FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended May 31, 1997 Commission File Number 0-14449
BeautiControl Cosmetics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2036343
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
2121 Midway, Carrollton, TX 75006
(Address including zip code of principal executive offices)
972/458-0601
(Registrant's telephone number including area code)
Indicated below is the number of shares outstanding of each class of the
registrant's common stock, as of July 7, 1997.
Title of Each Class of Common Stock Number of Shares Outstanding
Common Stock, $0.10 par value 5,928,198 shares
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
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statement
Index to BeautiControl Cosmetics, Inc. Consolidated Financial
Statement
Page
Balance Sheet 3-4
Statements of Income 5
Statements of Cash Flows 6
Notes to Financial Statements 7-9
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
ASSETS
May 31, November 30,
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 906,612 $ 884,384
Short-term investments 357,684 360,397
Accounts receivable-net of
allowance for doubtful accounts
of $587,500 and $487,800 at
May 31, 1997 and
November 30, 1996, respectively 695,908 1,103,915
Inventories
Raw materials 5,996,349 6,092,260
Finished goods 8,776,306 8,744,714
14,772,655 14,836,974
Deferred income taxes 1,850,892 1,850,892
Other current assets 686,199 679,672
Total current assets 19,269,950 19,716,234
PROPERTY AND EQUIPMENT, AT COST 21,923,426 21,464,387
LESS ACCUMULATED DEPRECIATION
AND AMORTIZATION 12,921,701 12,100,577
9,001,725 9,363,810
OTHER ASSETS
Cost in excess of net tangible
assets, acquired, net of
amortization of $795,400 and
$762,300 at May 31, 1997 and
November 30, 1996, respectively 1,855,921 1,889,063
Investments 2,392,580 2,403,326
Other, net of amortization of
$538,500 and $517,900 at May
31, 1997 and November 30, 1996,
respectively 542,051 537,849
Total assets $33,062,227 $33,910,282
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31, November 30,
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 2,500,000 $ 3,900,000
Accounts payable - trade 2,749,268 2,926,454
Sales tax payable 880,475 938,451
Accrued commissions and awards 1,918,678 2,089,530
Accrued compensation 707,061 1,020,108
Accrued liabilities 688,866 1,183,787
Deferred income 696,473 349,655
Accrued state and federal income
taxes 1,512,457 1,772,236
Total current liabilities 11,653,278 14,180,221
DEFERRED INCOME TAXES 419,384 419,384
COMMITMENTS & CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock
Authorized - 1,000,000 shares,
$.10 par value
Issued and outstanding - none
Common stock
Authorized - 20,000,000 shares,
$.10 par value
Issued - 9,636,998 and 9,521,361
shares at May 31, 1997
and November 30, 1996,
respectively 963,700 952,136
Capital in excess of par value 13,582,882 12,720,192
Unrealized losses on investment,
net of taxes (33,620) (33,620)
Retained earnings 37,381,797 36,577,163
51,894,759 50,215,871
Less cost of 3,708,800 common
shares held in treasury at May
31, 1997 and November 30, 1996 30,905,194 30,905,194
20,989,565 19,310,677
Total liabilities and
stockholders' equity $33,062,227 $33,910,282
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31, May 31, May 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $19,908,470 $21,477,763 $35,960,150 $37,782,549
Cost of goods sold 5,242,059 5,733,245 9,147,489 9,435,255
Gross profit 14,666,411 15,744,518 26,812,661 28,347,294
Selling expenses 8,201,178 9,479,554 14,709,995 16,606,382
General and administrative
expenses 4,878,042 4,760,796 9,040,226 9,176,125
13,079,220 14,240,350 23,750,221 25,782,507
Income from operations 1,587,191 1,504,168 3,062,440 2,564,787
Other income and expenses
Interest income 34,821 42,590 64,858 83,793
Other, net 49,993 77,322 92,342 148,179
84,814 119,912 157,200 231,972
Income before income taxes 1,672,005 1,624,080 3,219,640 2,796,759
Income taxes 611,076 650,280 1,180,070 1,155,457
Net income $1,060,929 $973,800 $2,039,570 $1,641,302
Net income per common and
common equivalent share $0.17 $0.16 $.33 $.27
Weighted average common and
common equivalent shares 6,158,032 6,000,440 6,234,390 6,028,910
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
5
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<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<CAPTION>
Six Months Ended
May 31, May 31,
1997 1996
<S> <C> <C>
Net cash provided by (used in)
operating activities $2,244,801 $2,766,995
Cash flows from investing activities:
Proceeds from sale of investments - 240,000
Purchase of property and equipment (459,039) (485,722)
Purchase of investments - -
Purchase of other assets - (202,564)
Net cash provided by (used in)
investing activities (459,039) (448,286)
Cash flows from financing activities:
Proceeds from issuance of common
stock 874,254 16,581
Short-term borrowings (1,400,000) -
Purchase of treasury stock - (1,188,161)
Dividends paid (1,237,788) (1,222,955)
Net cash provided by (used in)
financing activities (1,763,534) (2,394,535)
Net increase (decrease) in cash and
cash equivalents 22,228 (75,826)
Cash and cash equivalents at the
beginning of the period 884,384 855,856
Cash and cash equivalents at the end
of the period $ 906,612 $ 780,030
Supplemental cash flow information:
Income taxes $1,269,000 $1,091,000
Interest 178,978 73,042
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
6
<PAGE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED May 31, 1997 AND May 31, 1996
Note 1 - Basis of Presentation
In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments, consisting of only
normal recurring adjustments, necessary to present fairly the
financial position as of May 31, 1997 and November 30, 1996 and
the results of operations and cash flows for the six months ended
May 31, 1997 and May 31, 1996. The results for the six months
ended May 31, 1997 are not necessarily indicative of the results
for the year.
While the Company believes that the disclosures presented are
adequate to make the information not misleading, it is suggested
that these financial statements be read in conjunction with the
consolidated financial statements and notes included in the
Company's annual report on Form 10-K for the year ended November
30, 1996.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operation
Quarters Ended May 31, 1997 and May 31, 1996. Net sales for 1997
were $19,908,000 compared to $21,478,000 in 1996. Second quarter
1997 sales were up against a strong second quarter in 1996, which
included the Company's most successful recruiting promotion ever
and a number of new product introductions. However, net income
increased 9% over last year primarily due to promotional costs
in 1996 related to the recruiting campaign. Second quarter 1997
included the introduction of REGENERATION GOLD, the Company's
newest and most advanced skin repair product. Other new product
offerings in second quarter 1997 included Sheer Breeze skin, body
and bath scents and Color Freeze Eye Shadow Pencils. Also, this
quarter, the Company implemented nationwide new lower cost entry
and training programs for Consultants in addition to improved
incentive and payout features for the Company s compensation
program. With regards to strategic growth plans, second quarter
of 1997 included some investment dollars spent on expansion
efforts in Asian Pacific. The last two fiscal quarters of 1997
will focus on establishing operations and product lines with the
expectation of opening our first Asia subsidiary in January,
1998.
Gross profit margins for the second quarter of 1997 were 73.7%
compared to 73.3% in 1996. 1996 second quarter gross margin was
negatively impacted by increased sales of low margin
demonstration kits during the recruiting promotion. 1997 gross
margin was influenced by higher product discounts that were
temporarily offered to new Consultants. This effectively lowers
net sales and thus, gross profit margins.
7
<PAGE>
Selling, general and administrative expenses as a percent of
sales decreased to 65.7% in 1997 from 66.3% in 1996. Second
quarter 1997 costs showed a reduction from prior year because of
the promotion and training costs that were associated with the
1996 recruiting promotion. A portion of this savings was offset
by an increase in professional fees and other related costs
specifically used for the implementation of REGENERATION GOLD.
Also, commissions as a percent of sales increased in 1997 versus
1996. This was caused by an increase in sales of product lines
that were commissionable to Consultants in 1997 when compared to
non-commissionable sales resulting from the 1996 recruiting
promotion.
Net income increased by 9% or to $1,061,000 in 1997 compared to
$973,800 in 1996 primarily due to lower selling, general and
administrative expenses mentioned above.
Six months ended May 31, 1997 and May 31, 1996. Sales for the
first six months of 1997 were $35,960,000 as compared to
$37,783,000 in 1996. This was largely due to the success of the
1996 recruiting promotion and several new product introductions.
Gross profit margins decreased slightly to 74.6% in 1997 from
75.0% in 1996. As previously mentioned, this was a result of
promotional sales incentives that were being offered that
included higher product discounts extended to Consultants.
Selling, general and administrative costs decreased to 66.0% of
sales or $23,750,000 in 1997 from 68.2% of sales or $25,783,000.
As previously mentioned, this was created by a reduction in costs
and professional fees incurred during 1996 that were associated
with the implementation of new recruiting and training programs.
Other income and expenses decreased to $157,000 in 1997 from
$232,000 in 1996. This was due to reductions in investment
related income.
Net income increased $398,000 in 1997 to $2,039,000 from
$1,641,000 in 1996. This was generated from a reduction in
selling, general and administrative expenses mentioned above.
Liquidity and Capital Resources
Working Capital at May 31, 1997 was $7,617,000 compared to
$5,536,000 at November 30, 1996. This change was a direct result
of a decrease in short-term borrowings, as well as, a decrease in
various accrued liabilities which include compensation, property
taxes and commissions.
The Company has a $15,000,000 line of credit available to use
primarily for share repurchase in the event that the Company
believes its stock is undervalued and for operating cash if
needed for the business. The interest rate is based on a LIBOR
rate plus a spread that adjusts with the debt ratio. The current
expiration date is November 30, 1998; however, this revolving two
year credit line can be extended annually and balances can be
termed out at any time during the two years for a three year
8
<PAGE>
amortization. A commitment fee of .25% is paid quarterly based
on the unused portion of this line of credit. The weighted
average interest rate for the first six months was 6.80%; for
1996 the average was 6.71%. The outstanding balance at May 31,
1997 was $2,500,000 compared to $3,900,000 at November 30, 1996.
The Board of Directors recently approved an increase of 755,300
shares of its common stock under the Company s Stock Repurchase
Program. These additional shares, together with 244,700 shares
from a prior authorization, bring the total number of shares
authorized for repurchase to 1,000,000.
New Accounting Standards
In December 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128)
Earnings Per Share. This statement requires companies to present
basic earnings per share and, if applicable, diluted earnings per
share. This replaces primary and fully diluted earnings per
share that is currently required under APB Opinion 15. The
Company will be required to adopt SFAS 128 on December 1, 1998
but at present will continue to report earnings per share under
APB 15. Currently, the Company has not yet determined the
effect of adopting SFAS 128.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Index to Exhibits
11 BeautiControl Cosmetics, Inc. and Subsidiaries -
Computation of Earnings per Common
Share - filed herewith.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant had duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BeautiControl Cosmetics, Inc.
(Registrant)
Date: 7/8/97 /s/ RICHARD W. HEATH
Richard W. Heath
President, Chief
Executive Officer
Date: 7/8/97 /s/ M. DOUGLAS TUCKER
M. Douglas Tucker
Senior Vice President
-Finance & Principle
Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> MAY-31-1997
<CASH> 906612
<SECURITIES> 357684
<RECEIVABLES> 1283408
<ALLOWANCES> 587500
<INVENTORY> 14772655
<CURRENT-ASSETS> 19269950
<PP&E> 21923426
<DEPRECIATION> 12921701
<TOTAL-ASSETS> 33062227
<CURRENT-LIABILITIES> 11653278
<BONDS> 0
0
0
<COMMON> 963700
<OTHER-SE> 20025865
<TOTAL-LIABILITY-AND-EQUITY> 33062227
<SALES> 19908470
<TOTAL-REVENUES> 19908470
<CGS> 5242059
<TOTAL-COSTS> 18321279
<OTHER-EXPENSES> (84814)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84608
<INCOME-PRETAX> 1672005
<INCOME-TAX> 611076
<INCOME-CONTINUING> 1060929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1060929
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
<TABLE>
EXHIBIT 11
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31, May 31, May 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income applicable to
common stock $1,060,929 $973,800 $2,039,570 $1,641,302
Common and common
equivalent share:
Weighted average common
shares outstanding 5,920,589 5,854,319 5,884,381 5,868,458
Net effect of dilutive
stock options based on
the treasury stock method
using average market price 237,443 146,121 350,009 160,452
Weighted average common and
common equivalent shares 6,158,032 6,000,440 6,234,390 6,028,910
Net income per common and
common equivalent share $.17 $.16 $.33 $.27
Common share - assuming
full dilution:
Weighted average common
shares outstanding 5,920,589 5,854,319 5,884,381 5,868,458
Net effect of dilutive
stock options based on the
treasury stock method
using the greater of the
average or ending market
price 237,443 191,109 362,879 191,483
Weighted average common
shares-assuming full
dilution 6,158,032 6,045,428 6,247,260 6,059,941
Net income per common share
-assuming full dilution $.17 $.16 $.33 $.27
</TABLE>
