<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED:
June 30, 2000
-OR-
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-5050
ALBERTO-CULVER COMPANY
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2257936
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2525 Armitage Avenue
Melrose Park, Illinois 60160
--------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (708) 450-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO_____
At June 30, 2000, the company had 22,864,313 shares of Class A common stock and
32,957,471 shares of Class B common stock outstanding.
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended June 30, 2000 and 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
(Unaudited)
------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $573,095 500,432
Cost of products sold 280,377 247,786
-------- -------
Gross profit 292,718 252,646
Advertising, promotion, selling and administrative 249,092 215,572
-------- -------
Operating earnings 43,626 37,074
Interest expense, net of interest income of $1,705
in 2000 and $652 in 1999 5,616 3,110
-------- -------
Earnings before provision for income taxes 38,010 33,964
Provision for income taxes 12,544 11,293
-------- -------
Net earnings $ 25,466 22,671
======== =======
Net earnings per share
Basic $ .46 .40
======== =======
Diluted $ .45 .40
======== =======
Cash dividends paid per share $ .075 .065
======== =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
Nine Months Ended June 30, 2000 and 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
(Unaudited)
----------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $1,652,707 1,452,379
Cost of products sold 809,267 714,344
---------- ---------
Gross profit 843,440 738,035
Advertising, promotion, selling and administrative 727,094 634,379
Non-recurring gain (Note 5) (9,257) --
---------- ---------
Operating earnings 125,603 103,656
Interest expense, net of interest income of $3,070
in 2000 and $2,088 in 1999 13,302 8,553
---------- ---------
Earnings before provision for income taxes 112,301 95,103
Provision for income taxes (Note 5) 37,245 33,762
---------- ---------
Net earnings (Note 5) $ 75,056 61,341
========== =========
Net earnings per share (Note 5)
Basic $ 1.35 1.08
========== =========
Diluted $ 1.33 1.07
========== =========
Cash dividends paid per share $ .215 .19
========== =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2000 and September 30, 1999
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
June 30, September 30,
ASSETS 2000 1999
------ ---------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 134,864 55,931
Short-term investments 333 1,885
Receivables, less allowance for doubtful
accounts ($10,851 at 6/30/00 and $8,441 at 9/30/99) 152,885 144,075
Inventories:
Raw materials 44,806 43,399
Work-in-process 4,939 4,582
Finished goods 399,168 373,907
---------- ---------
Total inventories 448,913 421,888
Other current assets 24,283 21,775
---------- ---------
Total current assets 761,278 645,554
---------- ---------
Property, plant and equipment at cost, less accumulated
depreciation ($206,522 at 6/30/00 and $190,808 at 9/30/99) 240,934 238,753
Goodwill, net 241,699 172,109
Trade names, net 86,102 72,975
Other assets 64,766 55,143
---------- ---------
Total assets $1,394,779 1,184,534
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 5,566 3,719
Accounts payable 201,545 198,887
Accrued expenses 117,170 114,382
Income taxes 21,548 19,413
---------- ---------
Total current liabilities 345,829 336,401
---------- ---------
Long-term debt 362,748 225,173
Deferred income taxes 37,161 33,833
Other liabilities 29,711 20,307
Stockholders' equity:
Common stock, par value $.22 per share:
Class A authorized 75,000,000 shares; issued 30,612,798 shares 6,735 6,735
Class B authorized 75,000,000 shares; issued 37,710,655 shares 8,296 8,296
Additional paid-in capital 189,600 191,063
Retained earnings 663,695 600,629
Accumulated other comprehensive income -
foreign currency translation (44,539) (31,160)
---------- ---------
823,787 775,563
Less treasury stock at cost (Class A common shares: 7,748,485
at 6/30/00 and 7,844,756 at 9/30/99; Class B common shares:
4,753,184 at 6/30/00 and 9/30/99) (204,457) (206,743)
---------- ---------
Total stockholders' equity 619,330 568,820
---------- ---------
Total liabilities and stockholders' equity $1,394,779 1,184,534
========== =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2000 and 1999
(dollar amounts in thousands)
<TABLE>
<CAPTION>
(Unaudited)
------------------------
2000 1999
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
------------------------------------
Net earnings $ 75,056 61,341
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 35,797 30,992
Non-recurring gain (9,257) --
Other, net 3,492 2,993
Cash effects of changes in (exclusive of acquisitions):
Receivables, net (6,472) (3,209)
Inventories (13,920) (32,629)
Other current assets (1,749) (2,705)
Accounts payable and accrued expenses (2,626) 5,330
Income taxes 2,645 1,584
--------- -------
Net cash provided by operating activities 82,966 63,697
--------- -------
Cash Flows from Investing Activities:
------------------------------------
Short-term investments 1,533 216
Capital expenditures (27,828) (33,712)
Payments for purchased businesses, net of acquired
companies' cash (115,634) (52,693)
Proceeds from sale of trademark 10,000 --
Other, net (1,836) (4,138)
--------- -------
Net cash used by investing activities (133,765) (90,327)
--------- -------
Cash Flows from Financing Activities:
------------------------------------
Short-term borrowings 2,142 861
Proceeds from long-term debt 308,215 50,135
Debt issuance costs (1,321) --
Repayments of long-term debt (168,927) (2,474)
Net proceeds from sale of receivables 5,000 3,653
Cash dividends paid (11,991) (10,767)
Cash proceeds from exercise of stock options 1,929 2,695
Stock purchased for treasury (3,460) (36,878)
--------- -------
Net cash provided by financing activities 131,587 7,225
--------- -------
Effect of foreign exchange rate changes on cash (1,855) (1,869)
--------- -------
Net increase (decrease) in cash and cash equivalents 78,933 (21,274)
Cash and cash equivalents at beginning of period 55,931 72,395
--------- -------
Cash and cash equivalents at end of period $ 134,864 51,121
========= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) The consolidated financial statements contained in this report have not
been audited by independent public accountants, except for balance sheet
information presented at September 30, 1999. However, in the opinion of the
company, the consolidated financial statements reflect all adjustments,
which include only normal adjustments, necessary to present fairly the data
contained therein. The results of operations for the periods covered are
not necessarily indicative of results for a full year.
(2) Basic earnings per share is calculated using the weighted average of actual
shares outstanding of 55,792,000 and 56,113,000 for the three months ended
June 30, 2000 and 1999, respectively, and 55,747,000 and 56,673,000 for the
nine months ended June 30, 2000 and 1999 respectively.
Diluted earnings per share is determined by dividing net earnings by the
weighted average shares outstanding, including common stock equivalents.
Diluted weighted average shares outstanding were 56,757,000 and 56,924,000
for the three months ended June 30, 2000 and 1999, respectively, and
56,515,000 and 57,511,000 for the nine months ended June 30, 2000 and 1999,
respectively.
The following table provides a reconciliation of diluted weighted average
shares outstanding (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30 Ended June 30
-------------- --------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding-basic 55,792 56,113 55,747 56,673
Effect of dilutive securities:
Assumed exercise of
stock options 890 736 693 763
Other 75 75 75 75
------ ------ ------ ------
Weighted average shares
outstanding-diluted 56,757 56,924 56,515 57,511
====== ====== ====== ======
</TABLE>
(3) Effective the first quarter of fiscal year 1999, the company adopted
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes rules for the reporting of
comprehensive income and its components. Comprehensive income consists of
net earnings and foreign currency translation adjustments as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30 Ended June 30
-------------- --------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net earnings $25,466 22,671 75,056 61,341
Other comprehensive income
adjustments-foreign currency
translation (5,880) (2,241) (13,379) (7,276)
------- ------ ------- ------
Comprehensive income $19,586 20,430 61,677 54,065
======= ====== ======= ======
</TABLE>
6
<PAGE>
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(4) 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 June 30, 2000, the company had purchased 7,290,400 Class A common shares
under this program at a total cost of $162.9 million. In addition, during
fiscal year 1999, the Board of Directors authorized the purchase of 190,000
Class B common shares from a related party at a total cost of $5.0 million,
which was equal to the fair market value of the shares on the date of
purchase.
(5) In the first quarter of fiscal year 2000, the company sold a European
trademark owned by its Indola professional business for $10.0 million. The
transaction resulted in a non-recurring pre-tax gain of $9.3 million and an
increase in net earnings of $6.0 million. The non-recurring gain added 11
cents to the company's basic and diluted earnings per share.
The following table provides pro-forma information for the first nine months
of the fiscal year excluding the non-recurring gain (in thousands, except
per share data):
<TABLE>
<CAPTION>
Nine Months Ended June 30
-------------------------
2000 1999
---- ----
<S> <C> <C>
Operating earnings $116,346 103,656
======== =======
Pre-tax earnings $103,044 95,103
======== =======
Net earnings $ 69,039 61,341
======== =======
Net earnings per share:
Basic $ 1.24 1.08
======== =======
Diluted $ 1.22 1.07
======== =======
</TABLE>
7
<PAGE>
(6) Effective September 30, 1999, 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.
Segment data for the three and nine months ended June 30, 2000 and 1999 is
as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30 Ended June 30
------------------ --------------------
2000 1999 2000 1999
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales:
Consumer products:
Alberto-Culver North America $137,576 107,676 388,744 330,034
Alberto-Culver International 114,656 113,687 341,621 323,420
-------- ------- --------- ---------
Total consumer products 252,232 221,363 730,365 653,454
Specialty distribution - Sally 327,225 284,406 938,669 812,809
Eliminations (6,362) (5,337) (16,327) (13,884)
-------- ------- --------- ---------
$573,095 500,432 1,652,707 1,452,379
======== ======= ========= =========
Earnings before provision for income taxes:
Consumer products:
Alberto-Culver North America $ 6,869 2,647 20,064 14,808
Alberto-Culver International 5,547 7,085 8,622 12,913
-------- ------- --------- ---------
Total consumer products 12,416 9,732 28,686 27,721
Specialty distribution - Sally 34,044 30,158 95,520 84,278
-------- ------- --------- ---------
Segment operating profit 46,460 39,890 124,206 111,999
Non-recurring gain (Note 5) -- -- 9,257 --
Unallocated expenses, net (2,834) (2,816) (7,860) (8,343)
Interest expense, net of interest income (5,616) (3,110) (13,302) (8,553)
-------- ------- --------- ---------
$ 38,010 33,964 112,301 95,103
======== ======= ========= =========
</TABLE>
(7) The company made several acquisitions during the first nine months of
fiscal 2000. The aggregate purchase price of these acquisitions
approximated $115.6 million and was funded primarily with borrowings. The
acquisitions have been accounted for under the purchase method. The excess
of the aggregate purchase price over the fair market value of the net
assets acquired of approximately $75.6 million is being amortized over 40
years.
(8) On April 3, 2000, the company issued $200 million of 8.25% senior notes due
November 1, 2005. The company has the option to redeem the notes 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. A portion
of the net proceeds was used to repay the borrowings under the revolving
credit facility and the remaining net proceeds are available for potential
acquisitions and other general corporate purposes.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
---------------------
Third Quarter and Nine Months Ended June 30, 2000 versus Third Quarter and Nine
-------------------------------------------------------------------------------
Months Ended June 30, 1999
--------------------------
The company achieved record third quarter net sales of $573.1 million in fiscal
year 2000, up $72.7 million or 14.5% over the comparable period of fiscal year
1999. For the nine month period ending June 30, 2000, net sales reached a new
high of $1.65 billion, representing a 13.8% increase compared to last year's
nine month period.
Net earnings for the three months ended June 30, 2000 were a record $25.5
million or 12.3% higher than the same period of the prior year. Basic earnings
per share were 46 cents in fiscal year 2000 and 40 cents in 1999. Diluted
earnings per share increased 12.5% to 45 cents in fiscal 2000 from 40 cents in
1999.
Net earnings for the nine months ended June 30, 2000 were $75.1 million,
including the non-recurring gain described below, or 22.4% higher than the same
period of the prior year. For the first nine months of fiscal year 2000, basic
earnings per share were $1.35 and diluted earnings per share were $1.33.
As described in Note 5, the company sold a European trademark owned by its
Indola professional business in the first quarter of fiscal year 2000. As a
result, the company recognized a non-recurring pre-tax gain of $9.3 million and
an increase in net earnings of $6.0 million. Accordingly, basic and diluted
earnings per share increased 11 cents as a result of the gain.
Net earnings before the non-recurring gain for the nine months ended June 30,
2000 were $69.0 million or 12.5% higher than the same period of the prior year.
Basic earnings per share before the non-recurring gain were $1.24 in fiscal year
2000 compared to $1.08 in fiscal year 1999. Diluted earnings per share before
the non-recurring gain increased 14.0% to $1.22 in fiscal 2000 from $1.07 in
fiscal 1999.
Compared to the same periods of the prior year, sales of Alberto-Culver North
America ("North America") increased 27.8% and 17.8% for the third quarter and
first nine months of fiscal year 2000, respectively. The increases were
primarily due to higher sales of the Alberto VO5 Herbals line of shampoos and
conditioners, St. Ives Swiss Formula facial and body wash product lines,
TRESemme hair care products and the Motions line of hair care products along
with the impact of the Pro-Line acquisition.
Sales of Alberto-Culver International ("International") increased 0.9% in the
third quarter and 5.6% in the first nine months of fiscal 2000 compared to last
year. Fiscal year 2000 results were negatively impacted by the effects of
foreign exchange rates. Had foreign exchange rates this year been the same as
the third quarter and first nine months of fiscal 1999, International sales
would have increased 7.8% for the third quarter and 11.5% for the first nine
months. The increase in International's current year sales was principally due
to the launch of Advanced Alberto VO5 hair care products in certain
International markets and acquisitions in Latin America and Poland.
The "Specialty distribution-Sally" business segment achieved sales increases of
15.1% for the third quarter and 15.5% for the first nine months of fiscal year
2000. The increases were mainly attributable to higher sales for established
Sally Beauty Company outlets, the addition of stores during the year and the
expansion of Sally's full service operations. At June 30, 2000, Sally Beauty
Company had 2,265 stores offering a full range of professional beauty supplies.
Cost of products sold as a percentage of net sales was 48.9% for the third
quarter and 49.0% for the first nine months of 2000 as compared to 49.5% for
the third quarter of the prior year and 49.2% for the first nine months of 1999.
The lower cost of products sold percentage in the third quarter of fiscal year
2000 was primarily due to product mix.
9
<PAGE>
Compared to the prior year, advertising, promotion, selling and administrative
expenses in fiscal year 2000 increased $33.5 million or 15.5% for the third
quarter and $92.7 million or 14.6% for the first nine months. The increases
primarily resulted from the higher selling and administrative costs associated
with the growth of Sally Beauty Company's business and higher expenditures for
advertising, promotion and market research.
Advertising, promotion and market research expenditures totaled $73.9 million
for the third quarter of 2000, an increase of 15.4% versus the comparable period
of the prior year. For the first nine months of fiscal year 2000, advertising,
promotion and market research expenditures were $221.4 million, an increase of
13.6% over the first nine months of fiscal year 1999. The higher expenses in
fiscal year 2000 were mainly attributable to increased advertising and promotion
expenditures for North America related to the growth of its business and higher
expenses for International as a result of the launch of Advanced Alberto VO5 and
acquisitions in Latin America and Poland.
Net interest expense in fiscal year 2000 increased $2.5 million for the third
quarter and $4.7 million for the first nine months compared to the same periods
of the prior year. The increases were primarily attributable to additional
interest expense related to the $200 million of 8.25% senior notes issued on
April 3, 2000, along with higher borrowings under the revolving credit facility
during the first six months of fiscal 2000. This higher interest expense was
partially offset by higher interest income resulting from investing the net
proceeds of the senior notes.
The fiscal year 2000 provision for income taxes as a percentage of earnings
before income taxes was 33.0% for the third quarter and for the first nine
months excluding the non-recurring gain. The provision for income taxes as a
percentage of earnings before income taxes was 33.25% and 35.5% for the third
quarter and first nine months of fiscal year 1999, respectively. The lower 2000
tax rate is mainly due to the realization of certain tax benefits.
FINANCIAL CONDITION
-------------------
June 30, 2000 versus September 30, 1999
---------------------------------------
The ratio of current assets to current liabilities was 2.20 to 1.00 at June 30,
2000 and 1.92 to 1.00 at September 30, 1999. Working capital of $415.4 million
was $106.2 million higher than the September 30, 1999 balance of $309.2 million
mainly due to the net proceeds from the issuance of the senior notes and the
sale of a trademark.
Inventories increased $27.0 million to $448.9 million during the first nine
months of fiscal year 2000. The increase primarily resulted from the growth of
Sally Beauty Company's business and the acquisitions discussed in Note 7.
Goodwill and trade names increased $82.7 million to $327.8 million during the
first nine months of fiscal 2000 as a result of the acquisitions discussed in
Note 7.
Total borrowings of $368.3 million at June 30, 2000 increased $139.4 million
during the first nine months of fiscal year 2000. The increase was principally
due to the issuance of $200 million of 8.25% senior notes in April, 2000, offset
by $60.3 million of net repayments of borrowings under the company's revolving
credit facilities.
FORWARD - LOOKING STATEMENTS
----------------------------
This Quarterly Report on Form 10-Q and the documents incorporated by reference
herein, if any, may contain 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
10
<PAGE>
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, loss of distributorship rights and the ability
to develop and successfully introduce new products; risks inherent in
acquisitions and strategic alliances; changes in costs, including changes in
labor costs, raw material prices or promotional expenses; the costs and effects
of unanticipated legal or administrative proceedings; variations in political,
economic or other factors such as currency exchange rates, inflation rates,
recessionary or expansive trends, tax changes, legal and regulatory changes or
other external factors over which the company has no control. The company
disclaims any obligation to update any forward-looking statement in this
Quarterly Report on Form 10-Q or any document incorporated herein by reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
There have been no material changes in the company's market risk during the nine
months ended June 30, 2000.
11
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
No report on Form 8-K was filed by the registrant during the quarter ended
June 30, 2000.
12
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALBERTO-CULVER COMPANY
(Registrant)
By:/s/ William J. Cernugel
-------------------------------------------------
William J. Cernugel
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
August 10, 2000
13
