercised 4,389 6,052
Stock issued pursuant to
employee incentive plans 1,009 1,613
Stock purchased for treasury (1,138) (1,138)
- -----------------------------------------------------------------------------------------------------
Balance at September 30, 1997 458,886 (22,555) (44,223) 497,004
- -----------------------------------------------------------------------------------------------------
Comprehensive income (loss):
Net earnings 83,067 83,067
Foreign currency translation (5,576) (5,576)
- -----------------------------------------------------------------------------------------------------
Total comprehensive income (loss) 83,067 (5,576) 77,491
Cash dividends (13,220) (13,220)
Stock options exercised 12,628 14,234
Stock issued pursuant to
employee incentive plans 692 1,800
Stock issued for acquisition 2,177 4,414
Stock issued upon conversion
of subordinated debentures 97,794
Stock purchased for treasury (145,526) (145,526)
- -----------------------------------------------------------------------------------------------------
Balance at September 30, 1998 528,733 (28,131) (174,252) 533,991
- -----------------------------------------------------------------------------------------------------
Comprehensive income (loss):
Net earnings 86,290 86,290
Foreign currency translation (3,029) (3,029)
- -----------------------------------------------------------------------------------------------------
Total comprehensive income (loss) 86,290 (3,029) 83,261
Cash dividends (14,394) (14,394)
Stock options exercised 5,296 3,736
Stock issued pursuant to
employee incentive plans 1,262 1,275
Stock purchased for treasury (39,049) (39,049)
- -----------------------------------------------------------------------------------------------------
Balance at September 30, 1999 $600,629 $(31,160) $(206,743) $568,820
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
_____________________________________________________
(1) Summary of Significant Accounting Policies
_____________________________________________________
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the 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, 1999 and 1998.
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 was approximately $207.0 million at September
30, 1999.
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, 1999 and 1998 was $37.9 million and
$30.6 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 gains (losses) of $21,000,
($855,000) and ($1.2 million) in 1999, 1998 and 1997, respectively.
ADVERTISING, PROMOTION AND MARKET RESEARCH
Advertising, promotion and market research costs are expensed as incurred and
amounted to $259.7 million, $257.7 million and $255.3 million in 1999, 1998 and
1997, 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
56,378,000 in 1999, 56,845,000 in 1998 and 55,967,000 in 1997.
Diluted earnings per share in 1998 and 1997 were determined by dividing net
earnings before 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 Class A common shares and other common equivalent
shares. The convertible subordinated debentures were converted in July, 1998.
Diluted weighted average shares outstanding were 57,162,000 in 1999, 62,420,000
in 1998 and 63,377,000 in 1997.
The following table provides a reconciliation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $86,290 83,067 85,417
Interest expense on convertible
subordinated debentures,
net of tax benefit -- 2,730 3,640
- ----------------------------------------------------------------------------
Diluted net earnings $86,290 85,797 89,057
============================================================================
Basic weighted average
shares outstanding 56,378 56,845 55,967
Effect of dilutive securities:
Assumed conversion of
subordinated debentures -- 4,633 6,178
Assumed exercise of stock options 709 917 1,232
Other 75 25 --
- ----------------------------------------------------------------------------
Diluted weighted average
shares outstanding 57,162 62,420 63,377
============================================================================
</TABLE>
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.
<PAGE>
Notes Continued
- --------------------------------------------------------------------------------
(2) Accrued Expenses
- --------------------------------------------------------------------------------
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Compensation and benefits $ 50,005 48,854
Advertising and promotions 32,193 26,250
Other 32,184 36,911
- --------------------------------------------------------------------------------
$114,382 112,015
================================================================================
</TABLE>
(3) Long-Term Debt and Other Financing Arrangements
- --------------------------------------------------------------------------------
Long-term debt, exclusive of current maturities, consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
6.375% debentures due June, 2028 $120,000 120,000
6.2% term note due
September, 2000 20,000 20,000
Revolving Swedish krona credit
agreements due April, 2000
at 3.2% to 11.7% 27,303 30,163
Revolving credit facility 56,000 ---
Other 1,870 1,597
- --------------------------------------------------------------------------------
$225,173 171,760
================================================================================
</TABLE>
Maturities of debt for the next five fiscal years are as follows (in thousands):
2000 - $48,030; 2001 - $798; 2002 - $56,574; 2003 - $185; 2004 - $40; 2005 and
later $120,273.
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.
In July, 1998, the 5.5% convertible subordinated debentures issued in July, 1995
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 has $56 million outstanding at September
30, 1999, may be drawn in U.S. dollars or certain foreign currencies. The
interest rate for the revolving credit facility is based on a fixed spread over
LIBOR. At September 30, 1999, the weighted average interest rate of borrowings
under the facility was 5.4%.
In January, 1999, the company renewed an agreement to sell, without recourse,
designated trade receivables on an ongoing basis and increased the program from
$30 million to $35 million. The agreement expires in one year and is renewable
annually upon the mutual consent of both parties. At September 30, 1999, 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, 1999, the company was in compliance with these
arrangements and $249 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 1999, 1998 and 1997 were $8.4 million
or $.255 per share, $7.6 million or $.23 per share and $6.5 million or $.195 per
share, respectively. Cash dividends for Class A common stock in 1999, 1998 and
1997 were $6.0 million or $.255 per share, $5.6 million or $.23 per share and
$4.4 million or $.195 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.
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 year 1998, the Board of Directors authorized the company to
purchase up to 6.0 million shares of its Class A common stock. This
authorization was increased to 9.0 million shares in fiscal year 1999. As of
September 30, 1999, the company had purchased 7.1 million Class A common shares
under this program at a total cost of $160.0 million. In addition, during fiscal
1998 and 1999, the Board of Directors authorized the purchase of 385,000 and
190,000 Class B common shares from a related party at a total cost of $11.2
million and $5.0 million, respectively, which was equal to fair market value of
the shares on the dates of purchase.
<PAGE>
Notes Continued
- --------------------------------------------------------------------------------
(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 the date of grant. Options under the plans
expire ten years from the 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 vesting period consistent with SFAS No. 123, the company's pro-forma
net earnings and earnings per share for the years ended September 30, 1999, 1998
and 1997 would have been as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------
<S> <C> <C> <C>
Net earnings:
As reported $86,290 83,067 85,417
Pro-forma $82,779 80,090 83,572
Basic earnings per share:
As reported $1.53 1.46 1.53
Pro-forma $1.47 1.41 1.49
Diluted earnings per share:
As reported $1.51 1.37 1.41
Pro-forma $1.45 1.33 1.38
======================================================
</TABLE>
The weighted average fair value of options at the date of grant in 1999, 1998
and 1997 was $4.96, $7.37 and $5.72 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:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------
<S> <C> <C> <C>
Expected life 5 years 5 years 5 years
Volatility 20.5% 19.5% 18.7%
Risk-free interest rate 4.2%-5.2% 5.5%-5.9% 6.7%-6.8%
Dividend yield 1.0%-1.2% 0.8%-1.0% 0.8%-0.9%
=========================================================
</TABLE>
Summarized information on the company's outstanding stock options at September
30, 1999 is as follows (options in thousands):
<TABLE>
<CAPTION>
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
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$9.38-$13.38 1,227 5.0 years $12.09 1,053 $11.87
$16.34-$22.72 1,725 8.3 years $20.78 554 $20.45
$25.09-$26.19 758 8.0 years $26.18 378 $26.19
</TABLE>
Stock option activity under the plans is summarized as follows (options in
thousands):
<TABLE>
<CAPTION>
Number Weighted
of Average
Options Option Price
- -------------------------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------
Granted 1,187 21.41
Exercised (244) 13.37
Canceled (288) 22.16
- ---------------------------------------------------------------
Outstanding at September 30, 1999 3,710 $19.01
============================================================================
Exercisable at September 30:
1997 1,296 $11.38
1998 1,213 $15.04
1999 1,985 $16.99
============================================================================
</TABLE>
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 1999, employees were granted 46,400 restricted
shares at a weighted average fair value of $21.58 per share on the date of
grant. At September 30, 1999, there were 220,675 restricted shares outstanding.
(6) Income Taxes
- --------------------------------------------------------------------------------
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $30,965 28,176 31,553
Foreign 9,966 6,089 5,716
State 4,480 5,122 6,015
- -------------------------------------------------------------------------------
45,411 39,387 43,284
- -------------------------------------------------------------------------------
Deferred:
Federal 2,189 6,928 4,849
Foreign (402) 2,716 2,549
State 295 280 22
- -------------------------------------------------------------------------------
2,082 9,924 7,420
- -------------------------------------------------------------------------------
$47,493 49,311 50,704
===============================================================================
</TABLE>
<PAGE>
Notes Continued
- --------------------------------------------------------------------------------
(6) Income Taxes (continued)
- --------------------------------------------------------------------------------
The difference between the United States statutory federal income tax rate and
the effective income tax rate is summarized below:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Effect of foreign
income tax rates (2.5) (.8) (1.3)
State income taxes, net
of federal tax benefit 2.3 2.7 2.9
Other, net .7 .4 .7
- --------------------------------------------------------------------------------
Effective tax rate 35.5% 37.3% 37.3%
================================================================================
</TABLE>
Significant components of the company's deferred tax assets and liabilities at
September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets attributable to:
Accrued expenses $ 12,313 11,713
Other 1,429 380
- --------------------------------------------------------------------------------
Total deferred tax assets 13,742 12,093
- --------------------------------------------------------------------------------
Deferred tax liabilities attributable to:
Depreciation and amortization 34,348 28,021
Inventory adjustments 2,274 1,600
State income taxes 914 619
- --------------------------------------------------------------------------------
Total deferred tax liabilities 37,536 30,240
- --------------------------------------------------------------------------------
Net deferred tax liabilities $(23,794) (18,147)
================================================================================
</TABLE>
Prepaid expenses at September 30, 1999 and 1998 include $10.0 million and $10.1
million, respectively, of net deferred tax assets. Management believes that it
is more likely than not that results of future operations will generate
sufficient taxable income to realize the deferred tax assets. Accordingly, there
is no valuation allowance recorded at September 30, 1999 and 1998.
Domestic earnings before income taxes were $107.2 million, $105.0 million and
$110.9 million (including the non-recurring gain) in 1999, 1998 and 1997,
respectively. Foreign operations had earnings before income taxes of $26.6
million, $27.4 million and $25.2 million in 1999, 1998 and 1997, respectively.
Undistributed earnings of the company's foreign operations amounting to $155.2
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, 1999. Should such earnings be distributed, the credits
for foreign income taxes paid would substantially offset applicable U.S. income
taxes.
(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, 1999,
future minimum payments under non-cancelable leases are as follows:
<TABLE>
<CAPTION>
Operating Capital
(In thousands) Leases Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 51,207 187
2001 44,308 288
2002 34,606 142
2003 23,549 102
2004 10,930 55
2005 and later 10,175 14
- --------------------------------------------------------------------------------
Total minimum lease payments $174,775 788
================================================================================
</TABLE>
Total rental expense for operating leases amounted to $69.8 million in 1999,
$63.1 million in 1998 and $59.6 million in 1997. 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):
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-tax earnings $133,783 132,378 120,487
Net earnings $ 86,290 83,067 75,606
Net earnings per share:
Basic $ 1.53 1.46 1.35
Diluted $ 1.51 1.37 1.25
================================================================================
</TABLE>
(9) Business Segments and Geographic Area Information
- --------------------------------------------------------------------------------
Effective for fiscal year 1999 reporting, the company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for reporting information about operating segments,
products and services, geographic areas and major customers. The presentation of
segment information reflects the manner in which management organizes segments
for making operating decisions and assessing performance. The company's consumer
products business includes two segments, "Alberto-Culver North America" and
"Alberto-Culver International," and includes developing, manufacturing,
distributing and marketing branded consumer products worldwide. These segments
also include 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
distributor of professional beauty supplies through its Sally Beauty Supply
stores and its full-service operations.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The company accounts for sales
between segments as if the sales were to a third party and all sales between
segments are eliminated in consolidation.
<PAGE>
Notes Continued
- --------------------------------------------------------------------------------
(9) Business Segments and Geographic Area Information (continued)
================================================================================
Segment data for the years ended September 30, 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Business Segments Information (In thousands) 1999 1998 1997
==================================================================================
<S> <C> <C> <C>
Net sales:
Consumer products:
Alberto-Culver North America $ 455,527 458,225 490,226
Alberto-Culver International 441,439 420,472 420,508
- ----------------------------------------------------------------------------------
Total consumer products 896,966 878,697 910,734
Specialty Distribution - Sally 1,096,867 972,792 879,209
Eliminations (17,905) (16,778) (14,685)
- ----------------------------------------------------------------------------------
$1,975,928 1,834,711 1,775,258
==================================================================================
Earnings before provision for income taxes:
Consumer products:
Alberto-Culver North America $ 27,983 25,386 31,545
Alberto-Culver International 22,519 25,334 22,306
- ----------------------------------------------------------------------------------
Total consumer products 50,502 50,720 53,851
Specialty Distribution - Sally 111,252 100,760 89,456
- ----------------------------------------------------------------------------------
Segment operating profit 161,754 151,480 143,307
Non-recurring gain (note 8) -- -- 15,634
Unallocated expenses, net* (15,252) (10,495) (14,582)
Interest expense, net of interest income (12,719) (8,607) (8,238)
- ----------------------------------------------------------------------------------
$ 133,783 132,378 136,121
==================================================================================
Identifiable assets:
Consumer products:
Alberto-Culver North America $ 221,334 201,237 222,970
Alberto-Culver International 382,345 327,435 312,721
- ----------------------------------------------------------------------------------
Total consumer products 603,679 528,672 535,691
Specialty Distribution - Sally 497,570 421,050 373,111
Corporate** 83,285 118,462 91,257
- ----------------------------------------------------------------------------------
$1,184,534 1,068,184 1,000,059
==================================================================================
Depreciation and amortization expense:
Consumer products:
Alberto-Culver North America $ 12,358 10,504 10,461
Alberto-Culver International 10,713 10,349 11,001
- ----------------------------------------------------------------------------------
Total consumer products 23,071 20,853 21,462
Specialty Distribution - Sally 17,931 16,202 14,001
Corporate 1,172 1,050 1,466
- ----------------------------------------------------------------------------------
$ 42,174 38,105 36,929
==================================================================================
Capital expenditures:
Consumer products:
Alberto-Culver North America $ 17,488 15,038 10,878
Alberto-Culver International 12,002 9,953 13,250
- ----------------------------------------------------------------------------------
Total consumer products 29,490 24,991 24,128
Specialty Distribution - Sally 18,601 15,158 18,608
Corporate -- 16,000 15,700
- ----------------------------------------------------------------------------------
$ 48,091 56,149 58,436
==================================================================================
* "Unallocated expenses, net" principally consists of general corporate
expenses.
** Corporate identifiable assets are primarily cash, cash equivalents,
short-term investments and equipment.
Geographic data for the years ended September 30, 1999, 1998 and 1997 is as
follows:
Geographic Area Information (In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------
Net sales:
United States $1,443,343 1,344,592 1,309,016
Foreign 549,688 505,319 484,978
Eliminations (17,103) (15,200) (18,736)
- ----------------------------------------------------------------------------------
$1,975,928 1,834,711 1,775,258
==================================================================================
Operating profit:
United States $ 133,201 119,409 113,454
Foreign 28,553 32,071 29,853
- ----------------------------------------------------------------------------------
$ 161,754 151,480 143,307
==================================================================================
Identifiable assets:
United States $ 673,524 568,627 565,578
Foreign 427,725 381,095 343,224
Corporate* 83,285 118,462 91,257
- ----------------------------------------------------------------------------------
$1,184,534 1,068,184 1,000,059
==================================================================================
* 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, 1999 and 1998 is summarized below (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999:
Net sales $464,551 487,396 500,432 523,549
Cost of products sold $228,757 237,801 247,786 259,358
Net earnings $18,620 20,050 22,671 24,949
Earnings per share:
Basic $.33 .35 .40 .45
Diluted $.32 .35 .40 .44
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
</TABLE>
(11) Acquisitions
- --------------------------------------------------------------------------------
The company made several acquisitions during fiscal years 1999, 1998 and 1997
that were insignificant to the consolidated financial statements. The
acquisitions were accounted for using the purchase method, and accordingly, the
results of operations of the acquired businesses have been consolidated from the
dates of acquisition. Total goodwill of $39.3 million, $28.3 million and $8.2
million was recorded in fiscal years 1999, 1998 and 1997, respectively, as a
result of the acquisitions.
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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Chicago, Illinois
October 22, 1999
<PAGE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Alberto-Culver Company and Subsidiaries
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Fiscal year 1999 marked the company's eighth consecutive year of record sales
and record operating earnings. Net sales for the year ended September 30, 1999
were $1.98 billion, an increase of 7.7% over prior year sales of $1.83 billion.
Net sales in 1997 were $1.78 billion.
Record net earnings of $86.3 million in 1999 increased 3.9% from 1998 net
earnings of $83.1 million. Basic earnings per share of $1.53 were 7 cents or
4.8% higher than 1998 and diluted earnings per share were $1.51, an increase of
14 cents or 10.2% from 1998. Excluding the 1997 non-recurring gain, net earnings
were $75.6 million in 1997, representing basic earnings per share of $1.35 and
diluted earnings per share of $1.25.
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 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 North America consumer products in 1999 were $455.5
million, which approximated 1998 sales of $458.2 million. The 1999 decrease
primarily resulted from sales declines for the Cortexx and VO Fine hair care
lines which were new products introduced in fiscal years 1997 and 1998,
respectively, partially offset by higher 1999 sales for Alberto VO5 Herbals
shampoo and conditioner and the relaunch of St. Ives Swiss Formula facial
products. In 1998, sales decreased 6.5% compared to 1997 sales of $490.2
million primarily due to lower sales for custom label filling operations, St.
Ives Swiss Formula facial products and Alberto VO5 shampoo and conditioner.
Alberto-Culver International consumer products sales increased 5.0% to $441.4
million in 1999 compared to $420.5 million in 1998. The fiscal 1999 results were
negatively impacted by the effect of foreign exchange rates. Had foreign
exchange rates in fiscal 1999 been the same as fiscal 1998, Alberto-Culver
International sales would have increased 8.0%, primarily due to acquisitions in
Latin America and the launch of Advanced Alberto VO5 in several overseas
markets. International sales in 1998 were relatively unchanged compared to sales
in 1997.
Sales of the "Specialty Distribution - Sally" business segment crossed the
billion dollar sales threshold in 1999, reaching $1.1 billion compared to $972.8
million and $879.2 million in 1998 and 1997, respectively. The sales increases
of 12.8% in 1999 and 10.6% in 1998 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 30.3%
during the last three fiscal years to a total of 2,157 at the end of fiscal 1999
compared to 1,998 and 1,833 at the end of 1998 and 1997, respectively.
Cost of products sold as a percentage of sales was 49.3% in fiscal year 1999
compared to 49.2% in 1998 and 49.6% in 1997. The slight increase in the cost of
goods sold percentage in 1999 was principally due to the growth of Sally Beauty
Company, which has a higher cost of goods sold as a percentage of sales. The
lower cost of products sold percentage in 1998 compared to the prior year was
primarily due to cost savings and changes in product mix favoring higher margin
products.
Advertising, promotion, selling and administrative expenses increased 8.1% in
1999 and 3.3% in 1998. The increases in 1999 and 1998 primarily resulted from
the higher selling and administration costs associated with the growth of the
Sally Beauty business.
Advertising, promotion and market research expenditures were $259.7 million,
$257.7 million and $255.3 million in 1999, 1998 and 1997, respectively. The
higher expenses in 1999 were mainly attributable to increased advertising and
promotion expenditures for Alberto-Culver International as a result of
acquisitions in Latin America and the launch of Advanced Alberto VO5 in several
overseas markets. These increases are partially offset by lower advertising and
promotion expenditures for Alberto-Culver North America's Cortexx and VO Fine
hair care lines, which were new products in 1997 and 1998, respectively.
Interest expense, net of interest income, was $12.7 million, $8.6 million and
$8.2 million in 1999, 1998 and 1997, respectively. Interest expense was $14.8
million in 1999 versus $12.2 million in 1998 and $11.8 million in 1997. The
increase in interest expense in 1999 was primarily attributable to the $120
million of 6.375% debentures issued on June 15, 1998 and new borrowings under
the domestic revolving credit facility in 1999. Interest income in 1999 was $2.1
million, compared to $3.6 million in 1998 and $3.6 million in 1997. The decrease
in 1999 was principally due to lower investments.
The provision for income taxes as a percentage of earnings before income taxes
was 35.5% in 1999 and 37.3% in 1998 and 1997. The lower tax rate in 1999 was
primarily due to the favorable closing of certain tax years. Other 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, 1999 was $309.2 million, an increase of $31.3
million from the prior year's working capital of $277.9 million. The resulting
current ratio was 1.92 to 1.00 at September 30, 1999 compared to 1.89 to 1.00
last year.
Accounts receivable increased 11.6% to $144.1 million from $129.1 million last
year. The increase was principally due to acquisitions in Latin America along
with higher accounts receivables related to the 12.2% sales increase in the
fourth quarter of fiscal year 1999.
Inventories were $421.9 million at September 30, 1999, up 14.3% compared to
$369.2 million last year. The increase was primarily due to higher inventories
needed to support the growth of Sally Beauty Company.
Net property, plant and equipment increased $15.3 million to $238.8 million at
September 30, 1999. The increase resulted primarily from
<PAGE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition (Cont.)
Alberto-Culver Company and Subsidiaries
- --------------------------------------------------------------------------------
additional Sally stores, acquisitions by Alberto-Culver International and Sally
Beauty Company, warehouse and office expenditures, and outlays for machinery,
equipment and information systems, partially offset by depreciation during
fiscal 1999.
Goodwill and trade names, net of amortization, was $245.1 million as of
September 30, 1999, up $40.3 million from 1998. The increase in goodwill and
trade names was due to additional goodwill from acquisitions by Alberto-Culver
International and Sally Beauty Company partially offset by amortization and the
effects of foreign exchange rates.
Accounts payable of $198.9 million at September 30, 1999 increased $21.3 million
compared to 1998, primarily due to acquisitions and higher Sally Beauty Company
inventories.
Long-term debt increased $53.4 million to $225.2 million principally due to
borrowings under the company's domestic revolving credit facility.
Total stockholders' equity increased $34.8 million to $568.8 million at
September 30, 1999. The increase was primarily due to net earnings for the
fiscal year, partially offset by the purchase of 1.6 million Class A common
shares and 190,000 Class B common shares for the treasury 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 borrowing of $56 million under the domestic
revolving credit facility in 1999. Operating activities provided cash of $89.9
million, $110.4 million and $79.7 million in 1999, 1998 and 1997, respectively.
The company has obtained long-term financing as needed to fund acquisitions and
other growth opportunities. Funds also may be 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 has $56.0 million
outstanding at September 30, 1999, may be drawn in U.S. dollars or in certain
foreign currencies. Under debt covenants, the company has the ability to incur
up to $624 million of additional borrowings.
The primary uses of cash during the three-year period ending September 30, 1999
have been for acquisitions of $111.8 million, purchases of treasury stock of
$185.7 million, capital expenditures of $162.0 million and cash dividends of
$38.5 million.
Compared to 1996, cash dividends per share increased 45.7% over the three-year
period ended September 30, 1999. Cash dividends paid on Class A and Class B
common stock were $.255 per share in 1999, $.230 per share in 1998 and $.195 per
share in 1997.
The company anticipates that cash flows from operations and available credit
will be sufficient to fund operational requirements in future years. During
fiscal year 2000, 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 years 1998 and
1999, the Board of Directors authorized the company to purchase up to 9.0
million shares of its Class A common stock. As of September 30, 1999, 1.9
million Class A shares remained available for purchase under the authorizations.
YEAR 2000 READINESS DISCLOSURES
Many computer systems use only two digits to represent the year and they may be
unable to accurately process 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.
The company believes that software purchased within the last five years is Y2K
compliant. 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 was revised periodically and progress
against the plan was 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 was
completed in November, 1999. Certification of critical systems, which includes
testing by technicians and key users, has been completed. The company's
manufacturing equipment has been certified as Y2K compliant by its suppliers.
Testing of the equipment to validate the vendors' claims has been completed on a
limited basis due to the difficulty of developing a testing environment.
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.
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 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 United States has been complicated by
difficulties in obtaining information from unrelated foreign entities about
their state of Y2K readiness. The possible consequences of the company's key
suppliers or customers not being Y2K compliant by January 1, 2000 include, among
other things, temporary plant closings, delays in the delivery of products,
delays in the receipt of supplies, and
<PAGE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition (Cont.)
Alberto-Culver Company and Subsidiaries
- --------------------------------------------------------------------------------
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 effects any such disruptions may have.
The company has developed contingency plans to be followed in the event of Y2K
failures. These plans are an important component of the company's overall Y2K
readiness plan and include addressing potential problems in both critical
internal company systems and business partner systems. These contingency plans
include such measures as identifying alternative suppliers, increasing the on-
hand quantity of inventories, arranging off-site system processing capabilities,
backing up critical systems before the calendar year-end and ensuring that key
personnel are available, if needed. The basis for establishing contingency plans
for an area of the business was determined through a risk analysis process.
Incremental costs, which include contractor costs to modify existing systems,
and the associated costs of internal resources dedicated to achieving Y2K
compliance are charged to expense as incurred. The incremental costs are
currently expected to total approximately $2.4 million, of which approximately
90% has been spent as of September 30, 1999. Incremental costs are presently
being funded through operating cash flow. The amounts do not include any costs
associated with the implementation of contingency plans. The costs associated
with replacement of computerized systems, hardware and related equipment
(currently estimated to be approximately $11.5 million), substantially all of
which have been capitalized, are not included in the above estimates.
Planned Y2K compliancy efforts are in their final stages of completion. However,
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.
The potential for Year 2000 problems does not end after January 1, 2000 passes.
Y2K problems can occur during the Year 2000, but as time passes the likelihood
of encountering problems will diminish. Every effort will be made to correct
these problems before the business is impacted in any significant manner. A Y2K
rapid response team at each business unit has been established to address Y2K
problems efficiently and to communicate the problems to the company's Y2K
coordinators.
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, the Mexican peso and the Argentine peso.
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, 1999, the company had no material outstanding
foreign currency contracts.
Interest rate risk is managed through a combination of fixed rate and variable
rate debt with varying maturities. At September 30, 1999, variable rate long-
term debt was $64.9 million or 28.8% 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,
1999, the company had no interest rate swaps outstanding.
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>
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 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Market Price Range Cash
------------------------------------------- Dividend
1999 1998 Per Share
------------------ ----------------- --------------
High Low High Low 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (NYSE Symbol ACVA):
First Quarter $25-1/2 20-7/8 27-7/8 24-1/2 $.060 .05
Second Quarter $26-1/8 21-1/8 27-3/4 25 .065 .06
Third Quarter $25 19-3/4 28-1/2 25 .065 .06
Fourth Quarter $23-3/8 19-9/16 25-7/8 17-15/16 .065 .06
- ---------------------------------------------------------------------------------------------------
$.255 .23
===================================================================================================
Class B (NYSE Symbol ACV):
First Quarter $27-3/16 22-7/8 32-9/16 27-9/16 $.060 .05
Second Quarter $27-3/4 22-7/8 32-7/16 29 .065 .06
Third Quarter $27-7/8 21-9/16 32-5/16 28-1/4 .065 .06
Fourth Quarter $27-3/8 23 29-3/8 19-3/4 .065 .06
- ---------------------------------------------------------------------------------------------------
$.255 .23
===================================================================================================
</TABLE>
As of November 15, 1999, stockholders of record totaled 1,014 for Class A shares
and 1,029 for Class B shares.
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
Alberto-Culver Company and Subsidiaries
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended September 30,
---------------------------------------------------------------------------------------
(In thousands, except per share data) 1999 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Net sales $1,975,928 1,834,711 1,775,258 1,590,409 1,358,219 1,216,119 1,147,990
Cost of products sold 973,702 902,095 880,416 805,080 682,589 602,749 564,260
Interest expense 14,849 12,170 11,826 15,905 9,946 8,630 9,661
Earnings before non-recurring gain and
income taxes(1) 133,783 132,378 120,487 100,014 84,242 71,078 65,129
Provision for income taxes (1) 47,493 49,311 44,881 37,270 31,591 27,010 23,857
Net earnings before non-recurring gain(1) 86,290 83,067 75,606 62,744 52,651 44,068 41,272
Net earnings per share
before non-recurring gain (1) (2):
Basic 1.53 1.46 1.35 1.13 0.95 0.79 0.72
Diluted 1.51 1.37 1.25 1.06 0.94 0.79 0.72
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding (2):
Basic 56,378 56,845 55,967 55,571 55,430 56,063 57,361
Diluted 57,162 62,420 63,377 62,776 57,053 56,083 57,434
Shares outstanding at year end (2):
Class A 22,768 24,063 22,610 22,097 21,926 21,826 23,126
Class B 32,957 33,148 33,533 33,533 33,533 33,534 33,604
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Condition:
Current ratio 1.92 to 1 1.89 to 1 1.86 to 1 1.79 to 1 2.28 to 1 1.86 to 1 2.05 to 1
Working capital $ 309, 153 277,940 269,007 226,123 301,706 185,747 205,050
Cash, cash equivalents and
short-term investments 57,816 73,305 87,600 71,557 146,985 50,362 73,947
Property, plant and equipment, net 238,753 223,476 190,998 175,920 157,791 132,881 124,449
Total assets 1,184,534 1,068,184 1,000,059 909,266 815,086 610,208 593,046
Long-term debt, including debentures 225,173 171,760 149,441 161,548 183,094 42,976 80,184
Stockholders' equity 568,820 533,991 497,004 425,096 370,903 326,970 298,857
Cash dividends 14,394 13,220 10,909 9,724 8,590 7,708 7,893
Cash dividends per share (2)(3) 0.255 0.230 0.195 0.175 0.155 0.1375 0.1375(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(In thousands, except per share data) 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Results:
Net sales 1,091,286 873,719 795,825 717,438
Cost of products sold 534,979 424,566 383,410 344,539
Interest Expense 11,665 6,822 7,890 7,975
Earnings before non-recurring gain and
income taxes(1) 61,356 47,928 54,704 47,320
Provision for income taxes (1) 22,740 17,812 19,694 17,792
Net earnings before non-recurring gain(1) 38,616 30,116 35,010 29,438
Net earnings per share
before non-recurring gain (1) (2):
Basic 0.68 0.53 0.65 0.56
Diluted 0.68 0.53 0.65 0.56
- --------------------------------------------------------------------------------------------------
Weighted average shares outstanding (2):
Basic 56,726 56,606 53,660 52,350
Diluted 56,726 56,606 53,660 52,350
Shares outstanding at year end (2):
Class A 23,491 22,875 23,407 19,374
Class B 33,604 33,604 33,594 33,030
- --------------------------------------------------------------------------------------------------
Financial Condition:
Current ratio 1.88 to 1 2.11 to 1 2.34 to 1 1.99 to 1
Working capital 193,080 212,268 192,616 127,801
Cash, cash equivalents and
short-term investments 80,158 84,595 82,012 40,380
Property, plant and equipment, net 121,703 114,910 81,772 77,234
Total assets 610,400 574,413 443,560 363,395
Long-term debt, including debentures 84,549 97,820 60,728 68,899
Stockholders' equity 286,222 249,431 230,868 160,088
Cash dividends 6,665 6,093 5,184 4,515
Cash dividends per share (2)(3) 0.1175 0.1075 0.0975 0.08625
- --------------------------------------------------------------------------------------------------
</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 non-recurring gain were $85.4 million, after deducting income
taxes of $50.7 million, resulting in basic earnings per share of $1.53 and
diluted earnings per share of $1.41
(2) Net earnings per share, shares outstanding and cash dividends per share
have been restated to reflect the 100% stock dividends on the company's
Class A and Class B outstanding shares in February, 1997 and February 1990.
(3) Cash 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. Cash
dividends paid in fiscal 1993 included a one-time extraordinary dividend of
one cent per share in recognition of the company surpassing one billion
dollars in sales for the fiscal year ended September 30, 1992.
<PAGE>
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 International AB Sweden
CIFCO, Inc. Delaware
Indola Cosmetics, B.V. The Netherlands
Indola SpA Italy
La Farmaco Argentina I. y C.S.A. Argentina
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.
<PAGE>
Exhibit 23
----------
Consent of KPMG 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, 333-60059 and 333-70067) and Form S-3 (Number 333-49649) of
Alberto-Culver Company of our reports dated October 22, 1999, relating to the
consolidated balance sheets of Alberto-Culver Company and subsidiaries as of
September 30, 1999 and 1998 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, 1999, which reports appear or are
incorporated by reference in the September 30, 1999 annual report on Form 10-K
of Alberto-Culver Company.
/S/ KPMG LLP
Chicago, Illinois
December 14, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
consolidated balance sheet as of September 30, 1999 and the consolidated
statement of earnings for the year ended September 30, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 55,931
<SECURITIES> 1,885
<RECEIVABLES> 144,075
<ALLOWANCES> 8,441
<INVENTORY> 421,888
<CURRENT-ASSETS> 645,554
<PP&E> 429,561
<DEPRECIATION> 190,808
<TOTAL-ASSETS> 1,184,534
<CURRENT-LIABILITIES> 336,401
<BONDS> 225,173
0
0
<COMMON> 15,031
<OTHER-SE> 553,789
<TOTAL-LIABILITY-AND-EQUITY> 1,184,534
<SALES> 1,975,928
<TOTAL-REVENUES> 1,975,928
<CGS> 973,702
<TOTAL-COSTS> 973,702
<OTHER-EXPENSES> 855,724
<LOSS-PROVISION> 3,598
<INTEREST-EXPENSE> 14,849
<INCOME-PRETAX> 133,783
<INCOME-TAX> 47,493
<INCOME-CONTINUING> 86,290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,290
<EPS-BASIC> 1.53
<EPS-DILUTED> 1.51
</TABLE>
