FORM 10-Q
UNITED STATES
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
For the Quarterly Period Ended May 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-14449
BeautiControl, Inc.
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(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
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(Registrant's telephone number including area code)
BeautiControl Cosmetics, Inc.
(Former name)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of July 5, 2000.
Common Stock, $0.10 par value, 7,231,448 shares outstanding
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Index to BeautiControl, Inc. Consolidated Financial Statements
Page
----
Consolidated Balance Sheets 3-4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Notes to Financial Statements 7-10
<PAGE>
<TABLE>
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, November 30,
2000 1999
(Unaudited)
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,558,780 $ 1,799,205
Short-term investments 3,017,325 3,326,704
Accounts receivable-net of
allowance for doubtful accounts of
$618,800 and $722,700 at May 31, 2000
and November 30, 1999, respectively 308,373 601,498
Inventories
Raw materials 4,382,758 4,326,155
Finished goods 5,194,890 6,214,327
---------- ----------
9,577,648 10,540,482
---------- ----------
Deferred income taxes 2,401,471 3,295,872
Income tax receivables - 221,870
Other current assets 791,517 943,865
---------- ----------
Total current assets 19,655,114 20,729,496
PROPERTY AND EQUIPMENT, AT COST 25,675,348 28,814,440
LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION 17,514,935 17,865,734
---------- ----------
8,160,413 10,948,706
OTHER ASSETS
Cost in excess of net tangible
assets, acquired, net of amortization
of $994,200 and $961,100 at May 31,
2000 and November 30, 1999, respectively 1,657,072 1,690,214
Other, net of amortization of $591,500
and $584,900 at May 31, 2000 and
November 30, 1999, respectively 1,755,208 1,827,453
---------- ----------
Total Assets $31,227,807 $35,195,869
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31, November 30,
2000 1999
(Unaudited)
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 2,701,616 $ 4,205,105
Current maturities of long-term debt 3,465,269 6,364,694
Accrued commissions and awards 2,403,239 2,125,410
Accrued other taxes 1,580,823 1,589,935
Accrued liabilities 3,002,408 3,753,523
Deferred income 1,075,821 1,888,139
Income tax payable 6,335 -
---------- ----------
Total current liabilities 14,235,511 19,926,806
DEFERRED INCOME TAXES 193,211 193,211
LONGTERM BORROWINGS 6,228,714 6,442,662
OTHER LONG-TERM OBLIGATIONS 96,401 143,188
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 - 10,940,248 shares at
May 31, 2000 and November 30, 1999 1,094,025 1,094,025
Capital in excess of par value 23,928,011 23,912,573
Retained earnings 16,422,807 14,456,745
Accumulated other comprehensive income (loss) (65,679) (68,147)
---------- ----------
41,379,164 39,395,196
Less cost of 3,708,800 common shares held
in treasury at May 31, 2000 and
November 30, 1999 30,905,194 30,905,194
---------- ----------
10,473,970 8,490,002
---------- ----------
Total liabilities and stockholders' equity $31,227,807 $35,195,869
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
May 31, May 31, May 31, May 31,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $17,239,526 $17,473,860 $33,176,951 $34,281,995
Cost of goods sold 4,068,848 3,866,433 7,809,802 7,946,460
---------- ---------- ---------- ----------
Gross profit 13,170,678 13,607,427 25,367,149 26,335,535
Selling expenses 6,520,601 8,839,627 13,343,711 17,519,885
General and
administrative
expenses 5,509,958 6,805,903 10,906,631 12,044,308
---------- ---------- ---------- ----------
12,030,559 15,645,530 24,250,342 29,564,193
---------- ---------- ---------- ----------
Income (loss)
from operations 1,140,119 (2,038,103) 1,116,807 (3,228,658)
Other income and
expenses
Interest income 91,264 91,662 207,776 186,914
Interest expense (226,081) (159,233) (543,377) (346,479)
Other, net (20,466) 76,845 2,308,705 92,704
---------- ---------- ---------- ----------
(155,283) 9,274 1,973,104 (66,861)
---------- ---------- ---------- ----------
Income (loss)
before income taxes 984,836 (2,028,829) 3,089,911 (3,295,519)
Income taxes (benefit) - (677,845) 1,122,606 (1,095,014)
---------- ---------- ---------- ----------
Net income (loss) $984,836 ($1,350,984) $1,967,305 ($2,200,505)
========== ========== ========== ==========
Net income (loss) per
common share - basic $0.14 ($0.19) $0.27 ($0.30)
Weighted average
common shares - basic 7,231,448 7,231,448 7,231,448 7,230,459
Net income (loss)
per common share -
assuming dilution $0.14 ($0.19) $0.27 ($0.30)
Weighted average
common and common
equivalent shares
- assuming dilution 7,278,763 7,231,448 7,255,321 7,230,459
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Six Months Ended
May 31, May 31,
2000 1999
---------- ----------
<S> <C> <C>
Net cash provided by (used in)
operating activities $ 855,797 ($2,435,196)
Cash flows from investing activities:
Proceeds from sale of investments 300,000 4,570,000
Proceeds from sale of property and equipment 3,850,000 -
Purchase of property and equipment (73,323) (1,850,047)
Purchase of investments - (699,921)
Increase in other assets (28,098) (130,082)
---------- ----------
Net cash provided by (used in)
Investing activities 4,048,579 1,889,950
Cash flows from financing activities:
Proceeds from issuance of common stock - 55,001
Increase (decrease) in borrowings 31,323 11,269,550
Payments on long-term debt (3,117,300) (7,682,287)
Principal payments under capital lease
obligation (58,824) (56,284)
Dividends paid - (1,518,605)
---------- ----------
Net cash provided by (used in) financing
activities (3,144,801) 2,067,375
---------- ----------
Net increase (decrease) in cash and cash
equivalents 1,759,575 1,522,129
Cash and cash equivalents at the beginning of
the period 1,799,205 3,164,573
---------- ----------
Cash and cash equivalents at the end of the
period 3,558,780 4,686,702
========== ==========
Supplemental cash flow information:
Income tax refund - ($690,000)
Interest paid 518,000 347,000
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
BEAUTICONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTERS ENDED May 31, 2000 AND May 31, 1999
(dollars in tables are in thousands, except per share data)
Note 1 - Basis of Presentation
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial position as of May
31, 2000 and November 30, 1999 and the results of operations and cash flows
for the six months ended May 31, 2000 and May 31, 1999. The results for the
three and six month periods ended May 31, 2000 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, 1999.
Certain amounts for prior periods may have been reclassified to conform to
current period presentation.
Note 2 - Earnings Per Share
<TABLE>
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
Three Months Ended Six Months Ended
------------------ ----------------
May 31, May 31, May 31, May 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and
diluted earnings per
share-income (loss) available to
common stockholders $985 ($1,351) $1,967 ($2,201)
Denominator:
Denominator for basic earnings per
share-weighted-average shares 7,231,448 7,231,448 7,231,448 7,230,459
Effect of dilutive securities:
Employee stock options 47,315 - 23,873 -
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 7,278,763 7,231,448 7,255,321 7,230,459
Basic net income (loss) per share $0.14 ($0.19) $0.27 ($0.30)
Diluted net income (loss) per share $0.14 ($0.19) $0.27 ($0.30)
</TABLE>
<PAGE>
During the second quarter of 2000 and 1999, employees' stock options to
purchase 1,661,000 and 1,209,975 shares of the Company's common stock,
respectively, were excluded from the computation of earnings per share as
their effect would have been antidilutive.
Note 3 - Debt
The Company has a three-year note and security agreement secured by certain
assets of the Company bearing interest at the prime rate plus .5%. As of May
31, 2000, the interest rate was 10%, and the weighted average interest rate
through May 31, 2000 was 9.53%. At May 31, 2000, the outstanding principal
under the note and security agreement was $3,990,300. This amount includes a
$950,000 balance on a fixed note with monthly principal payments of $26,749
and a $3,040,300 balance on a revolving loan agreement. A balloon payment
of $308,000 is due May 4, 2002 on the fixed note. The agreement provides for
a maximum credit availability of $7,000,000 dependent upon the value of the
Company's inventory. At May 31, 2000, the available credit on the revolving
loan agreement was $3,375,800.
The Company has asset financing in the amount of $5,800,000 secured by
certain real estate. The note is a ten-year note bearing a fixed interest
rate of 8.33% with monthly payments of principal and interest of $47,988. A
balloon payment of $4,378,000 is due June 1, 2009. At May 31, 2000, the
outstanding balance was $5,703,700. As part of this arrangement, the
Company is required to hold a restricted escrow balance of $850,000. Long-
term debt is summarized as follows:
<TABLE>
May 31, November 30,
2000 1999
------ ------
<S> <C> <C>
Three-year note and
security agreement $950 $1,111
Mortgage financing 5,704 5,753
Less current portion 425 421
------ ------
Total long-term debt $6,229 $6,443
====== ======
</TABLE>
Note 4 - Inventories
<TABLE>
Inventories consist of the following:
May 31, November 30,
2000 1999
------ -------
<S> <C> <C>
Finished Goods $9,287 $10,407
Raw Materials 5,571 5,118
Reserve for Obsolescence (5,280) (4,985)
------ -------
Total $9,578 $10,540
====== =======
</TABLE>
<PAGE>
Note 5 - Comprehensive Income
Comprehensive Income is accounted for under the provisions of Financial
Accounting Standards No. 130. 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. The components of
comprehensive income are as follows:
<TABLE>
Three Months Ended Six Months Ended
May 31, May 31,
2000 1999 2000 1999
----- ------ ----- ------
<S> <C> <C> <C> <C>
Net income (loss) $985 ($1,351) $1,967 ($2,201)
Other comprehensive
income (loss):
Change in cumulative
translation Adjustment 35 (22) 16 (52)
Unrealized gains and
losses on investments
in debt securities (6) (3) (13) (43)
----- ------ ----- ------
Comprehensive income (loss) $1,014 ($1,376) $1,970 ($2,296)
===== ====== ===== ======
</TABLE>
Note 6 - Segment Reporting
The Company's operating segments are based primarily on geographic areas
with the exception of the Company's subsidiary Eventus International, Inc.
Geographic areas include North America and Asia Pacific. The Company's
North America and Asia Pacific segments sell skin care, cosmetic products,
image accessories and health and beauty supplements. The Eventus segment
sells nutritional and drink supplements. Products are sold to customers
through independent sales Consultants or Distributors. The Company
evaluates segment performance based on operating profit or loss with all
intersegment transactions eliminated. The following table summarizes
financial information related to the Company's segments:
<PAGE>
<TABLE>
Three Months Ended Six Months Ended
May 31, May 31,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Sales:
North America $16,351 $15,754 $31,018 $31,571
Asia Pacific 855 1,380 2,013 2,269
Eventus 183 504 410 835
Eliminations - Intersegment
sales (149) (164) (264) (393)
------ ------ ------ ------
Consolidated Net Sales $17,240 $17,474 $33,177 $34,282
Income (loss) from Operations:
North America $1,864 $323 $2,463 $2,124
Asia Pacific (504) (689) (962) (1,252)
Eventus (178) (1,224) (289) (3,230)
Corporate (1) (42) (448) (95) (871)
------ ------ ------ ------
Consolidated Income (loss)
from operations $1,140 ($2,038) $1,117 ($3,229)
====== ====== ====== ======
(1) Includes corporate expensed expansion costs.
</TABLE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Quarters Ended May 31, 2000 and May 31, 1999
Net sales for the second quarter were $17,239,526 in 2000 compared to
$17,473,860 in 1999. Second quarter 2000 results included a 4% increase in
North America sales. The Company's other segments reported a decline in
sales in quarter over quarter sales. This was partially impacted by the
grand opening events that were held in 1999 to promote the Company's new
businesses.
Gross profit margins for the second quarter of 2000 were 76.4% compared with
77.9% for the second quarter of 1999. The decrease in profit margins is a
result of changes to demonstration kits and the introduction of other new
selling aids designed to provide the Consultants affordable tools to support
and grow their businesses. The margins on demonstration kits were further
impacted by a recruiting drive in March and April of 2000. This impact was
slightly lessened by an increase in the sales of higher margin skin care
products initiated by the introduction of new products in January and March
of 2000.
<PAGE>
Selling, general and administrative expenses as a percent of sales decreased
to 69.8% in 2000 from 89.5% in 1999. Overall, costs decreased 23% in the
second quarter of 2000. This was largely due to the reorganization efforts
and cost reductions that were implemented at the end of 1999, which included
changes in the internal management of the business, strategy and staffing.
Also impacting 2000 costs were increased efficiencies and a reduction in
new business expansion costs . In the second quarter of 1999, the Company
incurred a significant increase in costs for continued development and grand
opening events for the Company's two new businesses.
Other income and expense decreased to ($155,283) in the second quarter of
2000 from $9,274 in the second quarter of 1999 primarily resulting from
increased interest expense.
Net income increased to $984,836 in the second quarter of 2000 compared to
($1,350,984) in the second quarter of 1999 resulting from an increase in
North America sales and a decrease in selling, general and administrative
costs . North American sales provide the majority of the Company's sales
contribution.
Six months ended May 31, 2000 and May 31, 1999
Sales decreased for the first six months of 2000 to $33,176,951 from
$34,281,995 primarily resulting from a decrease in Asia Pacific and Eventus
sales. During 1999 sales for these segments were favorably impacted by
grand opening events to promote the Company's new businesses. The Company
believes the businesses in both of these segments is viable and continues to
evaluate marketing strategies for them.
Gross profit margins for the first half of 2000 were 76.5% compared with
76.8% for the first half of 1999. The modest change in profit margins is
the result of two partially offsetting trends. A positive effect on profit
margins results from a shift in product mix toward higher margin skin care
products. Increased sales are attributable to the introduction of new
products in 2000. The offsetting trend is the result of a strategy that
includes an emphasis on providing the Consultants an increased value on
demonstration kits and other selling tools.
Selling, general and administrative costs decreased for the first six months
of 2000 to 73.1% from 86.2% in 1999 due to reorganization efforts and
efficiencies discussed above.
Other income and expense increased to $1,973,104 in 2000 from ($66,861) in
1999 resulting from a capital gain in connection with the sale of an
airplane.
As a result of the above, net financial results during the first six months
of 2000 were $1,967,305 or $.27 per common share compared with a net loss of
($2,200,505) or ($.30) per common share in 1999.
<PAGE>
Liquidity and Capital Resources
Working capital increased $4,616,913 to $5,419,603 at May 31, 2000 from
$802,690 at November 30, 1999. The Company's financial position
strengthened during the first six months of 2000 with cash and investments
increasing $1,450,196 to $6,576,105 at May 31, 2000. Increases to working
capital were the result of an increase in cash provided from operations. In
addition, during the first quarter of 2000, the Company sold an airplane,
which was securing a term loan, and used a portion of the proceeds to pay
down the balance of that loan in the amount of $2,864,200 including
principal and accrued interest. Also affecting working capital were
decreases in trade accounts payable and various accrued liabilities, which
include severance costs, commissions, and property taxes. Deferred income,
composed primarily of orders received but not yet shipped, decreased due to
timing of the shipment of these orders.
The Company has a three-year note and security agreement secured by certain
assets of the Company bearing interest at the prime rate plus .5%. As of May
31, 2000, the interest rate was 10%, and the weighted average interest rate
through May 31, 2000 was 9.53%. The agreement provides for a maximum credit
availability of $7,000,000 dependent upon the value of the Company's
inventory and that a minimum borrowing level be maintained. At May 31, 2000,
the available credit on the revolving loan agreement was $3,375,800. At May
31, 2000, the outstanding principal under the note and security agreement
was $3,990,300. This amount includes a $950,000 balance on a fixed note with
monthly principal payments of $26,749 and a $3,040,300 balance on a
revolving loan agreement. A balloon payment of $308,000 is due May 4, 2002
on the fixed note.
The Company's credit facility, which is secured in part by the Company's
inventory, contains a requirement that the Company borrow a minimum amount
against inventory. As a result of the Company's recent efforts to reduce
inventory in order to maximize working capital, and as a result of inventory
reclassifications which the Company and its lender expect to make, it is
probable that the inventory value will not support borrowings at least equal
to the minimum borrowing requirement. These inventory reclassifications
could require the Company to reimburse the lender for any overadvancement on
the loan. The Company believes it has sufficient cash balances available to
do this and meet its future working capital needs. The Company believes the
minimum borrowing requirement no longer is reflective of its borrowing needs
as its cash position has strengthened and that an adjustment to the minimum-
borrowing requirement through potential amendment to or renegotiation of the
Agreement would not have a material adverse impact on the Company. Initial
discussions with the lender lead the Company to believe the ability to
obtain an amendment to the Agreement would be possible. However, if this
inability to borrow to the required minimum were to occur, the Company
will technically be in violation of its credit facility agreement,
and the Company can provide no assurance that the credit facility can be
successfully amended or renegotiated. In that case, the Company may be
required to seek alternative financing. In any case, the Company believes
it has sufficient cash balances to meet its working capital needs for the
immediate future.
The Company has asset financing in the amount of $5,800,000 secured by
certain real estate. The note is a ten-year note bearing a fixed interest
rate of 8.33% with monthly payments of principal and interest of $47,988. A
balloon payment of $4,378,000 is due June 1, 2009. At May 31, 2000, the
outstanding balance was $5,703,700. As part of this arrangement, the
Company is required to hold a restricted escrow balance of $850,000.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has not been a material change in the Company's exposure to interest
rate risk on investments and foreign currency rate changes since November
30, 1999. Changes to market risk as it relates to interest rate changes on
the Company's financing activities has been minimal. The Company currently
has a three-year note and security agreement with an outstanding balance of
$3,990,300 at May 31, 2000 that may be subject to market risk if there were
to be interest rate changes. The current borrowing under the facility is at
10%. If the rate were to increase to 11% and the amount outstanding
remained the same, incremental interest expense would reduce earnings before
taxes by $39,903 annually. At May 31, 2000, the Company also had a ten-year
note with a balance of $5,703,700, which has a fixed interest rate and is
thus not subject to interest rate volatility.
Cautionary Statement for Purposes of Forward-Looking Statements
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
forward-looking statements include, but are not limited to the following:
Consultants' (or Distributors') sales activity levels, recruiting of new
Consultants and Distributors, services of or changes in certain members of
senior management, new product introductions, protection of intellectual
property rights and third party infringement, changes in U.S. or
international economic conditions, results of international operations
including governmental, regulatory, political and foreign exchange rate
impacts, results of operations in new markets, global and domestic expansion
efforts, capital resources and ability to obtain necessary financing and
market risk.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<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, Inc.
(Registrant)
Date: 7/14/00 /s/ RICHARD W. HEATH
Richard W. Heath
Chairman of the Executive
Committee and Chief Executive Officer
Date: 7/14/00 /s/ SHEILA O'CONNELL COOPER
Sheila O'Connell Cooper
President & Chief Operating Officer
Date: 7/14/00 /s/ KRISTI L. HUBBARD
Kristi L. Hubbard
Senior Vice President -
Chief Financial Officer
& Principle Financial Officer
