FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 31, 1997 Commission File Number 0-14449
BeautiControl Cosmetics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2036343
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
2121 Midway, Carrollton, TX 75006
(Address including zip code of principal executive offices)
972/458-0601
(Registrant's telephone number including area code)
Indicated below is the number of shares outstanding of each class of the
registrant's common stock, as of October 10, 1997.
Title of Each Class of Common Stock Number of Shares Outstanding
Common Stock, $0.10 par value 5,928,398 shares
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statement
Index to BeautiControl Cosmetics, Inc. Consolidated Financial
Statement
Page
Balance Sheet 3-4
Statements of Income 5
Statements of Cash Flows 6
Notes to Financial Statements 7-9
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
ASSETS
August 31, November 30,
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 590,827 $ 884,384
Short-term investments 357,418 360,397
Accounts receivable-net of
allowance for doubtful accounts
of $742,000 and $487,800 at
August 31, 1997 and
November 30, 1996, respectively 2,681,093 1,103,915
Inventories
Raw materials 5,777,359 6,092,260
Finished goods 8,498,949 8,744,714
14,276,308 14,836,974
Deferred income taxes 1,850,892 1,850,892
Other current assets 1,073,387 679,672
Total current assets 20,829,925 19,716,234
PROPERTY AND EQUIPMENT, AT COST 22,415,770 21,464,387
LESS ACCUMULATED DEPRECIATION
AND AMORTIZATION 13,327,287 12,100,577
9,088,483 9,363,810
OTHER ASSETS
Cost in excess of net tangible
assets, acquired, net of
amortization of $812,000 and
$762,300 at August 31, 1997 and
November 30, 1996, respectively 1,839,351 1,889,063
Investments in bonds (at cost) 2,388,047 2,403,326
Other, net of amortization of
$547,600 and $517,900 at August
31, 1997 and November 30, 1996,
respectively 524,898 537,849
Total assets $34,670,704 $33,910,282
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
August 31, November 30,
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 4,700,000 $ 3,900,000
Accounts payable - trade 3,552,368 2,926,454
Sales tax payable 964,952 938,451
Accrued commissions and awards 1,962,173 2,089,530
Accrued compensation 565,330 1,020,108
Accrued liabilities 463,197 1,183,787
Deferred income 72,849 349,655
Accrued state and federal income
taxes 1,415,617 1,772,236
Total current liabilities 13,696,486 14,180,221
DEFERRED INCOME TAXES 419,384 419,384
COMMITMENTS & CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock
Authorized - 1,000,000 shares,
$.10 par value
Issued and outstanding - none
Common stock
Authorized - 20,000,000 shares,
$.10 par value
Issued - 9,637,198 and
9,521,361 shares at August 31,
1997 and November 30, 1996,
respectively 963,720 952,136
Capital in excess of par value 13,584,650 12,720,192
Unrealized losses on investment,
net of taxes (33,620) (33,620)
Retained earnings 36,945,278 36,577,163
51,460,028 50,215,871
Less cost of 3,708,800 common
shares held in treasury at
August 31, 1997 and November
30, 1996 30,905,194 30,905,194
20,554,834 19,310,677
Total liabilities and
stockholders' equity $34,670,704 $33,910,282
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $17,306,236 $19,532,082 $53,266,386 $57,314,631
Cost of goods sold 4,486,895 4,648,019 13,634,384 14,083,274
Gross profit 12,819,341 14,884,063 39,632,002 43,231,357
Selling expenses 8,044,626 8,400,185 22,754,621 25,006,567
General and
administrative expenses 4,471,006 4,416,135 13,511,232 13,592,260
12,515,632 12,816,320 36,265,853 38,598,827
Income from operations 303,709 2,067,743 3,366,149 4,632,530
Other income and expenses
Interest income 35,271 47,140 100,129 130,933
Other, net 39,632 57,444 131,974 205,623
74,903 104,584 232,103 336,556
Income before income taxes 378,612 2,172,327 3,598,252 4,969,086
Income taxes 194,646 840,380 1,374,716 1,995,837
Net income $183,966 $1,331,947 $2,223,536 $2,973,249
Net income per common
and common equivalent
share $0.03 $0.23 $0.36 $0.50
Weighted average common
and common equivalent
shares 6,111,879 5,907,633 6,193,660 5,986,945
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<CAPTION>
Nine Months Ended
August 31, August 31,
1997 1996
<S> <C> <C>
Net cash provided by (used in)
operating activities $ 842,034 $ 984,021
Cash flows from investing activities:
Proceeds from sale of investments - 1,040,000
Purchase of property and equipment (951,383) (855,055)
Purchase of investments - -
Purchase of other assets - (200,667)
Net cash provided by (used in)
investing activities (951,383) (15,722)
Cash flows from financing activities:
Proceeds from issuance of common
stock 876,042 26,920
Short-term borrowings 800,000 1,200,000
Purchase of treasury stock - (1,188,161)
Dividends paid (1,860,250) (1,828,910)
Net cash provided by (used in)
financing activities (184,208) (1,790,151)
Net increase (decrease) in cash and
cash equivalents (293,557) (821,852)
Cash and cash equivalents at the
beginning of the period 884,384 855,856
Cash and cash equivalents at the end
of the period $590,827 $34,004
Supplemental Cash Flow Information:
Income Taxes $1,569,000 $1,948,658
Interest 232,414 92,069
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
6
<PAGE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED August 31, 1997 AND August 31, 1996
Note 1 - Basis of Presentation
In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments, consisting of only
normal recurring adjustments, necessary to present fairly the
financial position as of August 31, 1997 and November 30, 1996
and the results of operations and cash flows for the three and
nine months ended August 31, 1997 and August 31, 1996. The
results for the three and nine months ended August 31, 1997 are
not necessarily indicative of the results for the year.
While the Company believes that the disclosures presented are
adequate to make the information not misleading, it is suggested
that these financial statements be read in conjunction with the
consolidated financial statements and notes included in the
Company's annual report on Form 10-K for the year ended November
30, 1996.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Quarters ended August 31, 1997 and August 31, 1996. Net sales
were $17,306,236 for the third quarter of 1997 compared to
$19,532,082 in 1996. The Company offered several new products in
both its skin care and cosmetic lines including REGENERATION
GOLD Eye Repair, fall bath and body collections in a variety of
scents, Color Freeze liquid makeup and Spectaculash thickening
mascara. Slow recruiting efforts earlier this year has had an
impact on sales results. The Company has introduced a lower cost
entry system for new Consultants along with an enhanced training
and compensation program. These improvements, in addition to a
new promotion planned to continue through fourth quarter, are
expected to improve the outlook on projected recruiting trends
and long-term sales growth potential. Emphasis has also been
placed on establishing a Taiwan subsidiary which is to open early
in 1998.
Gross profit margins for the third quarter of 1997 were 74.1%
compared to 76.2% in 1996. Decreases in gross profit margins for
third quarter 1997 were largely due to the timing of factory
overhead allocations as well as increases in obsolete inventory
reserves. Together, these costs were an additional 3.7% of net
sales in 1997 compared to 1996. Although overall gross profit
margins were down, the Company had experienced improvements to
its actual cost of goods sold. Both decreases in product costs
and changes in product sales mix have contributed higher gross
margins in third quarter 1997 versus 1996. This was caused from
higher sales in the skin care and beauty categories in 1997
versus 1996 which had higher sales in the Sales Aids and
accessory's category due to recruiting activity.
7
<PAGE>
Selling, general and administrative expenses as a percent of
sales increased to 72.3% in 1997 from 65.6% in 1996. Costs
remained relatively even in dollar terms comparing third quarter
1997 to 1996. However, this combined with a decrease in sales
caused SG&A as a percent of sales to increase. At present, the
Company's focus is on future growth and expansion. As a result,
spending occurred in third quarter 1997 establishing a company
and distribution sites in Taiwan. Other additional expenses
included administrative and promotion costs related to the annual
Celebration meeting in Nashville as well as, a new recruiting
promotion that is expected to last through the fourth quarter of
this year.
Net income decreased to $184,000 in 1997 from $1,332,000 in 1996.
Nine months ended August 31, 1997 and August 31, 1996. Sales for
the first nine months of 1997 were $53,266,000 compared to
$57,315,000 in 1996. This was largely due to the success of the
1996 recruiting promotion and its impact on sales.
Comparatively, 1997 has experienced a slow down in recruiting
efforts which has caused a decline in sales.
Gross profit margins decreased to 74.4% in 1997 from 75.4% in
1996. Product discounts offered to Consultants earlier this year
versus last year were higher. This resulted in a decrease in net
sales and gross profit margins. Also, as previously discussed,
there have been overall improvements to product costs and sales
shifts to higher margin product categories, however, factory
overhead allocations and increases to obsolete inventory reserves
in third quarter 1997 have lowered gross margin results.
Selling, general and administrative costs have increased to 68.1%
of sales or $36,266,000 from 67.3% of sales or $38,599,000.
Influencing the percent of sales increase was additional spending
in start up costs for the Company's Taiwan subsidiary.
Other income and expense decreased to $232,000 in 1997 from
$337,000 in 1996. This was caused from reductions in investment
related income.
Net income decreased to $2,224,000 in 1997 from $2,973,000 in
1996 due to factors stated above.
Liquidity and Capital Resources
Working Capital at August 31, 1997 was $7,133,000 compared to
$5,536,000 at November 30, 1996. Approximately $2,000,000 of
the August 31, 1997 trade accounts receivable balance was related
to temporary credit programs offered to Consultants in the month of
August. Corresponding payments of these balances were processed in
September. This was slightly offset by increases in both
short-term borrowings and trade accounts payable.
8
<PAGE>
The Company's cash position decreased by $293,000 to $591,000 at
August 31, 1997 from $884,000 at November 30, 1996. The decrease
in cash was primarily caused from an increase in trade accounts
receivable and the purchase of property and equipment needed for
production of new product lines.
The Company has a $15,000,000 line of credit available to use for
both share repurchase in the event that the Company believes its
stock is undervalued as well as, immediate working capital needs.
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 rate
for the third quarter of 1997 was 6.93% and for the first nine
months 6.83%; for 1996 the average rates were 6.93% and 6.75%
respectively. The outstanding balance at August 31, 1997 was
$4,700,000 compared to $3,900,000 at November 30, 1996.
The Board of Directors recently approved an increase of 755,300
shares of its common stock under the Company's Stock Repurchase
Program. These additional shares, together with 244,700 shares
from a prior authorization, bring the total number of shares
authorized for repurchase to 1,000,000.
New Accounting Standards
In December 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128)
Earnings per Share. This statement required companies to present
basic earnings per share and, if applicable, diluted earnings per
share. This replaced primary and fully diluted earnings per
share that is currently required under APB Opinion 15. The
Company will be required to adopt SFAS 128 on December 1, 1997
but at present will continue to report earnings per share under
APB 15. Currently, the Company has not yet determined the effect
of adopting SFAS 128.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Index to Exhibits
11 BeautiControl Cosmetics, Inc. and Subsidiaries -
Computation of Earnings per Common
Share - filed herewith.
(b) Reports on Form 8-K
None
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant had duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BeautiControl Cosmetics, Inc.
(Registrant)
Date: 10/14/97 /s/ RICHARD W. HEATH
Richard W. Heath
President, Chief Executive
Officer
Date: 10/14/97 /s/ M. DOUGLAS TUCKER
M. Douglas Tucker
Senior Vice President-
Finance & Principle
Financial Officer
10
<TABLE>
EXHIBIT 11
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income applicable to
common stock $ 183,966 $1,331,947 $2,223,536 $2,973,249
Common and common
equivalent share:
Weighted average common
shares outstanding 5,928,331 5,777,415 5,899,138 5,836,675
Net effect of dilutive
stock options based on
the treasury stock method
using average market price 183,548 130,218 294,522 150,270
Weighted average common and
common equivalent shares 6,111,879 5,907,633 6,193,660 5,986,945
Net income per common and
common equivalent share $.03 $.23 $.36 $.50
Common share - assuming
full dilution:
Weighted average common
shares outstanding 5,928,331 5,777,415 5,899,138 5,836,675
Net effect of dilutive
stock options based on the
treasury stock method
using the greater of the
average or ending market
price 183,556 134,969 313,397 156,005
Weighted average common
shares-assuming full
dilution 6,111,887 5,912,384 6,212,535 5,992,680
Net income per common share
-assuming full dilution $.03 $.23 $.36 $.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1997
<CASH> 590827
<SECURITIES> 357418
<RECEIVABLES> 3423060
<ALLOWANCES> 741967
<INVENTORY> 14276308
<CURRENT-ASSETS> 20829925
<PP&E> 22415770
<DEPRECIATION> 13327287
<TOTAL-ASSETS> 34670704
<CURRENT-LIABILITIES> 13696486
<BONDS> 0
0
0
<COMMON> 963720
<OTHER-SE> 19591114
<TOTAL-LIABILITY-AND-EQUITY> 34670704
<SALES> 17306236
<TOTAL-REVENUES> 17306236
<CGS> 4486895
<TOTAL-COSTS> 17002527
<OTHER-EXPENSES> (74903)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57790
<INCOME-PRETAX> 378612
<INCOME-TAX> 194646
<INCOME-CONTINUING> 183966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183966
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
