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
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1996 OR Commission File No 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 of principal executive offices) (Zip Code)
972/458-0601
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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 ( 229.405 of this chapter)
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.[ ]
Aggregate market value of the voting stock (which consists solely
of shares of Common Stock) held by non-affiliates of the
registrant as of February 7, 1997, computed by reference to the
closing sale price of the registrant s Common Stock on the NASDAQ
National Market System on such date, was approximately
$101,355,791.
Number of shares of the registrant s Common Stock outstanding as
of February 7, 1997: 5,875,698.
DOCUMENTS INCORPORATED BY REFERENCE
1. Certain portions of the registrant s definitive Proxy
Statement in connection with the 1997 Annual Meeting of
Stockholders to be held on April 1, 1997 are incorporated by
reference into Part III of this report.
<PAGE>
PART I
Item 1. Business
General
BeautiControl Cosmetics, Inc. is a leading manufacturer and
direct seller of skin care, cosmetics, nail care, toiletries,
health and beauty supplements and related products for women. The
Company sells its products through independent sales persons,
called Skin Care and Image Consultants ("Consultants"), who
purchase the products from BeautiControl and then sell them
directly to consumers in the home or workplace.
The Company presents itself as "The World's Premier Skin Care and
Image Company", offering a "Total Skin Care and Image Solution"
to women through its many value added services. These services
include Skin Condition Analysis, Color Analysis, Image Analysis
and Makeup/Fashion Personality Analysis and are typically offered
to the consumer at no charge.
Skin Condition Analysis utilizes the patented product "Skin
Sensors" to assist the Consultant in analyzing the customer's
skin condition. This enables the Consultant to recommend the
specific customized skin care regimen required to meet the
individual needs of each consumer.
Color analysis, an image-enhancing service, allows the matching
of color-coded cosmetics with a customer's natural coloring,
helping customers select the most flattering color choices. A
<PAGE>
computer-assisted head-to-toe image analysis referred to as the
Personal Image Profile is used to provide women with specific
recommendations on makeup, fashion and accessory styles to create
each individual's best image.
These services, combined with products that are fragrance free,
dermatologist, sensitivity, allergy and ophthalmologist tested,
and which are also certified as non-comedogenic, constitute the
"Total Skin Care and Image Solution" offered by the Company.
The Company is incorporated under the laws of the State of
Delaware and maintains its principal executive offices at 2121
Midway Road, Carrollton, Texas 75006.
Products
The Company's products consist of skin care products, cosmetic
makeup products, nail care products, fragrances, health and
beauty supplements and color and image analysis accessories.
The Company believes that skin care and cosmetic products sold
at retail may generally be grouped in three price categories: the
least expensive are generally sold in drug stores and
supermarkets; moderately priced and premium priced products are
generally sold in leading department stores and specialty shops.
Although the Company's skin care products and cosmetic makeup
products are considered by the Company to be comparable in
quality and image to premium priced products, the Company
suggests that Consultants sell the Company's products at retail
prices which the Company believes are equivalent to those
moderately priced products sold in leading department stores and
specialty shops.
Cosmetic, color analysis and image analysis accessories sold by
the Company to its Consultants include sales demonstration kits
and literature, sample size products, Skin Condition Analysis
supplies, books of color swatches which are used by customers to
help select appropriate colors and shades, and the Personal Image
Profile questionnaire packet and related supplies. These
accessories are used primarily as hostess gifts, gifts with
purchase, business supplies or sales aids, and in some cases are
for sale to customers.
The Company also has a health and beauty supplements line, WITHIN
BEAUTY . This product line includes hair and nail supplements,
skin condition supplements and supplements designed for the
different stages of a woman s life. During 1996, the Company
expanded its health and beauty supplements to include
SlenderGenics, a Weight Management System, and PMS Support
Complex. The SlenderGenics system includes a metabolic booster
supplement and appetite satisfying wafers. PMS Support Complex
contains beneficial vitamins, minerals and herbs to help reduce
the negative physical and emotional symptoms of PMS. Other major
product introductions during the year included Color Freeze Lip
and Eye Colors, Vintage and Sheer Rain Fragrance Collections
and All Clear Skin Clearing System.
<PAGE>
Marketing and Distribution
The Company's skin care, cosmetics, health and beauty supplements
and related products are sold through Consultants who are
independent contractors, not employees of the Company. As of
November 30, 1996, the total Consultant count was 50,897 with 537
of these being Directors.
Consultants may sell the Company's products through home
demonstrations called Skin Care and Color Clinics ("Clinics").
Consultants also make individual sales to customers previously
introduced to the Company's products at a Clinic. Additionally,
Consultants are encouraged to market the products through
personal consultations and product brochure sales in order to
utilize multiple selling opportunities.
In order to provide immediate product delivery, Consultants
generally maintain a small inventory of products. Consultants
make their own payment arrangements with their customers. The
Company clears credit card payments to Consultants for selected
credit cards, presently MasterCard, Visa, Discover Card and
American Express.
The Company sells its products to its Consultants generally on a
payment-in-advance basis. Consultants pay for the Company's
products by wire transfer, Western Union Quick Collect,
cashier's check, money order or credit card except in the case of
a Consultant's inventory order placed at training where, after
credit approval, the Consultant may pay by personal check.
Additionally, in 1996, the Company offered specific product
programs on credit terms of approximately 45 days to approved
Consultants. Consultants are offered the Company's products at
wholesale discounts from suggested retail prices for resale to
their customers. These wholesale discounts range from 25% to
55% based upon the timing and dollar amount of the Consultant's
order. Sales taxes are generally prepaid to the Company by
Consultants for transmittal to taxing authorities.
The Company maintains inventory which generally permits the
Company to ship goods in response to an order within 72 hours of
the Company's receipt of the order.
During 1996 the Company relied primarily upon United Parcel
Service and United States parcel post and mail to ship products
from its distribution facility in Dallas, Texas.
Under the Client Connection Program, direct mailings to consumers
are made by the Company a minimum of four times a year. This
direct mailing program allows the Company to communicate directly
with the consumer and encourages the consumer to contact her
Consultant to reorder the Company s products.
<PAGE>
The consumer may order cosmetics either from the Consultant or
directly from the Company by mail or by dialing a toll-free "800"
number. The Consultant earns a sales commission regardless of
the purchase method.
The sales efforts of Consultants are also supported through
Company-sponsored seminars and sales conferences held several
times each year in various locations.
Consultants may advance to the level of Senior Consultant by
achieving specified standards for introducing to the Company
individuals who also become Consultants ("Recruits"). A non-
fluctuating percentage commission is paid to this level of
Consultant based upon products purchased by the new Recruits for
resale to customers and based on the Senior Consultant
maintaining a certain personal monthly purchase volume. The
commission is paid monthly as long as both the Recruiter and new
Consultant remain active with the Company and the Recruiter
maintains a certain personal purchase volume and her Senior
Consultant status. At this level, the Consultant is also
entitled to purchase products from the Company at a 50% discount
regardless of the order size. A Consultant who has met further
recruiting standards may qualify as a Unit VIP and thereby earn a
higher percentage commission. This commission percentage is
based on the Unit VIP's personal purchase volume and her Recruits
purchase volume. By meeting additional recruiting and sales
goals, a Unit VIP may qualify for the Unit Manager level. As a
Unit Manager, the Consultant earns a higher percentage commission
on product sales of her unit and is entitled to either drive an
automobile furnished by the Company or receive a cash bonus.
Upon meeting certain higher recruiting and sales levels, a Unit
VIP or a Unit Manager may be appointed as a Unit Director
("Director"). In addition to the commissions on product sales of
her unit and a higher automobile or cash option, each Consultant
who advances to Director status is eligible to receive a
leadership development bonus for any members of her unit who
become Directors themselves. A unit generally includes all
Consultants recruited directly by the Director or indirectly
through Consultants recruited by the Director, who actively order
from the Company and who have not themselves become Directors.
Each Director also receives a commission on products purchased
for resale by units headed by former members of her unit. In
addition to the foregoing, the Company sponsors programs through
which bonuses and prizes are awarded to Consultants who reach
certain levels of performance in sales and in attracting new
Consultants. In 1996, the Company tested changes to its
compensation program in certain defined states to evaluate the
effectiveness of alternate compensation plans.
The Company discontinues its relationship with Consultants who
fail to maintain a certain level of sales activity on a regular
basis.
<PAGE>
Manufacturing
The Company's manufacturing facility is located in Carrollton,
Texas at which it manufactures or assembles the majority of
products sold.
Of the Company's sales approximately 37% was comprised of items
produced by various unaffiliated manufacturers. Such outside
manufacturers are used when the Company believes that such firms
are able to manufacture products according to Company
specifications less expensively than the Company.
Materials used in the Company's skin care, cosmetic and health
and beauty supplements products consist chiefly of readily
available ingredients, containers and packaging materials.
Such raw materials and components used in goods manufactured and
assembled by the Company are available from a number of sources.
To date, the Company has been able to secure an adequate supply
of raw materials and components for its manufacturing facility.
The Company endeavors to maintain relationships with backup
suppliers in an effort to ensure that no interruptions in the
Company's operations are likely to occur.
The Company's manufacturing facility includes
microbiology/quality control and product development
laboratories. These laboratories are intended to facilitate and
expedite quality control and to continue the development of new
products for the Company. The Company continually engages in
research and development activities to improve its existing
products and to develop new products. However, during the fiscal
years ended November 30, 1994, 1995 and 1996, such activities
have not required the expenditure of material amounts.
Employees
At February 1, 1997, the Company employed 286 persons, 43 of
which were engaged in the manufacture and assembly of the
Company's products. None of the Company's employees are
represented by a union and the Company considers its employee
relations to be good. All employees are required to enter into
an agreement with the Company whereby each employee agrees to
maintain the confidentiality of customer lists and other
sensitive information.
Trademarks and Patents
The Company has registered all its trademarks in the United
States and Canada and has registered or is in the process of
registering its principal trademarks in many other countries.
The Company has the exclusive right to distribute the Skin
Condition Analysis product "Skin Sensors" worldwide with the
option to renew this exclusive right each year. The Company is
licensed to use the following trademarks: "Skinlogics",
"Sunlogics" and "Nailogics". The Company has a patent on the
formulas for its "REGENERATION and REGENERATION, alpha-hydroxy
acid based, products.
<PAGE>
Competition
The cosmetics industry is a highly fragmented and competitive
market which is sensitive to changing consumer preferences and
demands. There are many large and well known cosmetics companies
that manufacture and sell broad lines of skin care products and
cosmetics through retail establishments. The Company competes
with a number of direct sales companies who market skin care and
cosmetic products and health and beauty supplements. The Company
also competes, to an extent, with other direct sales companies in
attracting new Consultants. Many cosmetics companies market
products which are better known than the Company's products and
many cosmetics companies are larger and have substantially
greater resources than the Company.
The principal bases of competition in the cosmetic business
generally are marketing, price, quality and newness of
products. The Company has attempted to differentiate itself and
its products from the industry in general through the use of a
number of value-added services previously described and by being
technologically at the forefront of the industry. There can be
no assurance that similar marketing techniques and products will
not be adopted by competitors in the future.
Regulation
The Company is subject to regulation by the United States Food
and Drug Administration and the Bureau of Alcohol, Tobacco and
Firearms of the Treasury Department, as are other manufacturers
of cosmetic products. The Company's advertising and sales
practices are subject to the jurisdiction of the Federal Trade
Commission. In addition, the Company is subject to numerous
federal, state, and local laws relating to marketing and to the
content, labeling and packaging of its products.
Various governmental agencies regulate direct selling activities,
and the Company has occasionally been requested to supply
information regarding its marketing plan to certain of such
agencies. Although the Company believes that its method of
distribution is in compliance with laws and regulations relating
to direct selling activities, there is no assurance that
legislation and regulations adopted in particular jurisdictions
in the future will not affect the Company's operations.
In connection with its manufacturing processes, the Company is
subject to various governmental regulations governing the
discharge of materials into the environment. Compliance with
these regulations has not had, and is not anticipated to have,
any material impact upon the Company's capital expenditures,
earnings or competitive position.
<PAGE>
Item 2. Properties.
The Company's corporate headquarters is located in Carrollton,
Texas in a building owned by the Company. The manufacturing and
warehouse facility is also located in Carrollton, Texas. The
Company leases this building under a lease that expires in 1999.
The Company's distribution center is housed in a leased building
in Dallas, Texas under a lease expiring in 1999. Both leases, at
the Company's option, may be extended for an additional five
years at the fair market rental rate in effect at the time for
properties of equivalent use and size in the area.
Item 3. Legal Proceedings.
Neither the Company nor its subsidiaries is a party to any
pending proceedings which in Management s opinion, would have a
material adverse effect on the results of operations or
financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year covered by
this report.
<PAGE>
Part II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters.
The Common Stock is traded in the over-the-counter market under
the symbol BUTI and is quoted on the NASDAQ National Market
System.
The following table sets forth, for the periods indicated, the
high and low closing sale prices for the Company s Common Stock
on the NASDAQ National Market System.
<TABLE>
<CAPTION>
1996 1995
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $10.000 $ 8.500 $15.000 $12.750
Second Quarter 10.500 7.250 13.625 11.875
Third Quarter 10.000 6.250 13.000 10.500
Fourth Quarter 16.500 8.125 11.750 9.250
</TABLE>
The high and low sales prices on February 7, 1997, as quoted on
the NASDAQ National Market System were $17.63 and $17.25,
respectively.
As of January 31, 1997, there were approximately 1,500 holders of
record of the common stock, including nonobjecting beneficial
holders whose stock is held in nominee or street name by broker.
Cash dividends were paid in each quarter of 1996 and 1995 at a
rate of $.105 per share. While it is anticipated that quarterly
dividends will continue to be declared, the final determination
will depend upon the future earnings and financial position of
the Company and such other factors as the Board of Directors may
deem appropriate.
<PAGE>
<TABLE>
Item 6 - Selected Financial Data
(In thousands, except per share data)
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
INCOME STATEMENT DATA:
<CAPTION>
Years ended November 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales $80,108 $74,679 $70,591 $63,936 $60,142
Cost of goods sold 19,830 18,920 17,298 16,329 15,825
Selling, general
and administrative
expenses 52,308 48,672 44,238 43,124 37,168
Income from operations 7,970 7,087 9,055 4,483 7,149
Other income, net 442 529 396 204 337
Income before
income taxes 8,412 7,616 9,451 4,687 7,486
Income taxes 3,011 2,914 3,308 1,590 2,621
Income before
cumulative effect
of change in
accounting principle 5,401 4,702 6,143 3,097 4,865
Cumulative effect of
change in accounting
principle - - 172 - -
Net income $ 5,401 $ 4,702 $ 6,315 $ 3,097 $ 4,865
Net income per share:
Primary $ 0.90 $ 0.70 $ 0.88(2) $ 0.44 $ 0.65
Fully diluted $ 0.87 $ 0.70 $ 0.88(2) $ 0.44 $ 0.65
Dividends per
share $ 0.42 $ 0.42 $ 0.315 $ 0.28 $ 0.28
BALANCE SHEET DATA:
Total assets $33,910 $29,354 $34,935 $28,531 $27,960
Working capital 5,536 1,950 7,147 6,135 6,182
Stockholders equity 19,311 17,318 23,788 19,442 20,612
CONSULTANT DATA:
Number of consultants
at fiscal year end 50,897 45,745(1) 42,108 37,728 32,387
<FN>
(1) Excludes Consultants from certain test programs.
(2) Excludes a onetime addition to net income of $.02 per share from
the adoption of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, which superceded Statement of
Financial Accounting Standards No. 96.
</TABLE>
<PAGE>
Item 7 - Management s Discussion and Analysis of Financial
Condition and Results of Operation
BeautiControl Cosmetics, Inc. (the Company) is a leading
manufacturer and direct seller of skin care, cosmetics, health
and beauty nutritional supplements and related products. The
Company sells its products to independent Consultants who in turn
sell to end consumers. Sales figures are based on orders shipped
less returns. The percentage of the Company s total sales
contributed by various product groups for the period set forth
below were as follows:
<TABLE>
<CAPTION>
Year ended November 30,
Product Groups 1996 1995 1994
<S> <C> <C> <C>
Skin care products 44% 46% 49%
Cosmetic makeup products 31 34 32
Nail care products 1 1 1
Fragrance and toiletry products 1 1 1
Cosmetics, color and image
analysis accessories 13 14 17
Health and beauty supplements 10 4 -
Total sales 100% 100% 100%
</TABLE>
During 1996, quality product introductions and extensions to
successfully established product lines were the keys to sales
growth for the Company. Introduced in October 1996,
SlenderGenics , the Company s Weight Management System, was the
largest new product introduction of the year. REGENERATION
Extreme Repair Hand Therapy, an extension to the Company s alpha
hydroxy acid line has also shown great sales success. Expansion
into international markets via sales distributorships, which the
Company started in 1995, showed promising results in 1996 with 7
distributors established by year-end. The Company also
transitioned its United Kingdom business from a subsidiary to a
distributor during the year. The Company s commitment to
international growth was also evidenced by the opening of
administrative offices and a distribution facility in Canada.
Along with innovative product introductions and international
development in 1996, the Company implemented a more competitive
entry and training method and alternate leadership compensation
for its Consultants in certain test states.
<PAGE>
During 1997, the Company has numerous new product introductions
scheduled. Plans also include fully implementing by 1997 year
end the recruiting, training and compensation programs tested in
1996. Emphasis will again be placed on building and expanding
quality international distributorships through seeking out and
nurturing these relationships. With these plans in place, the
Company anticipates long-term increases in sales and
profitability.
RESULTS OF OPERATIONS OF THE COMPANY
Fiscal 1996 compared to Fiscal 1995
Net sales increased 7% from $74,679,000 in 1995 to $80,108,000 in
1996. Both innovative new product introductions and increased
Consultant count were important to this year s sales growth.
Sales increases were in part due to the successful product launch
of the SlenderGenics Weight Management System - a complete weight
maintenance program, extensions to existing product lines
including REGENERATION Extreme Repair Hand Therapy and PMS
Support Complex supplements.
The SlenderGenics Weight Management System S introduction caused
shifts in product category percentages; health and beauty
supplements increased from 4% in 1995 to 10% in 1996. As a result
of this category s growth, the skin care category decreased from
46% in 1995 to 44% in 1996 and the cosmetic makeup line decreased
from 34% in 1995 to 31% in 1996.
Gross profit margins remained constant at 75% of sales in both
1996 and 1995. Even though there were shifts in product group
sales, the Company s pricing within each sales group provided
comparable profit margins in both years.
Selling, general and administrative expenses as a percentage of
sales remained constant at 65%. In 1996, approximately $570,000
was spent on testing a more competitive recruiting, training and
leadership compensation program in three test states. Some costs
related to this test process such as literature development are
primarily onetime expenses which will not significantly affect
1997. Other costs such as meeting costs related to the
implementation of this program will continue in 1997 but on a
streamlined basis. In 1995, $415,000 was spent on expenses
related to a WITHIN BEAUTY supplements line launch.
Other income and expense, net, decreased from $529,000 in 1995 to
$442,000 in 1996 as a result of lower investable cash and
interest expense on increased borrowings.
The income tax provision for 1996 was $3,011,000 as compared to
$2,914,000 in 1995. The effective tax rate was impacted in 1996
by a tax benefit related to dissolution of the United Kingdom
subsidiary.
<PAGE>
Net income was impacted in 1996 by the factors stated above as
well as from a combined $340,000 loss from the Company s United
Kingdom subsidiary s operations and subsequent conversion to a
distributorship.
Fiscal 1995 compared to Fiscal 1994
Net sales increased 6% from $70,591,000 in 1994 to $74,679,000 in
1995. This sales increase is due primarily to new product
introductions such as WITHIN BEAUTY - a revolutionary health and
beauty nutritional supplement system and expansions in product
lines such as REGENERATION Extreme Repair and REGENERATION2 which
were early year additions to the REGENERATION alpha hydroxy acid
line. Increased Consultant count also positively impacted sales.
The April 1995 introduction of WITHIN BEAUTY health and beauty
supplements contributed to increased sales. A new skin care line
introduction in January of 1994 helped propel skin care products
to 49% of sales in 1994; in 1995, the Company saw a leveling off
of this percentage to 46%. The August 1995 introduction of newly
formulated eye shadows and blushes attributed to the increase in
cosmetic makeup products from 32% in 1994 to 34% in 1995.
Gross profit margins decreased slightly from 76% in 1994 to 75%
in 1995. Sales of low margin demonstration kits as a result of a
recruiting promotion impacted this percentage in 1995.
Selling, general and administrative expenses increased as a
percentage of sales from 63% in 1994 to 65% in 1995 primarily due
to expenses related to the WITHIN BEAUTY product launch,
development of operations in the United Kingdom, U.S. Hispanic
market development and a recruiting promotion.
Other income and expense, net, increased from $396,000 to
$529,000 as a result of increased investment income in the early
part of the year and miscellaneous income from sales which were
outside the normal course of business.
The income tax provision for 1995 was $2,914,000 as compared to
$3,308,000 in 1994. For a complete analysis, see Note D in the
notes to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at November 30, 1996 was $5,536,000 compared to
$1,950,000 at
November 30, 1995. This increase is primarily attributable to
increases in net trade accounts receivable and inventories,
offset by an increase in short- term borrowings.
Prior to 1996, Trade Accounts Receivable remained relatively low
as a result of the Company s payment in advance policy on most
sales programs. During 1996, the Company had several product
offers involving temporary credit terms of approximately 45 days
for approved Consultants. An extimated $750,000 of the November
30, 1996 balance was related to these credit programs. The
<PAGE>
Company plans to continue using these special credit terms
selectively as well as evaluating other payment options.
During 1996, in order to improve customer service, the Company
increased the carrying levels of inventory related to core
products which resulted in increased inventory balances. The
Company anticipates that obsolescence will not be significantly
affected as only core line product balances were increased.
Additionally, the year end balance in 1996 was higher due to the
Company s late year introduction of its weight management system,
SlenderGenics.
The Company increased its line of credit from $10,000,000 to
$15,000,000 in 1996. The purpose of this line of credit is
primarily for the Company to repurchase its common stock when it
believes it is undervalued and for operating cash when it is
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
amortization. A commitment fee of .25% is paid quarterly based
on the unused portion of this line of credit. The weighted
average interest rates for 1996 and 1995 were 6.71% and 7.27%,
respectively. The outstanding balances at November 30, 1996 and
1995 were $3,900,000 and $1,400,000, respectively. In 1995, the
Company used its borrowings for repurchases of its common stock;
in 1996, borrowings were primarily used for building inventory as
discussed above. Management believes that this outstanding
balance will be reduced by cash flow from operations; however, it
may continue to use this line of credit as originally intended if
necessary for the growth of its business.
The Company spent $1,188,000 repurchasing its common stock in
1996. The common stock was purchased under a plan previously
approved by the Board of Directors that allows the Company to
purchase its common stock in the open market when the Company
believes it to be undervalued.
Four quarterly dividends totaling $2,442,000 or $.42 per share
were paid during 1996.
The Company s capital expenditures for 1996 totaled $1,104,000.
Included in this amount were $586,000 for manufacturing related
equipment and $285,000 for enhancements to computer operations.
The Company anticipates its 1997 capital purchases will be in
line with 1996 purchases.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of (SFAS 121). SFAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used
<PAGE>
or disposed of by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. During 1996, the
Company adopted this statement and determined that no impairment
loss need be recognized.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation (SFAS 123). This statement defines
a fair value based method of accounting for employee stock
options. Companies may, however, elect to make pro forma
disclosures of net income and earnings per share, as if the fair
value method of accounting had been applied, while continuing to
use the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, Accounting for Stock Issued to Employees.
The Company will be required to adopt SFAS 123 on December 1,
1996 and will continue to account for such plans under APB No. 25
resulting in no impact to the Company s financial position and
results of operations.
Certain statements in this Management s Discussion and Analysis
section contain forward-looking information. These statements
are based on current expectations, and actual results could
differ materially. Important factors that could cause actual
results to differ materially from those projected in the forward-
looking statements include, but are not limited to the following:
sales Consultants activity levels, the recruiting of new
Consultants and new product introductions.
<PAGE>
Item 8 - Financial Statements and Supplementary Data
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
BeautiControl Cosmetics, Inc.
We have audited the accompanying consolidated balance sheet of
BeautiControl Cosmetics, Inc. and Subsidiaries as of November 30,
1996, and the related statements of income, stockholders equity
and cash flows for the year then ended. These financial
statements are the responsibility of the Company s management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
represent fairly, in all material respects, the consolidated
financial position of BeautiControl Cosmetics, Inc. and
Subsidiaries at November 30, 1996, and the consolidated results
of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Ernst & Young LLP
Dallas, Texas
December 19, 1996
</AUDIT-REPORT>
<PAGE>
<AUDIT-REPORT>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
BeautiControl Cosmetics, Inc.
We have audited the accompanying consolidated balance sheets of
BeautiControl Cosmetics, Inc. and Subsidiaries as of November 30,
1995, and the related consolidated statements of income, changes
in stockholders equity and cash flows for each of the two years
in the period ended November 30, 1995. These financial
statements are the responsibility of the Company s management.
Our responsibility is to express an opinion on these 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 our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of BeautiControl Cosmetics, Inc. and
Subsidiaries as of November 30, 1995, and the consolidated
results of their operations and their consolidated cash flows for
each of the two years in the period ended November 30, 1995 in
conformity with generally accepted accounting principles.
As discussed in Notes A and D to the consolidated financial
statements, the Company changed its method of accounting for
investments in 1995 and for income taxes in 1994.
/S/ GRANT THORNTON LLP
Grant Thornton LLP
Dallas, Texas
December 26, 1995
</AUDIT-REPORT>
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
YEARS ENDED NOVEMBER 30,
1996 1995 1994
<S> <C> <C> <C>
Net Sales $80,108 $74,679 $70,591
Cost of goods sold 19,830 18,920 17,298
Gross profit 60,278 55,759 53,293
Selling expenses 33,948 31,849 28,406
General and administrative 18,360 16,823 15,832
expenses 52,308 48,672 44,238
Income from operations 7,970 7,087 9,055
Other income
Interest income 172 266 256
Other, net 270 263 140
442 529 396
Income before taxes and
cumulative effect of change in
accounting principle 8,412 7,616 9,451
Income taxes 3,011 2,914 3,308
Income before cumulative
effect of change in accounting
principle 5,401 4,702 6,143
Cumulative effect of change in
accounting principle - - 172
Net income $5,401 $4,702 $6,315
Earnings per common and common
equivalent share
Primary:
Before cumulative effect of
change in accounting
principle $.90 $.70 $.88
Cumulative effect of change
in accounting principle - - .02
Net income $.90 $.70 $.90
Weighted average common and
common equivalent shares 6,025 6,753 7,020
Fully Diluted
Before cumulative effect of
change in accounting
principle $.87 $.70 $.88
Cumulative effect of change
in accounting principle - - .02
Net income $.87 $.70 $.90
Weighted average common and
common equivalent shares 6,223 6,757 7,053
<FN>
Cumulative effect of change in accounting principle reflects
the impact of the adoption of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes which superseded
Statement of Financial Accounting Standards No. 96.
The accompanying notes are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Shares Information)
<CAPTION>
NOVEMBER 30,
1996 1995
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 884 $ 855
Investments 360 845
Accounts receivable-trade,
net of allowances of $488
in 1996 and $325 in 1995 1,104 358
Inventories 14,837 9,480
Deferred income taxes 1,851 1,140
Prepaid expenses 365 768
Other current assets 315 241
Total current assets 19,716 13,687
PROPERTY AND EQUIPMENT, AT COST
Land 766 766
Office building 3,904 3,837
Office furniture and equipment 7,251 6,981
Machinery and equipment 5,923 5,337
Leasehold improvements 1,193 1,152
Transportation equipment 2,428 2,448
21,465 20,521
Less accumulated depreciation
and amortization 12,101 10,471
Property and equipment, net 9,364 10,050
OTHER ASSETS
Cost in excess of net tangible
assets, acquired, net of
amortization of $762 in 1996
and $708 in 1995 1,889 2,129
Investments 2,403 3,059
Other, net of amortization of
$518 in 1996 and $474 in 1995 538 429
Total assets $ 33,910 $ 29,354
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Shares Information)
<CAPTION>
NOVEMBER 30,
1996 1995
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 3,900 $ 1,400
Accounts payable - trade 2,926 2,850
Sales tax payable 938 906
Accrued commissions and awards 2,090 1,763
Accrued compensation 1,020 574
Accrued property taxes 547 609
Accrued state and federal income taxes 1,772 1,008
Accrued liabilities 637 1,034
Deferred income 350 1,594
Total current liabilities 14,180 11,738
DEFERRED INCOME TAXES 419 298
COMMITMENTS AND 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 - 9,521,361 in 1996 and
9,478,986 shares in 1995 952 948
Capital in excess of par value 12,720 12,522
Unrealized losses on investments,
net of taxes (33) (53)
Retained earnings 36,577 33,618
50,216 47,035
Less treasury stock, at cost
(3,708,800 shares in 1996
and 3,578,000 shares in 1995) 30,905 29,717
Total stockholders equity 19,311 17,318
Total liabilities and
stockholders' equity $ 33,910 $ 29,354
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In Thousands)
<CAPTION>
Capital Unrealized
Common In excess Losses on Retained Treasury
Stock of Par Investments Earnings Stock
<S> <C> <C> <C> <C> <C>
November 30, 1993 $937 $11,535 $ - $27,442 $20,471
Issuance of common
stock under stock
option plans 10 843 - - -
Purchase of treasury
stock - - - - 818
Tax benefit related
to stock options - 94 - - -
Dividends - - - (2,099) -
Net income - - - 6,315 -
November 30, 1994 947 12,472 - 31,658 21,289
Unrealized losses from
initial adoption of
Financial Accounting
Standards No. 115
effective December 1,
1994, net of tax
of $40 - - (78) - -
Issuance of common
stock under stock
option plans 1 50 - - -
Purchase of treasury
stock - - - - 8,428
Foreign currency
translation adjustment - - - (8) -
Dividends - - - (2,734) -
Net change in unrealized
losses, net of tax
of $13 - - 25 - -
Net income - - - 4,702 -
November 30, 1995 948 12,522 (53) 33,618 29,717
Issuance of common
stock under stock
option plans 4 198 - - -
Purchase of treasury
stock - - - - 1,188
Foreign currency
translation adjustment - - - - -
Dividends - - - (2,442) -
Net change in unrealized
losses, net of tax of
$10 - 19 - - -
Net income - - - 5,401 -
November 30, 1996 $952 $12,720 $(34) $36,577 $30,905
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
YEARS ENDED NOVEMBER 30,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating
activities:
Net Income $5,401 $4,702 $6,315
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 1,882 1,866 1,799
Deferred income tax (590) (204) (210)
Provision for losses on trade
accounts receivable 164 33 (50)
Changes in assets and liabilities:
Accounts receivable (909) (83) (109)
Inventories (5,543) 675 (2,916)
Prepaid expenses 403 (167) 324
Other current assets (97) (6) 253
Accounts payable 152 (977) 1,017
Accrued compensation 446 (667) 467
Accrued property taxes (62) 124 374
Accrued state and federal
income taxes 764 551 178
Other accrued liabilities 285 105 (483)
Deferred income (1,244) 159 (88)
Other 63 236 396
Net cash provided by operating
activities 1,115 6,347 7,267
Cash flows from investing
activities:
Proceeds from maturities of
investments 1,140 3,728 4,828
Purchase of investments - (977) (7,999)
Purchase of property and
equipment (1,104) (1,555) (2,910)
Purchase of other assets (193) (253) (116)
Net cash provided by (used in) in
investing activities (157) 943 (6,197)
Cash flows from financing
activities:
Proceeds from issuance of common
stock 202 51 853
Short-term borrowings 2,500 1,400 -
Purchase of treasury stock (1,188) (8,428) (818)
Dividends paid (2,442) (2,734) (2,099)
Net cash used in financing
activities (928) (9,711) (2,064)
Effect of exchange rate on cash
and cash equivalents (1) 1 -
Net cash increase (decrease) in
cash and cash equivalents 29 (2,420) (994)
Cash and cash equivalents at
beginning of period 855 3,275 4,269
Cash and cash equivalents at end
of period $884 $855 $3,275
Supplemental cash flow
information:
Income taxes $2,402 $2,579 $2,495
Interest 176 21 -
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
BEAUTICONTROL COSMETICS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996, 1995 AND 1994
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BeautiControl Cosmetics, Inc. and Subsidiaries is a leading
manufacturer and direct seller of skin care, cosmetics, nail care,
toiletries, health and beauty supplements and related products for
women. The Company sells its products through independent sales
persons who purchase the products from the Company and then sell them
directly to consumers in the home or workplace.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its majority-owned
subsidiaries. All intercompany accounts and transactions have been
eliminated.
Reclassifications - Certain amounts for the prior years have been
reclassified to conform to the current year presentation.
Investments - Effective December 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities (SFAS 115)
which resulted in a change in the accounting for debt and equity
securities held for investment purposes. Prior to December 1,
1994, the Company carried debt and equity securities at cost,
which approximated market value. In accordance with SFAS 115, the
Company s debt securities are now considered to be held-to-
maturity and its equity securities are classified as available-
for-sale. Held-to-maturity securities represent those securities
that the Company has both the positive intent and ability to hold
to maturity and are carried at amortized cost. Available-for-sale
securities represent those securities that do not meet the
classification of held-to-maturity, are not actively traded and
are carried at fair value. Unrealized gains and losses on these
securities are excluded from earnings and are reported as a
separate component of stockholders equity, net of applicable
taxes, until realized. In 1995, the Company recorded decreases in
available-for-sale securities of $80,000 and a related deferred
tax asset of $27,200, resulting in a net decrease of $52,800 in
stockholders equity. In 1996, the Company recorded increases in
available for sale securities of $29,060, with a related tax
effect of $9,880 which resulted in a net increase to
stockholders equity for $19,180.
<PAGE>
Inventories - Inventories are stated at the lower of cost (first-
in, first-out method) or market.
Property and Equipment - Depreciation is provided for property
and equipment by the straight-line method over the following
estimated useful lives of the assets:
Office building..............................30 years
Office furniture and equipment..............3-5 years
Machinery and equipment.................... 5-8 years
Transportation equipment.................. 5-15 years
Leasehold improvements are amortized over the lives of the
respective leases or the service life of the improvements,
whichever is shorter.
Cost in Excess of Net Tangible Assets Acquired - Costs in excess
of net tangible assets acquired and other intangible assets are
being amortized on a straight-line basis over the estimated
future periods to be benefited (not exceeding 40 years).
Long-Lived Assets - The Company reviews its long-lived assets,
including property and equipment and costs in excess of net
tangible assets, whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Any material impairment would be recognized in
operating results.
<PAGE>
Cash Equivalents - Investments that are short-term (generally
with original maturities of three months or less) and highly
liquid are considered to be cash equivalents.
Deferred Income Taxes - Deferred income taxes are provided under
the provisions of Financial Accounting Standards Board Statement
No. 109.
Revenue Recognition - Revenue is recognized when orders are
shipped. Included in deferred income are orders which are paid
for but not shipped and prepaid registration fees for future
meetings.
Product Returns - The Company will replace defective merchandise
and will refund the purchase price if products are returned by
unsatisfied end consumers of the Company s products.
Net Income per Common Share - Net income per common share is
based on the weighted average number of common shares and common
equivalent shares outstanding during the period. Common
equivalent shares include net shares issuable upon the assumed
exercise of options using the treasury stock method.
Dual presentation of primary and fully diluted earnings per share
is shown on the face of the income statement where applicable.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
NOTE B - INVENTORIES
Inventories (in thousands) consist of the following:
<TABLE>
<CAPTION>
Year Ended November 30,
1996 1995
<S> <C> <C>
Finished Goods $ 8,745 $ 4,548
Raw Materials 6,092 4,932
Total $14,837 $ 9,480
</TABLE>
<PAGE>
NOTE C - INVESTMENTS
The fair values of investments are determined based on quoted
market prices. The amortized cost and fair value of the investments
(in thousands)at November 30, 1996 and November 30, 1995 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
1996
Available-for-sale
Preferred stock $1,044 $ - $ (51) $ 993
Held-to maturity
Municipal bonds $1,771 $19 $ (7) $1,783
1995
Available-for-sale
Preferred stock $1,247 $ - $ (80) $1,167
Held-to-maturity
Municipal bonds $2,636 $15 $ (14) $2,637
Corporate bonds 100 - (1) 99
$2,736 $15 $ (15) $2,736
</TABLE>
<PAGE>
The cost and fair value of investments (in thousands) by
contractual maturity at November 30, 1996 are as follows:
<TABLE>
<CAPTION>
Held-to-maturity
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 360 $ 364
Due from one year to five years 955 962
Due from five years to ten years 300 300
Due after ten years 156 157
$ 1,771 $ 1,783
</TABLE>
NOTE D - INCOME TAXES
Effective December 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income
Taxes. The Company recorded a tax benefit of $172,053 or two
cents per share, reflecting the cumulative effect of the
accounting change.
<TABLE>
The components of deferred income taxes (in thousands) are as
follows:
<CAPTION>
November 30,
1996 1995
<S> <C> <C>
Deferred tax assets:
Inventories $ 727 $ 530
Allowance for doubtful accounts 235 111
Accrued expenses 856 499
Net operating loss carryforwards
from foreign subsidiary - 89
Other 24 27
1,842 1,256
Less valuation allowance - 89
$1,842 $1,167
Deferred tax liabilities:
Property and equipment $ (411) (326)
Deferred tax assets and liabilities are
classified as follows:
Current deferred tax assets $1,851 $1,140
Noncurrent deferred tax liability (419) (298)
$1,432 $ 842
</TABLE>
<PAGE>
<TABLE>
Income tax expense before cumulative effect of accounting change
(in thousands) is comprised of the following:
<CAPTION>
Year Ended November 30,
1996 1995 1994
<S> <C> <C> <C>
Current
Federal $3,282 $2,766 $3,211
State 319 352 135
Deferred (590) (204) (38)
$3,011 $2,914 $3,308
</TABLE>
<TABLE>
Reconciliation of income taxes computed at the Federal statutory
rate and income tax expense is as follows:
<CAPTION>
Year Ended November 30,
1996 1995 1994
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State 2.5 3.0 .9
Tax exempt interest (.5) (.7) (.7)
Other (.2) 2.0 .8
Effective tax rate 35.8% 38.3% 35.0%
</TABLE>
NOTE E - CAPITAL STOCK
The Company is authorized to issue 1,000,000 shares of $.10 par
value preferred stock with voting powers and other special rights
or restrictions, if any, to be determined by the Board of
Directors at the time of issuance.
As of November 30, 1996, the Company had purchased a total of
3,708,800 shares of its common stock pursuant to a plan approved
by the Board of Directors to acquire up to 3,953,500 shares.
NOTE F - LINE OF CREDIT
The Company increased its line of credit from $10,000,000 to
$15,000,000 in 1996. The interest rate is based on LIBOR plus a
spread that adjusts with the debt ratio. The weighted average
interest rates for 1996 & 1995 were 6.71% and 7.27%,
respectively. The outstanding balances at November 30, 1996 and
1995 were $3,900,000 and $1,400,000, respectively. The
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
amortization. A commitment fee of .25% is paid quarterly based
on the unused portion of this line of credit.
<PAGE>
NOTE G - STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
The Company has three stock option plans covering key employees
and non-employee directors.
The Incentive Stock Option Plan permits the issuance of incentive
stock options to employees of the Company to purchase up to
130,000 common shares of the Company. Specific terms of the
options will be determined by the Compensation Committee of the
Board of Directors; however, no options may be granted for less
than the fair market value of the common stock nor for terms
exceeding ten years.
The Nonqualified Stock Option Plan permits the issuance of
nonqualified stock options to employees and directors of the
Company to purchase up to 140,000 common shares of the Company.
Pursuant to this plan, options may be granted at prices to be
determined by the Compensation Committee of the Board of
Directors of the Company. During 1996, no options were granted
under this plan.
The Special Stock Option Plan provides for issuance of stock
options to nonemployee directors of the Company to purchase up to
412,500 common shares of the Company. The number of options to be
granted under this plan is determined by a formula specified
within the plan and the exercise price must be at least equal to
the fair market value of the common shares of the Company on the
date of grant of the option. All options will expire ten years
from the date of grant and no option is exercisable until one
year from the date of grant.
<TABLE>
<CAPTION>
INCENTIVE NONQUALIFIED SPECIAL
Shares Option Shares Option Shares Option
Under Price Under Price Under Price
Option Range Option Range Option Range
000's 000's 000's
<S> <C> <C> <C> <C> <C> <C>
November 30, 1994
Outstanding 289 $ 2.11-17.50 480 $ 3.56-17.50 234 $ 3.28-13.75
Granted 32 $ 14.00 56 $10.75-14.00 27 $10.00-14.25
Exercised (7) $ 2.11-10.67 (5) $ 7.75- 8.50 - -
Cancelled (28) $ 7.75-13.75 (23) $ 7.75-13.75 - -
November 30, 1995
Outstanding 286 $ 3.28-17.50 508 $ 3.56-17.50 261 $ 3.28- 4.25
Granted 68 $ 8.00- 9.50 - - 15 $ 8.00- 9.50
Exercised (41) $ 4.89- 8.50 (1) $ 7.75- 8.50 - -
Cancelled (24) $ 7.50-14.67 (2) $ 7.75-11.00 - -
November 30, 1996
Outstanding 289 $ 3.28- 9.50* 505 $ 3.56-17.50* 276 $ 3.28-14.25
Exercisable 144 413 261
Available to
grant 63 140 58
<FN>
*In January 1996, 204,070 stock options with a price range of
$10.00 to $17.50 were repriced to the current fair market value
price of $9.25.
</TABLE>
<PAGE>
The BeautiControl Cosmetics, Inc. 401(k) Plan allows for both the
Company and eligible employees to contribute. Eligible employees
include those over 21 years of age who have been employed with
the Company a minimum of six months. Company contributions are
voluntary and at the discretion of the Board of Directors of the
Company. The Company s contribution expense for the years ended
November 30, 1996, 1995 and 1994 was $111,000, $150,000 and
$98,000, respectively.
NOTE H - COMMITMENTS AND CONTINGENCIES
At November 30, 1996, the Company was committed under non-
cancellable operating leases, principally for two buildings,
equipment and automobiles. The building leases expire in 1999 but
may be extended for five years at the fair market rental rate in
effect at that time.
Minimum rentals in succeeding periods (in thousands) are as
follows:
Year Ending November 30,
1997 .................. 1,372
1998 .................. 1,155
1999 .................. 807
$3,334
Rental expense (in thousands) is as follows:
Year Ending November 30,
1996 .................. $1,809
1995 .................. 2,130
1994 .................. 2,440
NOTE I - RELATED PARTY TRANSACTIONS
During 1996, the Company contracted with a member of the Board of
Directors to provide consulting services to the Company. The
Company paid $82,550 under this agreement which ended in May,
1996.
<TABLE>
NOTE J - UNAUDITED QUARTERLY OPERATING RESULTS
Unaudited quarterly operating results for the years ended
November 30, 1996 and 1995 (in thousands) are as follows:
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1996:
Net sales $16,305 $21,478 $19,532 $22,793
Gross profit 12,603 15,745 14,884 17,046
Net income 668 974 1,332 2,427
Net income per
common share $ .11 $ .16 $ .23 $ .40
1995:
Net sales $18,283 $19,363 $17,906 $19,127
Gross profit 14,063 14,575 13,197 13,924
Net income 1,732 1,427 907 636
Net income per
common share $ .25 $ .21 $ .13 $ .10
</TABLE>
<PAGE>
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
On February 12, 1996, the Company dismissed Grant Thornton LLP as
its independent auditors and appointed Ernst & Young LLP as the
new auditors. The decision to dismiss Grant Thornton LLP and
appoint Ernst & Young LLP was proposed by management, recommended
by the Audit Committee of the Board of Directors, and approved by
the Board of Directors.
Grant Thornton LLP s report on the financial statements for the
fiscal years ending November 30, 1995 and 1994 contained no
adverse opinion or disclaimer of opinion or was qualified or
modified as to uncertainty, audit scope or accounting principles.
Further, during the fiscal years ending November 30, 1995 and
1994 and the subsequent interim period preceding the dismissal,
there were no disagreements with Grant Thornton LLP on any matter
of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
During the two most recent fiscal years and the subsequent
interim period preceding the dismissal, there have been no
reportable events (as defined in Item 304 of the Securities and
Exchange Commission Regulation S-K) with Grant Thornton LLP.
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant.
The information relating to the Company's directors, nominees for
directors, and executive officers set forth under the headings
"Election of Directors" and "Directors and Executive Officers" on
pages 3 through 6 of the Company's definitive Proxy Statement
filed in connection with the 1996 Annual Meeting of Stockholders
is incorporated herein by reference.
Item 11. Executive Compensation
The information relating to executive compensation set forth
under the heading "Executive Compensation" on pages 7 through 11
of the Company's definitive Proxy Statement filed in connection
with the 1996 Annual Meeting of Stockholders is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information concerning the security ownership of certain
beneficial owners and management set forth under the heading
"Security Ownership of Principal Stockholders and Management" on
pages 1 through 2 of the Company's definitive Proxy Statement
filed in connection with the 1996 Annual Meeting of Stockholders
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information concerning certain relationships and related
transactions set forth under the heading "Certain Transactions"
on page 6 of the Company's definitive Proxy Statement filed in
connection with the 1996 Annual Meeting of Stockholders is
incorporated herein by reference.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) (1) and (2) Financial Statement and Schedules
The following consolidated financial statements of
BeautiControl Cosmetics, Inc.
and Subsidiaries are filed herewith:
Consolidated Statements of Income for the years ended
November 30, 1996, 1995 and 1994.
Consolidated Balance Sheets as of November 30, 1996 and
1995.
Consolidated Statement of Changes in Stockholders Equity
for the three years ended November 30, 1996.
Consolidated Statements of Cash Flows for the years ended
November 30, 1996 1995 and 1994.
Notes to Consolidated Financial Statements
Report of Independent Auditors
Report of Independent Certified Public Accountants
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under related instructions, are not
applicable or not material or the information required therein
is included elsewhere in the financial statements
(3) Exhibits.
The exhibits listed on the accompanying Exhibit Index are filed
or incorporated by reference as a part of this report and such
Exhibit Index is hereby incorporated by reference.
(b)Reports on Form 8-K
The Company has filed no reports on Form 8-K during the fourth
quarter of the year ended November 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
February 11, 1997 BEAUTICONTROL COSMETICS, INC.
(Registrant)
By: /S/ RICHARD W. HEATH
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.
/S/ RICHARD W. HEATH President Chief Executive February 11, 1997
Richard W. Heath Officer and Director
/S/ JINGER L. HEATH Chairman of the Board and February 11, 1997
Jinger L. Heath Director
/S/ J. ROBERT WARD-BURNS Executive Vice-President February 11, 1997
J. Robert Ward-Burns Chief Operating Officer and Director
/S/ M. DOUGLAS TUCKER Senior Vice President-Finance February 11, 1997
M. Douglas Tucker Principal Financial and Accounting Officer
/S/ CHARLES M. DIKER Director February 11, 1997
Charles M. Diker
/S/ ROBERT S. FOLSOM Director February 11, 1997
Robert S. Folsom
/S/ JOSEPH M. HAGGAR, III Director February 11, 1997
Joseph M. Haggar, III
/S/ DENISE I. LITES Director February 11, 1997
Denise I. Lites
/S/ A. STARKE TAYLOR, JR. Director February 11, 1997
A. Starke Taylor, Jr.
/S/ JOEL T. WILLIAMS, JR. Director February 11, 1997
Joel T. Williams, Jr.
<PAGE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
Number Exhibit
3.1 Restated Certificate of Incorporation
dated February 22, 1986 (Filed with
the Securities and Exchange Commission
as Exhibit 3.1 to the Company s
Registration Statement on Form S-8,
Registration No. 333-17479, and
incorporated herein by reference).
3.2 Certificate of Amendment to Restated
Certificate of Incorporation dated
April 7, 1987 (Filed with the Securities
and Exchange Commission as Exhibit 3.2
to the Company s Registration Statement
on Form S-8, Registration No. 333-17479,
and incorporated herein by reference).
3.3 Certificate of Amendment to Restated
Certificate of Incorporation dated
April 3, 1992. (Filed with the Securities
and Exchange Commission as Exhibit 3.3 to
the Company's Registration Statement on
Form S-8, Registration No. 333-17479, and
incorporated herein by reference).
3.4 By-laws of the Registrant as amended on
March 21, 1991. (Filed with the Securities
and Exchange Commission as Exhibit 3.4 to
the Company s Registration Statement on
Form S-8, Registration No. 333-17479, and
incorporated herein by reference).
4.1 Specimen stock certificate for Common
Stock of the Registrant. (Filed with
the Securities and Exchange Commission
as Exhibit 4.1 to the Company's
Registration Statement on Form S-1,
Registration No. 33-2795 and
incorporated herein by reference.)
10.1 BeautiControl Cosmetics, Inc. Incentive
Stock Option Plan as amended on
April 7, 1994. (Filed with the Securities
and Exchange Commission on September 1, 1994
with the Company's Registration Statement on
Form S-8, Registration No.33-83500 and
incorporated herein by reference.)
<PAGE>
10.2 Lease Agreement by and between
Crow-Southland Joint Venture No. 1
and BeautiControl Cosmetics, Inc.
dated May 7,1990. (Filed with the
Securities and Exchange Commission,
Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended
November 30, 1996 and incorporated
herein by reference.)
10.3 Lease Agreement by and between Crow
Deansbank No. 7 and BeautiControl
Cosmetics, Inc. dated June 6, 1996.
(Filed with the Securities and Exchange
Commission as Exhibit 10.3 to the
Company's Annual Report on Form 10-K
for the year ended November 30, 1990
and incorporated herein by reference.)
10.8 BeautiControl Cosmetics, Inc.
Non-Qualified Stock Option Plan as
amended on April 7, 1994. (Filed
with the Securities and Exchange
Commission on September 1, 1994
with the Company's Registration
Statement on Form S-8, Registration
No. 33-83500 and incorporated herein
by reference.)
10.11 BeautiControl Cosmetics, Inc. Special
Stock Option Plan as amended on
April 7, 1994. (Filed with the
Securities and Exchange Commission on
September 1, 1994 with the Company's
Registration Statement on Form S-8,
Registration No. 33-83500 and
incorporated herein by reference.)
10.14 Amendment to Lease Agreement by and
between Crow-Southland Joint Venture
No. 1 and BeautiControl Cosmetics, Inc.
dated December 17, 1991. (Filed with
the Securities and Exchange Commission
as Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the
year ended November 30, 1996 and
incorporated herein by reference.)
<PAGE>
10.15 Amendment to Lease Agreement between
Crow-Southland No. 1 and BeautiControl
Cosmetics, Inc. dated May 7, 1990.
(Filed with the Securities and Exchange
Commission, Exhibit 10.2 to the Company s
Annual Report on Form 10-K for the year
ended November 30, 1990 and incorporated
herein by reference.)
10.16 Amendment to Lease Agreement by and between
Crow Deansbank No. 7 and BeautiControl
Cosmetics, Inc. dated June 6, 1990. (Filed
with the Securities and Exchange Commission
as Exhibit 10.3 to the Company s Annual Report
on Form 10-K for the year ended November 30,
1990 and incorporated herein by reference.)
10.17* BeautiControl Cosmetics, Inc. 1996 Incentive
Stock Option Plan.
10.18* BeautiControl Cosmetics, Inc. 1996 Non-Qualified
Stock Option Plan.
11* BeautiControl Cosmetics, Inc. and
Subsidiaries - Computation of Earnings
per Common Share.
21* Subsidiaries of BeautiControl Cosmetics, Inc.
23* Consent of Independent Auditors
23.1* Consent of Independent Certified Public Accountants
* Filed herewith
EXHIBIT 10.17
BEAUTICONTROL COSMETICS, INC.
1996 INCENTIVE STOCK OPTION PLAN
1. Purpose. The purpose of the Plan is to attract key
employees to the Company and to provide such persons with a
proprietary interest in the Company through the granting of
options which will:
(a) increase the interest of the employees in the Company's
welfare;
(b) furnish an incentive to the employees to continue their
services for the Company; and
(c) provide a means through which the Company may attract
able persons to enter its employ.
Options granted under the Plan may qualify as "Incentive
Stock Options" as defined by Section 422 of the Internal Revenue
Code of 1986, as amended, or may constitute non-qualified
options.
2. Administration. The Plan shall be administered by the
Board of Directors of the Company (the "Board") or a committee
thereof. The Board in its discretion may appoint a Stock Option
Committee (the "Committee") consisting of at least two (2)
members of the Board, for the purpose of administering the Plan.
Except as otherwise provided by the Board in written directions
to the Committee, the Committee shall have all of the powers with
respect to the Plan. Any member of the Committee may be removed
at any time, with or without cause, by resolution of the Board.
Any vacancy occurring in the membership of the Committee may be
filled by appointment by the Board. Each member of the
<PAGE>
Committee, at the time of his appointment to the Committee and
while he is a member thereof, must be a "disinterested person" as
defined in Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 or any successor provision thereto, as applicable.
The Committee shall select one of its members to act as its
Chairman, and shall make such rules and regulations for its
operation as it deems appropriate. A majority of the Committee
shall constitute a quorum and the act of a majority of the
members of the Committee present at a meeting at which a quorum
is present shall be the act of the Committee. Subject to the
terms hereof, the Committee shall determine and designate from
time to time the employees of the Company to whom options will be
granted and the number of Shares subject to such options,
interpret the Plan, prescribe, amend, and rescind any rules and
regulations necessary or appropriate for the administration of
the Plan, and make such other determinations and take such other
actions as it deems necessary or advisable. In this regard, the
Committee shall consider and give appropriate weight to input
from representatives of management of the Company regarding the
contributions or potential contributions to the Company of
certain of the employees or potential employees of the Company.
Any interpretation, determination, or other action made or taken
by the Committee shall be final, binding, and conclusive on all
interested parties.
If a Stock Option Committee is not appointed by the Board,
then all references herein to "Committee" shall refer instead to
any other committee of the Board that administers the Plan, or,
if there is no such committee, to the Board.
- 2 -
<PAGE>
3. Participants. The Committee shall, from time to time,
select the particular employees of the Company to whom options
are to be granted, and who will, upon such grant, become
participants in the Plan.
4. Stock Ownership Limitation. No option granted
hereunder to a participant which is intended to constitute an
Incentive Stock Option may be granted to an employee who owns
more than 10% of the total combined voting power of all classes
of stock of the Company or its Parent or Subsidiaries. This
limitation will not apply if the option price is at least 110% of
the fair market value of the stock at the time the option is
granted and the option is not exercisable more than five years
from the date it was granted.
5. Shares Subject to Plan. The Committee may not grant
options under the Plan, in the aggregate, for more than 130,000
shares of Common Stock of the Company (subject to adjustment in
accordance with Section 14). Shares to be optioned and sold may
be made available from either authorized but unissued Common
Stock or Common Stock held by the Company in its treasury.
Shares that by reason of the expiration of an option or otherwise
are no longer subject to purchase pursuant to an option granted
under the Plan may be re-offered under the Plan.
6. Limitation on Amount. To the extent required by the
Internal Revenue Code for Incentive Stock Options, the exercise
of Incentive Stock Options granted under the Plan shall be
subject to the $100,000 calendar year limit as set forth in
Section 422(d) of the Internal Revenue Code.
- 3 -
<PAGE>
7. Allotment of Shares. The Committee shall determine the
number of shares of Common Stock to be offered from time to time
by grant of options to participants under the Plan. The grant of
an option to a participant shall not be deemed either to entitle
the participant to, or to disqualify the participant from,
participation in any other grant of options under the Plan.
8. Grant of Options. All options under the Plan shall be
granted by the Committee. The grant of options shall be
evidenced by stock option agreements containing such items and
provisions as are approved by the Board, but not inconsistent
with the Plan, including provisions that may be necessary to
assure that the option is an incentive stock option under the
Internal Revenue Code. The Company shall execute stock option
agreements upon instructions from the Committee. The Plan shall
be submitted to the Company's stockholders for approval; however,
the Committee may grant options under the Plan prior to the time
of stockholder approval.
9. Option Price. The Committee shall specify the option
price for each option granted under the Plan. The option price
shall not be less than 100% of the fair market value per share of
the Common Stock on the date the option is granted. The
Committee shall determine the fair market value of the Common
Stock on the date of grant, and shall set forth the determination
in its minutes, using any reasonable valuation method.
10. Option Period. The Option Period will begin and
terminate on the respective dates specified by the Committee, but
may not terminate later than ten years from the date the option
is granted. The Committee may provide for the exercise of
- 4 -
<PAGE>
options in installments and upon such terms, conditions and
restrictions as it may determine. A stock option agreement may
provide for termination of the Option Period in the case of
termination of employment or for any other reason.
11. Rights in Event of Death. If a participant dies prior
to the termination of his right to exercise an option in
accordance with the provisions of his stock option agreement
without having totally exercised the option, the option may be
exercised, to the extent of the shares with respect to which the
option could have been exercised by the participant on the date
of the participant's death, by the participant's estate or by the
person who acquired the right to exercise the option by bequest
or inheritance or by reason of the death of the participant. Any
option exercised after the death of a participant must be
exercised prior to the date of its expiration according to its
terms or one year from the date of the participant's death,
whichever first occurs.
12. Payment. Full payment for shares purchased upon
exercising an option shall be made in cash or by check, by the
optionee's delivery to the Company of shares of Common Stock
which have a fair market value equal to the option price, or any
combination of cash and shares of Common Stock having an
aggregate fair market value equal to the option price. No shares
may be issued until full payment of the purchase price therefor
has been made, and a participant will have none of the rights of
a stockholder until shares are issued to him. Nothing herein
shall prohibit the Company, in its sole discretion, from lending
to the participant, guaranteeing a loan to the participant, or
- 5 -
<PAGE>
otherwise assisting the participant to obtain the cash necessary
to exercise all or a portion of an option granted hereunder.
13. Exercise of Option. An option granted under the Plan
may be exercised during the Option Period at such times and in
such amounts as provided in the applicable stock option
agreement, and upon the terms and conditions and subject to such
restrictions as provided in such agreement. In no event may an
option be exercised or shares be issued pursuant to an option if
any necessary listing of the shares on a stock exchange or any
necessary registration under state or federal securities laws has
not been accomplished.
14. Capital Adjustments. The aggregate number of shares of
Common Stock which may be purchased pursuant to options to be
granted under the Plan, the number of shares of Common Stock
covered by each outstanding option granted under the Plan, and
the option price for outstanding options, shall be
proportionately adjusted to reflect any stock dividend, stock
split, share combination, exchange of shares, recapitalization,
merger, consolidation, reorganization, liquidation, or the like,
of or by the Company. Any fractional shares resulting from any
such adjustment shall be eliminated for the purposes of such
adjustment.
15. Non-Assignability. An option granted to a participant
may not be transferred other than by will or by the laws of
descent and distribution, or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code, or
Title I of the Employee Retirement Income Security Act, or the
rules thereunder. Except as described in the previous sentence,
- 6 -
<PAGE>
during a participant's lifetime, options granted to a participant
may be exercised only by the participant.
16. Disqualifying Disposition. If stock acquired upon
exercise of an Incentive Stock Option is disposed of by a
participant prior to the expiration of either two years from the
date of grant of such option or one year from the transfer of
shares to the participant pursuant to the exercise of such option
or in any other disqualifying disposition within the meaning of
Section 422 of the Internal Revenue Code, such participant shall
notify the Company in writing of the date and terms of such
disposition. A disqualifying disposition by a participant shall
not affect the status of any other option granted under the Plan
as an Incentive Stock Option with in the meaning of Section 422
of the Internal Revenue Code.
17. Indemnification of Board and Committee. No member of
the Board or the Committee, nor any officer or employee of the
Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the
Plan, and all members of the Board and the Committee and each
officer or employee of the Company acting on their behalf shall,
to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action,
determination or interpretation.
18. Tax Requirements. The option holder receiving shares
of Common Stock issued upon exercise of any option shall be
required to pay the Company the amount of any taxes which the
Company is required to withhold with respect to such shares.
- 7 -
<PAGE>
Such payments shall be required to be made prior to the delivery
of any certificate representing such shares. Such payment may be
made in cash, by check, or through the delivery of shares of
Common Stock owned by the option holder (which may be effected by
the actual delivery of shares of Common Stock by the option
holder or by the Company's withholding a number of shares to be
issued upon the exercise of the stock option), which shares have
an aggregate fair market value equal to the required withholding
payment, or any combination thereof.
19. Interpretation. The Committee shall interpret the Plan
and shall prescribe such rules in connection with the operation
of the Plan as it determines to be advisable for the
administration of the Plan. The Committee may rescind and amend
its rules.
20. Amendment or Discontinuance. The Plan may be amended
or discontinued by the Board without the approval of the
stockholders of the Company.
21. Effect of the Plan. Neither the adoption of this Plan
nor any action of the Board or the Committee shall be deemed to
give any officer or employee any right to continue in the
employment of the Company or to be granted an option to purchase
Common Stock or any other rights except as may be evidenced by a
stock option agreement, or any amendment thereto, duly authorized
by the Committee and executed on behalf of the Company and then
only to the extent and upon the terms and conditions expressly
set forth therein.
22. Term. Unless sooner terminated by action of the Board,
the Plan will terminate on September 24, 2005. The Committee may
- 8 -
<PAGE>
not grant options under the Plan after that date, but options
granted before that date will continue to be effective in
accordance with their terms and conditions.
23. Definitions. For the purpose of this Plan, unless the
context requires otherwise, the following terms shall have the
meanings indicated:
(a) "Plan" means this Incentive Stock Option Plan as
amended from time to time.
(b) "Company" means BeautiControl Cosmetics, Inc., a
Delaware corporation.
(c) "Board" means the Board of Directors of the Company
and, to the extent applicable, such members thereof as
are delegated powers under Section 2 of this Plan.
(d) "Common Stock" means the common stock which the Company
is currently authorized to issue or may in the future
be authorized to issue.
(e) "Subsidiary" means any corporation in any unbroken
chain of corporations beginning with the Company if, at
the time of the granting of the option, each of the
corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in
one of the other corporations in the chain, and
"subsidiaries" means more than one of any such
corporations.
(f) "Parent" means any corporation (other than the employer
corporation) in an unbroken chain of corporations
ending with the employer corporation if, at the time of
the granting of the option, each of the corporations
other than the employer corporation own stock
possessing 50% or more of the total combined voting
power of all classes of stock in one of the other
corporations in such claim.
(g) "Incentive Stock Option" means an option to purchase
Common Stock of the Company granted under this Plan or
under any other incentive stock option plan of the
Company which is intended to qualify as an incentive
stock option under Section 422 of the Internal Revenue
Code.
(h) "Option Period" means the period during which an option
may be exercised.
- 9 -
<PAGE>
(i) "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended.
IN WITNESS WHEREOF, the Company has caused this instrument
to be executed as of September 24, 1995.
By: /s/ RICHARD W. HEATH
Richard W. Heath, President
Attest:
/s/ M. DOUGLAS TUCKER
M. Douglas Tucker, Secretary
- 10 -
EXHIBIT 10.18
BEAUTICONTROL COSMETICS, INC.
1996 NON-QUALIFIED STOCK OPTION PLAN
1. Purpose. The purpose of the Plan is to attract key
persons to the Company and to provide such persons with a
proprietary interest in the Company through the granting of
options which will:
(a) increase the interest of such persons in the Company's
welfare;
(b) furnish an incentive to such persons to continue their
services for the Company; and
(c) provide a means through which the Company may attract
able persons to enter its employ or otherwise provide
services to the Company.
2. Administration. The Plan shall be administered by the
Board of Directors of the Company (the "Board") or a committee
thereof. The Board in its discretion may appoint a Stock Option
Committee (the "Committee") consisting of at least two (2)
members of the Board, for the purpose of administering the Plan.
Except as otherwise provided by the Board in written directions
to the Committee, the Committee shall have all of the powers with
respect to the Plan. Any member of the Committee may be removed
at any time, with or without cause, by resolution of the Board.
Any vacancy occurring in the membership of the Committee may be
filled by appointment by the Board. Each member of the
Committee, at the time of his appointment to the Committee and
while he is a member thereof, must be a "disinterested person" as
<PAGE>
defined in Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 or any successor provision thereto, as applicable.
The Committee shall select one of its members to act as its
Chairman, and shall make such rules and regulations for its
operation as it deems appropriate. A majority of the Committee
shall constitute a quorum and the act of a majority of the
members of the Committee present at a meeting at which a quorum
is present shall be the act of the Committee. Subject to the
terms hereof, the Committee shall determine and designate from
time to time the persons to whom options will be granted and the
number of Shares subject to such options, interpret the Plan,
prescribe, amend, and rescind any rules and regulations necessary
or appropriate for the administration of the Plan, and make such
other determinations and take such other actions as it deems
necessary or advisable. In this regard, the Committee shall
consider and give appropriate weight to input from
representatives of management of the Company regarding the
contributions or potential contributions to the Company of
potential receipients of options granted hereunder. Any
interpretation, determination, or other action made or taken by
the Committee shall be final, binding, and conclusive on all
interested parties.
If a Stock Option Committee is not appointed by the Board,
then all references herein to "Committee" shall refer instead to
any other committee of the Board that administers the Plan, or,
if there is no such committee, to the Board.
- 2 -
<PAGE>
3. Participants. The Committee shall, from time to time,
select the particular persons to whom options are to be granted,
and who will, upon such grant, become participants in the Plan.
4. Shares Subject to Plan. The Committee may not grant
options under the Plan, in the aggregate, for more than 140,000
shares of Common Stock of the Company (subject to adjustment in
accordance with Section 12). Shares to be optioned and sold may
be made available from either authorized but unissued Common
Stock or Common Stock held by the Company in its treasury.
Shares that by reason of the expiration of an option or otherwise
are no longer subject to purchase pursuant to an option granted
under the Plan may be re-offered under the Plan.
5. Allotment of Shares. The Committee shall determine the
number of shares of Common Stock to be offered from time to time
by grant of options to participants under the Plan. The grant of
an option to a participant shall not be deemed either to entitle
the participant to, or to disqualify the participant from,
participation in any other grant of options under the Plan.
6. Grant of Options. All options under the Plan shall be
granted by the Committee. The grant of options shall be
evidenced by stock option agreements containing such items and
provisions as are approved by the Board, but not inconsistent
with the Plan. The Company shall execute stock option agreements
upon instructions from the Committee.
7. Option Price. The Committee shall specify the option
price for each option granted under the Plan. The option price
may be equal to, greater than, or less than the fair market value
per share of the Common Stock on the date the option is granted.
- 3 -
<PAGE>
8. Option Period. The Option Period will begin and
terminate on the respective dates specified by the Committee, but
may not terminate later than ten years from the date the option
is granted. The Committee may provide for the exercise of
options in installments and upon such terms, conditions and
restrictions as it may determine. A stock option agreement may
provide for termination of the Option Period in the case of
termination of employment (in the case of employees) or for any
other reason.
9. Rights in Event of Death. If a participant dies prior
to the termination of his right to exercise an option in
accordance with the provisions of his stock option agreement
without having totally exercised the option, the option may be
exercised, to the extent of the shares with respect to which the
option could have been exercised by the participant on the date
of the participant's death, by the participant's estate or by the
person who acquired the right to exercise the option by bequest
or inheritance or by reason of the death of the participant. Any
option exercised after the death of a participant must be
exercised prior to the date of its expiration according to its
terms or one year from the date of the participant's death,
whichever first occurs.
10. Payment. Full payment for shares purchased upon
exercising an option shall be made in cash or by check, by the
optionee's delivery to the Company of shares of Common Stock
which have a fair market value equal to the option price, or any
combination of cash and shares of Common Stock having an
aggregate fair market value equal to the option price. No shares
- 4 -
<PAGE>
may be issued until full payment of the purchase price therefor
has been made, and a participant will have none of the rights of
a stockholder until shares are issued to him. Nothing herein
shall prohibit the Company, in its sole discretion, from lending
to the participant, guaranteeing a loan to the participant, or
otherwise assisting the participant to obtain the cash necessary
to exercise all or a portion of an option granted hereunder.
11. Exercise of Option. An option granted under the Plan
may be exercised during the Option Period at such times and in
such amounts as provided in the applicable stock option
agreement, and upon the terms and conditions and subject to such
restrictions as provided in such agreement. In no event may an
option be exercised or shares be issued pursuant to an option if
any necessary listing of the shares on a stock exchange or any
necessary registration under state or federal securities laws has
not been accomplished.
12. Capital Adjustments. The aggregate number of shares of
Common Stock which may be purchased pursuant to options to be
granted under the Plan, the number of shares of Common Stock
covered by each outstanding option granted under the Plan, and
the option price for outstanding options, shall be
proportionately adjusted to reflect any stock dividend, stock
split, share combination, exchange of shares, recapitalization,
merger, consolidation, reorganization, liquidation, or the like,
of or by the Company. Any fractional shares resulting from any
such adjustment shall be eliminated for the purposes of such
adjustment.
- 5 -
<PAGE>
13. Non-Assignability. An option granted to a participant
may not be transferred other than by will or by the laws of
descent and distribution, or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code, or
Title I of the Employee Retirement Income Security Act, or the
rules thereunder. Except as described in the previous sentence,
during a participant's lifetime, options granted to a participant
may be exercised only by the participant.
14. Indemnification of Board and Committee. No member of
the Board or the Committee, nor any officer or employee of the
Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the
Plan, and all members of the Board and the Committee and each
officer or employee of the Company acting on their behalf shall,
to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action,
determination or interpretation.
15. Tax Requirements. The option holder receiving shares
of Common Stock issued upon exercise of any option shall be
required to pay the Company the amount of any taxes which the
Company is required to withhold with respect to such shares.
Such payments shall be required to be made prior to the delivery
of any certificate representing such shares. Such payment may be
made in cash, by check, or through the delivery of shares of
Common Stock owned by the option holder (which may be effected by
the actual delivery of shares of Common Stock by the option
holder or by the Company's withholding a number of shares to be
- 6 -
<PAGE>
issued upon the exercise of the stock option), which shares have
an aggregate fair market value equal to the required withholding
payment, or any combination thereof.
16. Interpretation. The Committee shall interpret the Plan
and shall prescribe such rules in connection with the operation
of the Plan as it determines to be advisable for the
administration of the Plan. The Committee may rescind and amend
its rules.
17. Amendment or Discontinuance. The Plan may be amended
or discontinued by the Board without the approval of the
stockholders of the Company.
18. Effect of the Plan. Neither the adoption of this Plan
nor any action of the Board or the Committee shall be deemed to
give any participant any right to continue in the employment of
the Company (if the participant is an employee) or to be granted
an option to purchase Common Stock or any other rights except as
may be evidenced by a stock option agreement, or any amendment
thereto, duly authorized by the Committee and executed on behalf
of the Company and then only to the extent and upon the terms and
conditions expressly set forth therein.
19. Term. Unless sooner terminated by action of the Board,
the Plan will terminate on February 12, 2006. The Committee may
not grant options under the Plan after that date, but options
granted before that date will continue to be effective in
accordance with their terms and conditions.
20. Definitions. For the purpose of this Plan, unless the
context requires otherwise, the following terms shall have the
meanings indicated:
- 7 -
<PAGE>
(a) "Plan" means this Incentive Stock Option Plan as
amended from time to time.
(b) "Company" means BeautiControl Cosmetics, Inc., a
Delaware corporation.
(c) "Board" means the Board of Directors of the Company
and, to the extent applicable, such members thereof as
are delegated powers under Section 2 of this Plan.
(d) "Common Stock" means the common stock which the Company
is currently authorized to issue or may in the future
be authorized to issue.
(e) "Option Period" means the period during which an option
may be exercised.
(f) "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended.
IN WITNESS WHEREOF, the Company has caused this instrument
to be executed as of February 12, 1996, by its President and
Secretary.
By: /s/ RICHARD W. HEATH
Richard W. Heath, President
Attest:
/s/ M. DOUGLAS TUCKER
M. Douglas Tucker, Secretary
- 8 -
EXHIBIT 11
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
November 30,
1994 1995 1996
<S> <C> <C> <C>
Income before cumulative effect
of change accounting principle $6,143 $4,702 $5,401
Cumulative effect of change in
accounting principle* 172 - -
Net income applicable to common
stock $6,315 $4,702 $5,401
Common and common equivalent
share:
Weighted average common
shares outstanding 6,661 6,463 5,830
Net effect of dilutive
stock options based on
the treasury stock method
using average market price 359 290 195
Weighted average common and
common equivalent shares 7,020 6,753 6,025
Earnings per common and common
equivalent share:
Before cumulative effect of
change in accounting
principle $0.88 $0.70 $0.90
Cumulative effect of change
in accounting principle* .02 - -
Net income per common and
common equivalent share $0.90 $0.70 $0.90
Weighted average common
shares outstanding 6,661 6,463 5,830
Net effect of dilutive stock
options based on the
treasury stock method
using the greater of the
average or ending market
price 392 294 393
Weighted average common shares-
assuming full dilution 7,053 6,757 6,223
Earnings per common share-
assuming full dilution:
Before cumulative effect of
change in accounting principle $0.88 $0.70 $0.87
Cumulative effect of change in
accounting principle* .02 - -
Net income per common share -
assuming full dilution $0.90 $0.70 $0.87
<FN>
* Cumulative effect of change in accounting principle reflects
the impact of the adoption of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" which superseded
Statement of Financial Accounting Standards No. 96.
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF BEAUTICONTROL COSMETICS, INC.
Name of Subsidiary State of Incorporation
JLH Advertising, Inc. Texas
BeautiControl International, Inc. Delaware
BeautiControl International Cosmetics
and Image Services, Inc. Delaware
BeautiControl Canada, Ltd. Ontario, Canada
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-12005, 33-24363, 33-48626, and 33-
83500) pertaining to the Incentive Stock Option Plan, the Non-
Qualified Stock Option Plan and the Special Stock Option Plan of
BeautiControl Cosmetics, Inc., and the Registration Statement
(Form S-8 No. 333-17479) pertaining to the 1996 Incentive Stock
Option Plan and the 1996 Non-Qualified Stock Option Plan of
BeautiControl Cosmetics, Inc. of our report dated December 19,
1996, with respect to the consolidated financial statements of
BeautiControl Cosmetics, Inc. and Subsidiaries included in the
Annual Report (Form 10-K) for the year ended November 30, 1996.
/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Dallas, Texas
February 24, 1997
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We have issued our reports dated December 26, 1995, accompanying
the consolidated financial statements icluded in the Annual
Report of BeautiControl Cosmetics, Inc. on Form 10-K for the year
ended November 30, 1996. We hereby consent to the incorporation
by reference of said reports in the Registration Statements of
BeautiControl Cosmetics, Inc. on Form S-8, (File No. 33-48626,
File No. 33-83500, File No. 33-12005, File No. 33-24363, and File
No. 333-17479).
/S/ GRANT THORNTON LLP
GRANT THORNTON LLP
Dallas, Texas
February 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 884
<SECURITIES> 360
<RECEIVABLES> 1592
<ALLOWANCES> 488
<INVENTORY> 14837
<CURRENT-ASSETS> 19716
<PP&E> 21465
<DEPRECIATION> 12101
<TOTAL-ASSETS> 33910
<CURRENT-LIABILITIES> 14180
<BONDS> 0
0
0
<COMMON> 952
<OTHER-SE> 18359
<TOTAL-LIABILITY-AND-EQUITY> 33910
<SALES> 80108
<TOTAL-REVENUES> 80108
<CGS> 19830
<TOTAL-COSTS> 72138
<OTHER-EXPENSES> (442)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188
<INCOME-PRETAX> 8412
<INCOME-TAX> 3011
<INCOME-CONTINUING> 5401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5401
<EPS-PRIMARY> .90
<EPS-DILUTED> .87
</TABLE>
