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, 1997 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 6, 1998, 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
$45,204,035.
Number of shares of the registrant s Common Stock outstanding as
of February 6, 1998: 5,928,398.
DOCUMENTS INCORPORATED BY REFERENCE
1. Certain portions of the registrant s definitive Proxy
Statement in connection with the 1998 Annual Meeting of
Stockholders to be held on April 7, 1998 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 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.
<PAGE>
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. The Company also provides
SlenderGenics, a weight management system, and PMS Support Complex
to its health and beauty product line. 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.
During 1997, the Company extended its REGENERATION product line
to include REGENERATION GOLD and REGENERATION GOLD
eye repair. Other product offerings included Sheer Breeze
fragrance collections, Color Freeze eye pencils and liquid makeup
and SpectacuLash Thickening Mascara.
<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, 1997, the total Consultant count was 49,413 with 536
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, Novus/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, money order
or credit card. Additionally, beginning in 1996 and throughout
1997, 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 1997 the Company relied primarily upon Federal Express,
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 five 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.
The Company discontinues its relationship with Consultants who fail
to maintain a certain level of sales activity on a regular basis.
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 24% 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, 1995, 1996 and
1997, such activities have not required the expenditure of material
amounts.
<PAGE>
Employees
At February 1, 1998, the Company employed 280 persons in North
America, 41 of which were engaged in the manufacture and assembly
of the Company's products. Also, the Taiwan branch, which opened
on January 8, 1998 employs 40 persons. None of the Company's
employees are represented by a union and the Company considers its
employee relations to be good. All key 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 has registered or is in the process of registering its
principal trademarks in Canada, Taiwan and 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.
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.
<PAGE>
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.
Item 2. Properties.
The Company's domestic 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. The Company
also leased an additional warehouse facility in 1997 which is
located in Carrollton, Texas; this lease expires in 1998. The
Canadian subsidiary, located in Burlington, Ontario leases a
combined office and distribution facility that expires in 2001.
The Company's Taiwan branch has a leased facility in Taipei, Taiwan
that expires in 2000 with first rights to renew upon expiration.
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.
<PAGE>
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.
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.
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.
<TABLE>
<CAPTION>
1997 1996
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $18.750 $13.000 $10.000 $ 8.500
Second Quarter 17.125 8.875 10.500 7.250
Third Quarter 12.875 9.000 10.000 6.250
Fourth Quarter 10.000 8.000 16.500 8.125
</TABLE>
The high and low sales prices on February 6, 1998, as quoted on the
NASDAQ National Market were $7.75 and $7.50, respectively.
As of February 9, 1998, there were approximately 2,000 holders of
record of the common stock, including nonobjecting beneficial
holders whose stock is held in nominee or street name by brokers.
Cash dividends were paid in each quarter of 1997 and 1996 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,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales $69,421 $80,108 $74,679 $70,591 $63,936
Cost of goods sold 19,005 19,830 18,920 17,298 16,329
Selling, general
and administrative
expenses 50,294 52,308 48,672 44,238 43,124
Income from operations 122 7,970 7,087 9,055 4,483
Other income, net 276 442 529 396 204
Income before
income taxes 398 8,412 7,616 9,451 4,687
Income taxes 274 3,011 2,914 3,308 1,590
Income before
cumulative effect
of change in
accounting principle 124 5,401 4,702 6,143 3,097
Cumulative effect of
change in accounting
principle - - - 172 -
Net income $ 124 $ 5,401 $ 4,702 $ 6,315 $ 3,097
Net income per share:
Primary $ 0.02 $ 0.90 $ 0.70 $ 0.88(2) $ 0.44
Fully diluted $ 0.02 $ 0.87 $ 0.70 $ 0.88(2) $ 0.44
Dividends per
share $ 0.42 $ 0.42 $ 0.42 $ 0.315 $ 0.28
BALANCE SHEET DATA:
Total assets $29,356 $33,910 $29,354 $34,935 $28,531
Working capital 7,391 9,43 3,350 7,147 6,135
Long term borrowings 1,200 3,900 1,400 - -
Stockholders equity 17,882 19,311 17,318 23,788 19,442
CONSULTANT DATA:
Number of consultants
at fiscal year end 49,413 50,897 45,745(1) 42,108 37,728
<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 1997 1996 1995
<S> <C> <C> <C>
Skin care products 46% 44% 46%
Cosmetic makeup products 32 31 34
Nail care products 1 1 1
Fragrance and toiletry products 2 1 1
Cosmetics, color and image
analysis accessories 13 13 14
Health and beauty supplements 6 10 4
Total sales 100% 100% 100%
</TABLE>
During 1997, the Company experienced a decline in its U.S. sales for
the first time in its history. The current economic environment is one
of low inflation and low unemployment which makes recruiting difficult
for the party plan direct sales industry. Revisions to the Company's
Consultant compensation plan were rolled out nationally in May with
the purpose of improving recruiting; as expected, these changes are
taking time to see all of the positive results anticipated. 1997 was
also a year of significant investment by the Company in International
operations. Start-up costs of $3.0 million before tax were incurred
for expansion into Taiwan, where the business was opened in January,
1998. The Company's Canadian subsidiary also completed its first full
year of local distribution operations in 1997; its facilities
opened in Ontario in late 1996. A 17% increase in Canadian sales was
achieved over the prior year but, as expected, the new subsidiary had
a loss of $300,000 for the year. The Company did not reduce its U.S.
sales, marketing and administrative costs, in spite of lower U.S.
sales, with the intention of supporting our domestic business and
international expansion.
<PAGE>
During 1998, the Company will be conducting a strong spring recruiting
drive similar to previous successful programs. This together with our
emphasis on product and field sales training are expected to improve
U.S. sales and recruiting results. The Taiwan operations that opened
in early 1998 is also expected to contribute to earnings during the
year. The Company is evaluating the next Asian markets for potential
entry. With the combination of these plans, the Company expects long-
term increases in sales and profitability.
RESULTS OF OPERATIONS OF THE COMPANY
Fiscal 1997 compared to Fiscal 1996
Net sales for 1997 were $69,421,000 compared to $80,108,000 in 1996.
Several key factors have attributed directly to this year's sales
performance. Most notable are those that have affected recruiting.
Year end Consultant count was 49,413 in 1997 versus 50,897 in 1996. A
favorable U.S. economy of low unemployment and low inflation has had
an adverse impact on the direct selling industry creating a
challenging environment for new recruits. Also, contributing to a
downward trend in sales was a change in this year's recruiting
strategy. In early 1997, the Company offered a Wellness promotion
that was designed to create a unique type of Consultant for the health
and beauty line. This strategy, combined with other sales and
recruiting promotions run throughout the year, produced results below
expectations and did not have the projected impact needed to drive
domestic recruiting and sales performance. The Company rolled out
nationwide in 1997 its new compensation plan that was successfully
tested in several markets in 1996. While the compensation plan
improvements are still relatively new to the Consultants, it has been
well received and is considered a positive, more lucrative change.
Because of this, the Company expects it will be integral to achieving
favorable results in the future as part of the overall recruiting
program. Two major successes in 1996 have also distorted this year's
sales results. They include the Company's highly successful
recruiting promotion during the first half of 1996 and the
introduction of SlenderGenics Weight Management System which generated
nearly $4,000,000 in incremental sales during the fourth quarter of
1996.
Extensions to the REGENERATION product line, REGENERATION GOLD and
REGENERATION GOLD Eye Repair caused shifts in product categories in
1997. The skin care line increased to 46% in 1997 from 44% in 1996.
The 1996 introduction of the SlenderGenics Weight Management System
shifted the health and beauty supplements to 10% in 1996 from 4% in
1995; this has subsequently evened out to 6% in 1997.
<PAGE>
Gross profit margins were 73% in 1997 compared to 75% in 1996. The
decrease in gross profit margins for 1997 was largely due to
absorption of factory overhead and increases in inventory reserves.
For the year, these costs were an additional 2.4% of net sales in 1997
compared to 1996. Obsolete inventory expense was $800,000 higher in
1997 than 1996 caused primarily by excess seasonal products and
unusable business aids. While factory overhead and inventory reserves
are considered ongoing costs that affect gross profit margins, they
were abnormally high in 1997.
Selling, general and administrative expenses as a percent of sales
increased to 72% in 1997 from 65% in 1996. Overall total spending in
these costs was reduced by nearly $2,000,000 in 1997 compared to
1996. However, the decrease in sales has caused actual cost as a
percent of sales to be unfavorable. The first two quarters of 1997
made up most of the dollar savings in total spending for selling,
general and administrative expenses. This was primarily due to lower
costs incurred in recruiting and promotion activities. In addition,
there was a reduction from prior year promotion and training costs
associated with the highly successful 1996 recruiting campaign.
Selling, general and administrative spending in the third and fourth
quarters of 1997 was heavily focused on start-up and investment
spending for the Company's Taiwan branch that opened on January, 1998.
Other income and expense decreased to $276,000 in 1997 compared to
$442,000 in 1996. In 1997, the Company liquidated its investments
resulting in a reduction in investment related income.
The income tax provision for 1997 was $274,000 compared to $3,011,000
in 1996. The effective tax rate was affected by a loss of nearly
$300,000 by the Company's Canadian subsidiary.
Fiscal 1996 compared to Fiscal 1995
Net sales increased 7% to $80,108,000 in 1996 from $74,679,000 in
1995. 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 sales; 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.
<PAGE>
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 one-time
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 the WITHIN BEAUTY supplements line launch.
Other income and expense, net, decreased to $442,000 in 1996 from
$529,000 in 1995 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 the dissolution of the United Kingdom subsidiary.
Net income was impacted in 1996 by the factors stated above as well as
from a combined loss of $340,000 from the Company's United Kingdom
subsidiary's operations and subsequent conversion to a distributorship.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at November 30, 1997 was $7,391,000 compared to
$9,436,000 at November 30, 1996. This decrease is primarily
attributable to a decrease in inventories and trade accounts
receivable, and by increases in deferred income and accounts payable.
Net Trade Accounts Receivable decreased by $402,000 from 1996 to 1997
as it came back in line with prior years. Trade Accounts Receivable
remained relatively low overall as a result of the Company's payment
in advance policy on most sales programs. Beginning in 1996 and
continuing throughout 1997, the Company had several product offers
involving temporary credit terms that could extend out to 45 days for
approved Consultants. An estimated $400,000 of the November 30, 1997
balance was related to these credit programs. At present, the Company
plans to continue offering, on a selective basis, special credit
terms. Due to the continuation of these credit programs, the Company
chose to increase its allowance for bad debt to offset any related
collection risk. This amount increased by $170,600 in 1997.
<PAGE>
The Company's inventory levels decreased $2,038,000 during 1997
compared to 1996. During 1996, inventory levels related to core
products were increased to expedite orders and to improve customer
service. Also, the year end balance in 1996 was higher due to the
late year introduction of its weight management system,
SlenderGenics . In 1997, the Company balanced its inventory levels for
the start-up of the Taiwan branch and the decline in domestic sales.
As a result, inventory levels were lower than prior year in both
finished goods and component categories. In addition, as a direct
result of both the decline in sales throughout the year and a
subsequent detail review of inventory on hand, it was determined that
an increase in reserve for obsolescence was needed. Total reserves
increased over $800,000 in 1997 compared to 1996.
The Company has a $15,000,000 line of credit, 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,
1999; however, this revolving two year credit line can be extended
annually and balances can be converted to a term loan at any time during
the two years for a three year amortization. Due to the long term
nature and terms of this line of credit, the Company classified the
outstanding debt as long-term in 1997 and 1996. A commitment fee of
.25% is paid quarterly based on the unused portion of this line of
credit. The weighted average interest rates for 1997 and 1996 were
6.85% and 6.71%, respectively. The outstanding balances at November
30, 1997 and 1996 were $1,200,000 and $3,900,000, respectively. In 1997,
borrowings were used primarily for operations and the Company's
expansion into Taiwan. 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 as
necessary for the growth of the business.
Even though the Company did not repurchase any of its common stock in
1997, it remains approved by the Board of Directors to purchase up to
1,000,000 additional shares of its common stock.
The Company's capital expenditures for 1997 totaled $1,895,000 of
which $480,000 was for the Taiwan branch. Included in the total
domestic expenditures was $571,000 for manufacturing related equipment
and $410,000 for enhancements to computer operations. The Company
anticipates its 1998 capital purchases will be in line with 1997.
<PAGE>
YEAR 2000 ISSUES
The Company has initiated a task force committee to address Year 2000
issues. The committee was established to oversee the progress in
project planning for software and hardware modifications in addition
to coordinating efforts to ensure compliance of third party vendors
and suppliers. An initial assessment and inventory of software
modifications has been completed along with a definition of business
risks associated with each application. A project plan has been
developed to address needed modifications with primary emphasis on
applications with the most inherent business risk exposure. Both
external and internal resources have been dedicated to the project
including programmers, key management and outside consultants. Also, a
separate computer system has been arranged for testing ouside of the
production environment. Completion dates have been formulated for key
tasks and will be monitored throughout 1998 and 1999. At this time,
management does not believe the cost of implementing the Year 2000
project will be material to the Company s results of operations or
financial position.
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: Consultants
sales activity levels, the recruiting of new Consultants, new product
introductions, and the results of its international subsidiaries.
<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 sheets of
BeautiControl Cosmetics, Inc. and Subsidiaries as of November 30, 1997
and 1996, and the related statements of income, stockholders equity
and cash flows for each of the two years in the period ended November
30, 1997. 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 accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of BeautiControl Cosmetics, Inc. and Subsidiaries
at November 30, 1997, and 1996, and the consolidated results of their
operations and their cash flows for each of the two years in the
period ended November 30, 1997 in conformity with generally accepted
accounting principles.
/S/ERNST & YOUNG LLP
Ernst & Young LLP
Dallas, Texas
January 2,1998
</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 statements of income,
changes in stockholders equity and cash flows of BeautiControl
Cosmetics, Inc. For the year 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 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 the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of
operations and the consolidated cash flows of BeautiControl Cosmetics,
Inc. for the year ended November 30, 1995 in conformity with generlly
accepted accounting principles.
/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)
YEARS ENDED NOVEMBER 30,
1997 1996 1995
<S> <C> <C> <C>
Net Sales $69,421 $80,108 $74,679
Cost of goods sold 19,005 19,830 18,920
Gross profit 50,416 60,278 55,759
Selling expenses 31,755 33,948 31,849
General and administrative 18,539 18,360 16,823
expenses
50,294 52,308 48,672
Income from operations 122 7,970 7,087
Other income
Interest income 146 172 266
Other, net 130 270 263
276 442 529
Income before income taxes 398 8,412 7,616
Income taxes 274 3,011 2,914
Net income $124 $5,401 $4,702
Earnings per common and common
equivalent share
Primary:
Net income $.02 $.90 $.70
Weighted average common and
common equivalent shares 6,154 6,025 6,753
Fully Diluted:
Net income $.02 $.87 $.70
Weighted average common and
common equivalent shares 6,176 6,223 6,757
<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)
NOVEMBER 30,
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 720 $ 884
Investments - 360
Accounts receivable-trade,
net of allowances of $658
in 1997 and $488 in 1996 702 1,104
Inventories 12,799 14,837
Deferred income taxes 1,530 1,851
Prepaid expenses 622 365
Income tax receivable 727 -
Other current assets 125 315
Total current assets 17,225 19,716
PROPERTY AND EQUIPMENT, AT COST
Land 766 766
Office building 3,957 3,904
Office furniture and equipment 8,122 7,251
Machinery and equipment 6,506 5,923
Leasehold improvements 1,367 1,193
Transportation equipment 2,641 2,428
23,359 21,465
Less accumulated depreciation
and amortization 13,732 12,101
Property and equipment, net 9,627 9,364
OTHER ASSETS
Cost in excess of net tangible
assets, acquired, net of
amortization of $828 in 1997
and $762 in 1996 1,823 1,889
Investments - 2,403
Other, net of amortization of
$557 in 1997 and $518 in 1996 681 538
Total assets $29,356 $33,910
<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)
NOVEMBER 30,
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 3,936 $ 2,926
Sales tax payable 749 938
Accrued commissions and awards 1,784 2,090
Accrued compensation 545 1,020
Accrued property taxes 635 547
Accrued other taxes 462 1,772
Accrued liabilities 660 637
Deferred income 1,063 350
Total current liabilities 9,834 10,280
DEFERRED INCOME TAXES 440 419
LONG-TERM BORROWINGS 1,200 3,900
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 - 9,637,198 in 1997 and
9,521,361 shares in 1996 964 952
Capital in excess of par value 13,585 12,720
Unrealized losses on investments,
net of taxes - (33)
Retained earnings 34,238 36,577
48,787 50,216
Less treasury stock, at cost
(3,708,800 shares in 1997
and 1996) 30,905 30,905
Total stockholders equity 17,882 19,311
Total liabilities and
stockholders' equity $ 29,356 $ 33,910
<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, 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
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
Issuance of common
stock under stock
option plans 12 753 - - -
Tax benefit related to
stock options - 112 - - -
Foreign currency
translation adjustment - - - 20 -
Dividends - - - (2,483) -
Net change in unrealized
losses, net of tax - - 34 - -
Net income - - - 124 -
November 30, 1997 $964 $13,585 $ - $34,238 $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)
YEARS ENDED NOVEMBER 30,
<S> <C> <C> <C>
1997 1996 1995
Cash flows from operating
activities
Net Income $ 124 $5,401 $4,702
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and amortization 1,757 1,882 1,866
Deferred income tax 29 (590) (204)
Provision for losses on trade
accounts receivable 369 234 183
Provision for obsolete
inventory 1,327 491 960
Changes in assets and liabilities:
Accounts receivable 33 (980) (233)
Inventories 711 (6,034) (285)
Prepaid expenses (257) 404 (167)
Income tax receivable (727) - -
Other current assets 190 (97) (6)
Accounts payable 1,010 152 (977)
Accrued compensation (475) 446 (667)
Accrued property taxes 88 (62) 124
Accrued other taxes (997) 764 551
Other accrued liabilities (472) 285 105
Deferred income 713 (1,244) 159
Other 5 63 236
Net cash provided by operating
activities 3,428 1,115 6,347
Cash flows from investing
activities:
Proceeds from sale of
investments 2,843 1,140 3,728
Purchase of investments - - (977)
Purchase of property and
equipment (1,895) (1,104) (1,555)
Purchase of other assets (122) (193) (253)
Net cash provided by (used in) in
investing activities 826 (157) 943
Cash flows from financing
activities:
Proceeds from issuance of common
stock 764 202 51
Borrowings (2,700) 2,500 1,400
Purchase of treasury stock - (1,188) (8,428)
Dividends paid (2,483) (2,442) (2,734)
Net cash used in financing
activities (4,419) (928) (9,711)
Effect of exchange rate on cash
and cash equivalents 1 (1) 1
Net cash increase (decrease) in
cash and cash equivalents (164) 29 (2,420)
Cash and cash equivalents at
beginning of period 884 855 3,275
Cash and cash equivalents at end
of period $720 $884 $855
Supplemental cash flow
information:
Income taxes $1,569 $2,402 $2,579
Interest 298 176 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, 1997, 1996 AND 1995
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 principally in North America through independent sales
persons (consultants) 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 - The Company accounts for its investments in accordance
with Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities (SFAS 115). SFAS
115 requires companies to classify their investments as either held-
to-maturity or 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 1997, the Company sold all available-for-sale and
held-to-maturity securities. Gross realized gains and losses have been
included in earnings and all previously recorded unrealized gains and
losses have been reversed as a separate component of stockholders
equity.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
<PAGE>
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 lives 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 is being
amortized on a straight-line basis over 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.
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. Additionally, in 1997 the
Company established a buy back policy for its Consultants. The
Company will repurchase at cost, less a restocking fee, any
merchandise purchased in the previous 12 months from any Consultant
who chooses to leave the business.
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.
<PAGE>
In 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128) Earnings per Share.
This statement requires companies to present basic earnings per share
and, if applicable, diluted earnings per share. This replaces primary
and fully diluted earnings per share that is currently required under
APB Opinion 15. The Company will be required to adopt SFAS 128 on
December 1, 1997 but at present will continue to report earnings per
share under APB 15.
Upon the adoption of SFAS 128 the Company has determined the following
restated amounts for the years ended 1997, 1996 and 1995 are expected
to be:
<TABLE>
<CAPTION>
Year Ended
1997 1996 1995
<S> <C> <C> <C>
Basic earnings per share $.02 $.93 $.73
Diluted earnings per share $.02 $.90 $.70
</TABLE>
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.
Recently Issued Accounting Statements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS 131). SFAS
131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The Company will be
required to adopt SFAS 131 on December 1, 1998. Currently, the Company
anticipates that only the results of its international operations in
the event they become material will be required to be separately
disclosed from domestic operations under the reporting guidelines of
SFAS 131.
<PAGE>
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS 130). SFAS 130 establishes standards for
the reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. Under existing
accounting standards, other comprehensive income shall be classified
separately into foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on certain investments in
debt and equity securities. Comprehensive income is defined as the
change in equity (net assets) of a business enterprise during a period
from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to
owners. This statement is effective for the Company on December 1, 1998.
The Company will be required to separately disclose the components of
comprehensive income listed above.
NOTE B - INVENTORIES
Inventories (in thousands) consist of the following:
<TABLE>
<CAPTION>
November 30,
1997 1996
<S> <C> <C>
Finished Goods $ 9,325 $ 9,343
Raw Materials 5,559 6,761
Reserve for Obsolescence (2,085) (1,267)
Total $12,799 $14,837
</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 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
</TABLE>
During 1997, investment yields moved down to levels below the marginal
cost to borrow. As a result, following management review, all debt
and equity securities that had not been called were sold during the
fourth quarter of 1997. The gross proceeds from the sale of
available-for-sale preferred stock were $1,048,205 with a gross
realized gain of $8,697. The gross proceeds from the sale and call of
held-to-maturity municipal bonds were $1,794,340 with a gross realized
gain of $16,031. For the purpose of determining the gross realized
gains and losses, the cost of securities sold was based upon specific
identification.
NOTE - D INCOME TAXES
The components of deferred income taxes (in thousands) are as follows:
<TABLE>
<CAPTION>
November 30,
1997 1996
<S> <C> <C>
Deferred tax assets:
Inventories $ 970 $ 727
Allowance for doubtful accounts 235 235
Accrued expenses 319 856
Other 8 25
1,532 1,843
Deferred tax liabilities:
Property and equipment $ (442) $(411)
Deferred tax assets and liabilities are
classified as follows:
Current deferred tax assets $1,530 $1,851
Noncurrent deferred tax liability (440) (419)
$1,090 $1,432
</TABLE>
<PAGE>
Income tax expense (in thousands) is comprised of the following:
<TABLE>
<CAPTION>
Year Ended November 30,
1997 1996 1995
<S> <C> <C> <C>
Current
Federal $212 $3,282 $2,766
State 33 319 352
Deferred 29 (590) (204)
$274 $3,011 $2,914
</TABLE>
Reconciliation of income taxes computed at the Federal statutory rate
and income tax expense is as follows:
<TABLE>
<CAPTION>
Year Ended November 30,
1997 1996 1995
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State 5.5 2.5 3.0
Unbenefitted foreign losses 28.9 .7 3.4
Other .5 (1.4) (2.1)
Effective tax rate 68.9% 35.8% 38.3%
</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, 1997, 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 4,708,800 shares.
Four quarterly dividends were paid during 1997, 1996 and 1995. The
aggregate totals and per share amounts for each year respectively were
$2,483,000 and $.42, $2,442,000 and $.42 and $2,734,000 and $.42.
<PAGE>
NOTE F - LINE OF CREDIT
The Company has a line of credit of $15,000,000. The interest rate is
based on a LIBOR rate plus a spread that adjusts with the debt ratio.
The weighted average interest rates for 1997 and 1996 were 6.85% and
6.71%, respectively. The outstanding balances at November 30, 1997
and 1996 were $1,200,000 and $3,900,000, respectively. The expiration
date is November 30, 1999; however, this revolving two year credit
line can be extended annually and balances can be converted to a term loan
at any time during the two years for a three year amortization. Due to
the long term nature of this line of credit, the Company classified the
outstanding debt as long-term in 1997 and 1996. Under this line of
credit, the Company is required to meet covenants related to certain
financial ratios and an annual capital expenditures limitation. As of
November 30, 1997, the Company was in compliance with these covenants.
This line of credit is potentially secured by certain assets of the
Company based on the calculation of one of the financial ratios. A
commitment fee of .25% is paid quarterly based on the unused portion
of this line of credit. All borrowings outstanding under this
line of credit are deemed to be at fair value due to the short term
nature of the interest rates charged.
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 options
vest 20% per year beginning one year after the grant date and expire
ten years from the date of grant.
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. The
options vest 20% per year beginning one year after the grant date
and expire ten years from the date of grant. During 1997, 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.
This plan expired in February 15, 1998; management plans to seek
shareholder approval of a new plan with similar terms.
<PAGE>
<TABLE>
<CAPTION>
INCENTIVE PLAN NONQUALIFIED PLAN
Shares Option Weighted Shares Option Weighted
Under Price Average Under Price Average
Option Range Exercise Option Range Exercise
(000's) Price (000's) Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
November 30,
1995 286 $ 3.28- $10.72 508 $ 3.56- $11.02
$17.50 $17.50
Granted 68 $ 8.00- $ 8.47 - - -
$ 9.50
Exercised (41) $ 4.89- $ 5.94 (1) $ 7.75- $ 8.13
$ 8.50 $ 8.50
Cancelled (24) $ 7.50- $11.04 (2) $ 7.75- $10.00
$14.67 $11.00
Outstanding at
November 30,
1996 289 $ 3.28- $ 8.56 505 $ 3.56- $10.64
$ 9.50* $17.50*
Granted 5 $ 9.75 $ 9.75 - - -
Exercised (45) $ 3.28- $ 7.84 (8) $ 7.75- $ 8.38
$ 9.50 $ 9.25
Cancelled (23) $ 8.00- $11.27 (5) $ 7.75- $ 8.21
$ 9.50 $ 8.50
Outstanding at
November 30,
1997 226 $ 4.89- $ 8.70 492 $ 3.56- $10.70
$ 9.75 $17.50
Exercisable at
November 30,
1997 132 $ 8.68 439 $10.96
Available to
Grant at
November 30,
1997 71 140
Weighted
Average
Remaining
Contractual
Life of
Options
Outstanding at
November 30,
1997 6 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SPECIAL PLAN
Shares Option Weighted
Under Price Average
Option Range Exercise
(000's) Price
<S> <C> <C> <C>
Outstandng at
November 30,
1995 261 $ 3.28- $ 7.04
$14.25
Granted 15 $ 8.00- $ 9.24
$ 9.50
Exercised - - -
Cancelled - - -
Outstandng at
November 30,
1996 276 $ 3.28- $7.18
$14.25
Granted 6 $14.63 $14.63
Exercised (63) $ 3.28- $ 5.46
$10.67
Cancelled (7) $13.00- $13.89
$14.25
Outstanding at
November 30,
1997 212 $ 3.28- $ 7.68
$14.63
Exercisable at
November 30,
1997 206 $ 7.47
Available to
Grant at
November 30,
1997 59
Weighted
Average
Remaining
Contractual
Life of
Options
Outstanding at
November 30,
1997 3
<FN>
*In January 1996, 204,070 stock options with a price range of $10.00
to $17.50 were repriced to the current fair value price of $9.25.
</TABLE>
<PAGE>
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123),
Accounting for Stock Based Compensation. This statement defines a
fair value based method of accounting for an employee stock option.
On December 1,1996, the Company adopted the disclosures provision of
SFAS 123. Under this provision, the Company will disclose pro forma
net income and pro forma earnings per share for employee stock options
using a fair value based method. As allowed by SFAS 123, the Company
has also elected to follow Accounting Principles Board Opinion No. 25
(APB 25), Accounting for Stock Issued to Employees and related
interpretations in accounting for its employee stock option plans.
As required by SFAS 123, pro forma net income and earnings per share
impact from granted options have been determined for disclosure
purposes. The amounts reported do not necessarily reflect the effects
of this statement on future net income or earnings per share. The
fair value of employee stock options have been estimated using the
Black-Scholes option pricing model. The following table summarizes
the weighted average assumptions used for 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Volatility 36.0% 29.8%
Risk Free Rate 5.9%-6.1% 5.8%-6.2%
Dividend Yield 3.8% 4.4%-5.3%
Expected Life in Years 5 6
Weighted Average Grant Date
Fair Value $3.48 $1.98
Net Income:
As Reported $124 $5,401
Pro Forma 66 5,174
Net Income per Common
Share:
As Reported $.02 $.90
Pro Forma $.01 $.86
</TABLE>
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, 1997,
1996 and 1995 was $150,000, $111,000 and $150,000 respectively.
<PAGE>
NOTE H - COMMITMENTS AND CONTINGENCIES
At November 30, 1997, the Company and subsidiaries were committed
under non-cancellable operating leases, principally for five
buildings, equipment and automobiles. U.S. building leases expire in
1998 and 1999. Two principal leases may be extended for five years at
the fair market rental rate in effect at that time. Building leases in
Taiwan and Canada expire in 2000 and 2001, respectively.
Minimum rentals in succeeding periods (in thousands) are as follows:
Year Ending November 30,
1998 .................. 2,259
1999 .................. 1,914
2000 .................. 904
2001 .................. 81
$5,158
Rental expense (in thousands) is as follows:
Year Ending November 30,
1997 ...................$1,918
1996 .................. 1,809
1995 .................. 2,130
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,
1997 and 1996 (in thousands) are as follows:
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1997:
Net sales $16,052 $19,908 $17,306 $16,155
Gross profit 12,146 14,666 12,819 10,785
Net income 979 1,061 184 (2,100)
Net income per
common share
Primary $ 0.16 $ 0.17 $ 0.03 $ (0.35)
Fully diluted $ 0.15 $ 0.17 $ 0.03 $ (0.35)
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
Primary $ 0.11 $ 0.16 $ 0.23 $ 0.40
Fully diluted $ 0.11 $ 0.16 $ 0.23 $ 0.39
</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.
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 5 of the Company's definitive Proxy Statement
filed in connection with the 1998 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 10 of the
Company's definitive Proxy Statement filed in connection with the 1998
Annual Meeting of Stockholders is incorporated herein by reference.
<PAGE>
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
1998 Annual Meeting of Stockholders is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
Not Applicable.
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, 1997, 1996 and 1995.
Consolidated Balance Sheets as of November 30, 1997 and 1996.
Consolidated Statement of Changes in Stockholders Equity
for the three years ended November 30, 1997.
Consolidated Statements of Cash Flows for the years ended
November 30, 1997, 1996 and 1995.
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
<PAGE>
(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, 1997.
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 18, 1998 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 18, 1998
Richard W. Heath Officer and Director
/S/ JINGER L. HEATH Chairman of the Board and February 18, 1998
Jinger L. Heath Director
/S/ J. ROBERT WARD-BURNS Executive Vice-President February 18, 1998
J. Robert Ward-Burns Chief Operating Officer and Director
/S/ M. DOUGLAS TUCKER Senior Vice President-Finance February 18, 1998
M. Douglas Tucker Principal Financial and Accounting Officer
/S/ CHARLES M. DIKER Director February 18, 1998
Charles M. Diker
/S/ ROBERT S. FOLSOM Director February 18, 1998
Robert S. Folsom
/S/ JOSEPH M. HAGGAR, III Director February 18, 1998
Joseph M. Haggar, III
/S/ DENISE I. LITES Director February 18, 1998
Denise I. Lites
/S/ A. STARKE TAYLOR, JR. Director February 18, 1998
A. Starke Taylor, Jr.
/S/ JOEL T. WILLIAMS, JR. Director February 18, 1998
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.)
<PAGE>
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.)
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.)
<PAGE>
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, 1997 and
incorporated herein by reference.)
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. (Filed with the Securities and
Exchange Commission on December 9, 1996 with the
Company s Registration Statement on Form S-8,
Registration No. 333-17479 and incorporated herein by
reference.)
10.18 BeautiControl Cosmetics, Inc. 1996 Non-Qualified
Stock Option Plan. (Filed with the Securities and
Exchange Commission on December 9, 1996 with the
Company s Registration Statement on Form S-8,
Registration No. 333-17479 and incorporated herein by
reference.)
10.19* Sublease agreement by and between Chadrach, Inc.
d/b/a Dallas Moving Systems and BeautiControl Cosmetics,
Inc. dated May 30, 1997.
10.20* Lease agreement by and between Te Chan Co. and
BeautiControl Taiwan, Inc. dated August 1,1997.
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
27 Financial Data Schedule
* Filed herewith
SUBLEASE
This Sublease is made the date executed herein below, between
Chadrach, Inc. d/b/a Dallas Moving Systems ("Lessee") and
BeautiControl Cosmetics, Inc. ("Sublessee").
RECITALS
1. Lessee has leased approximately 42,760 square feet of
warehouse and office space at the property commonly known as 1815-
2015 Surveyor, Carrollton, Texas (the "Building" or the "Premises")
from Crow Carrara No. 2 ("Lessor"), under that certain lease dated
June 7, 1991 and subsequently amended on October 6, 1992 and further
amended on November 20, 1995 ("Underlying Lease") attached hereto as
Exhibit A and incorporated herein by this reference.
2. Sublessee desires to sublet from Lessee and Lessee desires
to sublet to Sublessee the Premises known as 1815 Surveyor,
Carrollton, Texas (the "Sublease Premises") containing approximately
21,345 square feet pursuant to the terms and conditions contained in
this sublease agreement ("Sublease").
In consideration of the mutual covenants, conditions and
agreements contained herein, the parties agree as follows:
SECTION ONE
DESCRIPTION OF PREMISES
Lessee shall demise to Sublessee the Sublease Premises as
described in Paragraph 2 above.
SECTION TWO
PURPOSE OF SUBLEASE
The Sublease Premises demised under this Sublease are to be
used by Sublessee for warehouse and office purposes for the conduct
of Sublessee's business and all uses reasonably related thereto.
SECTION THREE
TERM OF SUBLEASE
The term of this Sublease shall commence on the earlier of
occupancy or August 15, 1997 (the "Commencement Date") and shall end
on the last day of December 1998
<PAGE>
SECTION FOUR
RENT
Notwithstanding the language in Paragraph 2.A of the Underlying
Lease, Sublessee shall pay to Lessee in equal monthly installments
base monthly rent during the term of this Sublease in advance as
follows:
Months Base Rent
1 $2,295.16
2 - 7 $4,446.88 per month
Additionally, Sublessee shall be responsible for payment of its
proportionate share of the expenses due per Paragraph 2.C of the
Underlying Lease. The amount of the initial monthly escrow payments
are as follows:
Tax Escrow Payment $1,020.83
Insurance Escrow Payment $ 63.90
Common Area Charge
(landscaping, common area water $ 366.90
&electric & building maintenance)
Initial Monthly Payment Total $5,898.51
Payments shall be made on the first day of each and every
month, at the Lessee's office, 2015 Surveyor, Carrollton, Texas, or
at such other place as Lessee may designate in writing.
SECTION FIVE
SERVICES AND UTILITIES
Subject to the provisions of the Underlying Lease, Lessee shall
furnish utility services to Sublessee. Any other utilities required
by Sublessee in the Sublease Premises not provided in the Underlying
Lease and all telephone services shall be obtained by and at the
expense of Sublessee.Sublessee shall pay for all utility services
provided to the Sublease Premises.
SECTION SIX
CASUALTY DAMAGE OR INJURY
If the Sublease Premises shall be destroyed or damaged by any
acts of war, the elements, including earthquake, or fire, to such
extent as to render the Sublease Premises untenantable in whole or in
substantial part, the Lessee or Sublessee shall have the right to
declare this Sublease terminated.
<PAGE>
SECTION SEVEN
COMPLIANCE WITH UNDERLYING LEASE AND LAWS
Sublessee shall not cause or allow any undue waste on the
Sublease Premises and shall comply with all applicable laws and
ordinances respecting the use and occupancy of the Sublease Premises
relating to matters not covered elsewhere in this Sublease, provided
that Sublessee shall not be required to make any alterations,
additions, or improvements to the Sublease Premises in order to
conform with this Sublease.
This Sublease and Sublessee's rights under this Sublease shall
at all times be subject and subordinate to the Underlying Lease
identified in Paragraph 1 hereof and Sublessee shall perform all
obligations of Lessee under said Lease, and otherwise abide by all of
the terms of said Lease, with respect to the Sublease Premises.
Sublessee acknowledges that any termination of the Underlying Lease
shall extinguish this Sublease. Lessor's consent to this Sublease
shall not make Lessor a party to this Sublease, shall not create any
privity of contract between Lessor and Sublessee or other contractual
liability or duty on the part of Lessor to the Sublessee, shall not
constitute Lessor's consent or waiver of consent to any subsequent
sublease or sub-sublease, and shall not in any manner increase,
decrease or otherwise affect the rights and obligations of Lessor and
Lessee under the Underlying Lease, in respect of the Sublease
Premises.
SECTION EIGHT
REPAIRS
Subject to the obligations of Lessor, if any, in the Underlying
Lease, Sublessee shall maintain the Sublease Premises in good repair
and tenantable condition during the continuance of this Sublease.
SECTION NINE
ALTERATIONS, ADDITIONS, OR IMPROVEMENTS
Sublessee shall not make any alterations, additions, or
improvements on or to the Sublease Premises without first obtaining
the written consent of Lessor, and all alterations, additions, and
improvements that shall be made shall be at the sole expense of
Sublessee. Lessee shall close off the demising wall or any other
points of egress and/or ingress between 1815 and 2015 Surveyor.
SECTION TEN
LIENS
Sublessee shall keep the Sublease Premises free and clear of
all liens arising out of any work performed, materials furnished, or
obligations incurred by Sublessee.
SECTION ELEVEN
SALES, ASSIGNMENTS, AND SUBLEASES
Sublessee shall not assign this Sublease, or sublet or
otherwise encumber the Sublease Premises, or any part thereof or
interest therein, without the prior written consent of Lessee and
Lessor.
<PAGE>
SECTION TWELVE
QUIET ENJOYMENT
Subject to the terms of this Sublease, and subject to the
Lessor's consent to this Sublease, if Sublessee performs the terms of
this Sublease, Lessee will warrant and defend Sublessee in the
enjoyment and peaceful possession of the Sublease Premises during the
term hereof without any interruption by Lessee or any person
rightfully claiming under Lessee.
SECTION THIRTEEN
DEFAULT BY LESSEE
If either party fails or neglects to perform the Sublease or
the provisions of the Underlying Lease, then the other party may
terminate this Sublease. The Lessee and Sublessee agree to provide
Lessor copies of all default notices issued by either party to the
other party under this Sublease.
SECTION FOURTEEN
WAIVER OF BREACH
The waiving of any of the provisions of this Sublease by any
party shall be limited to the particular instance involved and shall
not be deemed to waive any other rights in the same or any other
terms of this Sublease.
SECTION FIFTEEN
TERMINATION AND SURRENDER
Sublessee shall surrender possession of the Sublease Premises
on the last day of the term of the Sublease.
SECTION SIXTEEN
REMOVAL OF PERSONAL PROPERTY
Sublessee shall have the right to remove all personal property,
trade fixtures, and office equipment, whether attached to the
Sublease Premises or not, provided that these items can be removed
without serious damage to the Sublease Premises. All holes or damages
to the Sublease Premises caused by removal of any items shall be
promptly restored or repaired by Sublessee. Sublessee shall be
entitled to remove any electrical service connections installed by
Sublessee that were designed specifically for Sublessee.
SECTION SEVENTEEN
INTEREST OF SUCCESSORS
The covenants and agreements of this Sublease shall be binding
on the successors and assigns of Lessee and on the successors and
assigns of Sublessee but only to the extent herein specified.
<PAGE>
SECTION EIGHTEEN
NOTICES
Except where otherwise required by statute, all notices given
pursuant to the provisions hereof may be sent by first class or
certified mail, postage prepaid, for Lessee to Dallas Moving
Systems/Wheaton Van Lines, Inc., Attn: Mr. Steve Lunning, 2015
Surveyor, Carrollton, Texas and for Sublessee to BeautiControl
Cosmetics, Inc., Attn: Mr. Bob Esson, 3311 Boyington, Suite 400,
Carrollton, Texas or the last know mailing address of the party for
whom the notice is intended.
SECTION NINETEEN
COSTS OF LITIGATION
If any legal action is instituted to enforce this Sublease, or
any part hereof, the prevailing party shall be entitled to recover
reasonable attorney's fees and court costs from the other party.
LESSEE: Chadrach Inc. d/b/a SUB LESSEE:
DALLAS Moving Systems BEAUTICONTROL COSMETICS, INC
By: /s/ By: /s/
Its: President Its: C.O.O
Date: 6-12-97 Date: 5/30/97
<PAGE>
July 14,1997
4802 West
Texas Commerce Tower
2200 Ross Avenue, LB-145
Dallas, Texas 75201
(214) 754-1750
Fax (214) 754-1754
Mr. Bob Esson
BeautiControl Cosmetics, Inc.
3311 Boyington
Suite 400
Carrollton, TX 75006
Re:1815 Surveyor Road
Carrollton, TX
Dear Mr. Esson:
Please accept.this letter as the Landlord's acknowledgment that upon
the expiration of the sublease between Chadrach, Inc. and
BeautiControl Cosmetics, Inc. for the approximately 21,345 square
foot facility at 1815 Surveyor Road, Landlord grants BeautiControl
Cosmetics, Inc. an option to lease the reference space for nine (9)
months
In the event BeautiControl Cosmetics, Inc. desires to exercise said
option, BeautiControl Cosmetics, Inc. must provide Landlord with
written notice of its intent to exercise the option six (6) months
prior to the expiration of the Sublease. The rental during the nine
(9) month option term shall be at the fair market rental then in
effect on equivalent properties, of equivalent size and a new lease
agreement must be agreed to directly between the Landlord and
BeautiControl Cosmetics, Inc.
In the event BeautiControl Cosmetics, Inc. fails to deliver such
written notice within the time period set forth above, BeautiControl
Cosmetics, Inc.'s right to exercise the option hereof shall expire
and be of no further force and effect. In the event Landlord and
BeautiControl Cosmetics, Inc. fail to agree to in writing upon the
fair market value and the form of the lease agreement within fifteen
(15) days after exercise by BeautiControl Cosmetics, Inc. of this
lease option, then BeautiControl Cosmetics, Inc.'s right hereunder
to exercise the option shall become null and void.
If you are in agreement, please sign below and return to my
attention.
Sincerely,
Crow Carrara No. 2 Agreed and Accepted:
By: BCO Dallas Industrial,
LTD., General Partner
/s/ Barbara A. Erhart /s/ Robert Esson
Barbara A. Erhart Mr. Bob Esson
Vice President of 12BCO, Inc., Senior Vice President - Distribution
General Partner of SCO BeautiControl Cosmetics, Inc
Dallas Industrial, LTD
<PAGE>
CONSENT OF LESSOR
TO SUBLEASE OF LEASE
RECITALS:
A. CROW-CARRARA NO. 2, (hereinafter referred to as "Lessor")
entered into that certain lease (the "Lease") dated June 7, 1991 and
subsequently amended on October 6, 1992 and further amended on
November 20, 1995, with Chadrach, Inc. d/b/a Dallas Moving Systems
(hereinafter referred to as "Lessee").
B. Lessee desires to sublease a portion of its interest as
Lessee in and to the Lease to BeautiControl Cosmetics, lnc. in its
corporate capacity (hereinafter referred to as "Sublessee").
C. Pursuant to the provisions of the Lease, Lessee has
requested that the Lessor consent to the sublease of approximately
21,345 square feet known as 1815 Surveyor, Carrollton, Texas, to
Sublessee.
CONSENT:
Lessor consents to the sublease of the Lease to Sublessee on
the express conditions that (1) Lessee shall remain fully and
completely liable for all of the obligations under the Lease, (2)
this consent will not be deemed to be a consent to any subsequent
assignment or sublease and that no further assignment or subletting
of all or any portion of the premises subject to the Lease will be
made without the prior written consent of the Lessor, (3) any rights
or remedies of Sublessee, if any, will be solely against Lessee and
neither sublease of the Lease or this consent will give any rights
under the Lease; (4) if the Lease is terminated, in addition to all
other rights and remedies of Lessor, the sublease of the Lease shall
be automatically terminated, (5) no modification or amendment of the
sublease of the Lease will be made without prior written consent of
Lessor and (6) if any conflict between the Lease and sublease exists,
the Lease will control.
<PAGE>
Lessor consents to Sublessee installing and removing air-
conditioning units to the Sublease Premises upon the submittal of
acceptable plans and specifications by the Sublessee to the Lessor.
All costs and expense associated with the installation and removal of
the air-conditioning units shall be at the sole cost and expense of
the Sublessee. The construction, erection, installation and removal
thereof shall comply with all applicable governmental laws,
ordinances, regulations and with Lessor's specifications and
requirements. All installation and restoration shall be performed in
a good and workmanlike manner so as not to damage or alter the
structure or structural qualities of the building and other
improvements situated on the Sublease Premises or which the Sublease
Premises are a part.
APPROVED:
CROW-CARRARA NO.2
By: BCO Dallas Industrial, Ltd. General Partner
By: /s/ Barbara A. Erhart
Barbara A. Erhart
Vice President of 12 BCO, Inc.
Title: General Partner of BCO Dallas Industrial Ltd.
SEC EDGAR NOTE - THIS DOCUMENT WAS WRITTEN IN CHINESE AND ENGLISH.
THE FOLLOWING IS THE ENGLISH VERSION:
*****
Richard Ellis
LETTER OF INTENT
Lessor: Te Chan Co.
Lessee: Beauti Control Cosmetics
1. Building Name Bank Tower
2. Address 2Fl, No.205 ,Tun Hwa N. Rd.,Taipei
3. Area for Lease Approximately 288 ping(950.4 Square m),
including common area, see the attached
floor plan. Rental and all other payments
shall be adjusted in accordanc with the
revised area upon formal measurement.
4. Rental NT$3,550 per ping per month equivalent to
NTS$1,022,400 per month (Exclusive 5% of
V.A.T.)
5. Payment Terms Initial payment six (6) months in
advance, there after four (4) months in
advance.
6. Deposit Four(4) months rental equivalent to
NT$4,089,600
7. Management Fee NT$200 per ping per month on gross area,
payable by the lessee, increasing NT$10
per ping per month annually.
8. Fit Out Period One( 1) month, from 1 October 1997 until
31 October 1997
9. Handover Day 1st. October, 1997
10. Rental Increment Five (5)% p.a.
11. Lease Term Three(3) years,from lst.November 1997 to
3lst. October. 2000, with the lessee
having the first right to renew.
<PAGE>
12. Carpark and 2 carparking bays at NT$12,000 per bay
Carpark Rental per month, increasing NT$500 per month
annually.
13 Initial Deposit The Lessee shall pay an initial deposit a
one (1) months rental upon execution of
this Letter of Intent. Should the Lessee
then not proceed to execute the lease
agreement, this deposit shall be forfeit.
Should the Lessor then not proceed to
execute the lease agreement, this deposit
shall be returned to the Lessee and an
equivalent amount also be paid by the
Lessor to the Lessee as penalty
14. Others 1..The lessor shall grant the Lessee the
first right to lease a portion of the
first (Ground) floor., The terms,
conditions and area of these premises
shall be subject to negotiation.
2.Both parties undertake to execute
formal documentation prior to 31 August
1997.
The "Letter of Intent" is accepted, signed and chopped by the Lessor
and Lessee as below:
Lessor Lessee
Te Chan Co. Beauti Control Cosmetics
Confirmed and accepted by Confirmed and accepted by
/s/ /s/
Aug 1, 1997 1 August 1997
<TABLE>
EXHIBIT 11
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<CAPTION>
November 30,
1995 1996 1997
<S> <C> <C> <C>
Net income applicable to
common stock $4,702 $5,401 $124
Common and common
equivalent share:
Weighted average common
shares outstanding 6,463 5,830 5,906
Net effect of dilutive
stock options based on
the treasury stock method
using average market price 290 195 278
Weighted average common and
common equivalent shares 6,753 6,025 6,154
Net income per common and
common equivalent share $.70 $.90 $.02
Common share - assuming
full dilution:
Weighted average common
shares outstanding 6,463 5,830 5,906
Net effect of dilutive
stock options based on the
treasury stock method
using the greater of the
average or ending market
price 294 393 270
Weighted average common
shares-assuming full
dilution 6,757 6,223 6,176
Net income per common share
-assuming full dilution $.70 $.87 $.02
</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 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We have issued our report 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, 1997. We hereby consent to the incorporation by
reference of said report in the Registration Statements of
BeautiControl Cosmetics, Inc. of Form S-8, (File Nos. 33-12005, 33-
24363, 33-48626, 33-83500, and 333-17479).
GRANT THORNTON LLP
Dallas, Texas
February 24, 1998<PAGE>
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 January 2, 1998, with
respect to the consolidated financial statements of
BeautiControl Cosmetics, Inc. included in the Annual Report
(Form 10-K) for the year ended November 30, 1997.
ERNST & YOUNG LLP
Dallas, Texas
February 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<CASH> 720
<SECURITIES> 0
<RECEIVABLES> 1361
<ALLOWANCES> 658
<INVENTORY> 12799
<CURRENT-ASSETS> 17225
<PP&E> 23359
<DEPRECIATION> 13731
<TOTAL-ASSETS> 29356
<CURRENT-LIABILITIES> 9834
<BONDS> 0
0
0
<COMMON> 964
<OTHER-SE> 16918
<TOTAL-LIABILITY-AND-EQUITY> 29356
<SALES> 69421
<TOTAL-REVENUES> 69421
<CGS> 19005
<TOTAL-COSTS> 69299
<OTHER-EXPENSES> (276)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 302
<INCOME-PRETAX> 398
<INCOME-TAX> 274
<INCOME-CONTINUING> 124
<DISCONTINUED> 00
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
