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 August 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
incorporation or organization) Identification Number)
2121 Midway, Carrollton, TX 75006
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(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 October 6, 2000.
Common Stock, $0.10 par value, 7,231,448 shares outstanding
<PAGE>
BEAUTICONTROL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART 1. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
Item 3. Qualitative and Quantitative Disclosures About Market Risk 14
PART 2. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
August 31, November 30,
2000 1999
(Unaudited)
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 3,482 $ 1,799
Short-term investments 3,040 3,327
Accounts receivable, net of allowance for doubtful
accounts of $606 and $723 at August 31, 2000 and
November 30, 1999, respectively 876 601
Inventories:
Raw materials 4,304 4,326
Finished goods 5,088 6,214
-------- --------
9,392 10,540
-------- --------
Deferred income taxes 2,481 3,296
Income tax receivables - 222
Other current assets 782 944
-------- --------
Total Current Assets 20,053 20,729
Property and equipment, at cost 25,734 28,815
Less accumulated depreciation and amortization 18,116 17,866
-------- --------
7,618 10,949
Other Assets
Cost in excess of net tangible assets acquired, net
of accumulated amortization of $1,011 and $961 at
August 31, 2000 and November 30, 1999, respectively 1,641 1,690
Other, net of accumulated amortization of $595 and
$585 at August 31, 2000 and November 30, 1999,
respectively 1,779 1,828
-------- --------
Total Assets $ 31,091 $ 35,196
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
August 31, November 30,
2000 1999
(Unaudited)
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade $ 2,088 $ 4,205
Current maturities of long-term debt 3,461 6,365
Accrued commissions and awards 2,190 2,125
Accrued other taxes 1,802 1,590
Accrued liabilities 3,442 3,754
Deferred income 919 1,888
Income tax payable 86 -
-------- --------
Total Current Liabilities 13,988 19,927
Deferred income taxes 193 193
Long-term borrowings 6,121 6,443
Other long-term obligations 64 143
Commitments & Contingencies - -
STOCKHOLDERS' EQUITY
Preferred stock
Authorized - 1,000,000 shares, $ .10 par value
Issued - none - -
Common stock
Authorized - 20,000,000 shares, $ .10 par value
Issued - 10,940,248 shares at August 31, 2000
and November 30, 1999 1,094 1,094
Capital in excess of par value 23,936 23,912
Retained earnings 16,633 14,457
Accumulated other comprehensive income (loss) (33) (68)
-------- --------
41,630 39,395
Less treasury stock, at cost; 3,708,800 shares at
August 31, 2000 and November 30, 1999 30,905 30,905
-------- --------
Total Stockholders' Equity 10,725 8,490
-------- --------
Total Liabilities and Stockholders' Equity $ 31,091 $ 35,196
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
August 31, August 31,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 14,666 $ 16,411 $ 47,844 $ 50,693
Cost of goods sold 3,370 3,982 11,180 11,929
--------- --------- --------- ---------
Gross profit 11,296 12,429 36,664 38,764
Selling expenses 6,067 8,045 19,411 25,565
General and administrative expenses 5,154 6,737 16,061 18,781
--------- --------- --------- ---------
11,221 14,782 35,472 44,346
--------- --------- --------- ---------
Income (loss) from operations 75 (2,353) 1,192 (5,582)
Other income (expense):
Interest income 89 53 297 240
Interest expense (248) (223) (791) (570)
Other, net 303 10 2,611 103
--------- --------- --------- ---------
144 (160) 2,117 (227)
Income (loss) before income taxes 219 (2,513) 3,309 (5,809)
Income taxes (benefit) - (827) 1,123 (1,922)
--------- --------- --------- ---------
Net income (loss) $ 219 $ (1,686) $ 2,186 $ (3,887)
========= ========= =========
Net income (loss) per common share:
Basic $ 0 .03 $ ( 0.23) $ 0.30 $ ( 0.54)
Diluted $ 0 .03 $ ( 0.23) $ 0.30 $ (0.54)
Weighted average common and common
equivalent shares outstanding:
Basic 7,231,448 7,231,448 7,231,448 7,230,791
Diluted 7,299,833 7,231,448 7,268,445 7,230,791
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine months ended
August 31,
2000 1999
------- -------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 971 $ (3,168)
Cash flows from investing activities:
Proceeds from sale of investments 300 9,250
Proceeds from sale of property and equipment 3,850
Purchase of property and equipment (132) (2,471)
Purchase of investments - (6,632)
Other (33) (141)
------- -------
Net cash provided by (used in) investing activities 3,985 6
Cash flows from financing activities:
Proceeds from issuance of common stock - 55
Increase (decrease) in borrowings 38 10,724
Payments on long-term debt (3,222) (7,851)
Principle payments under capital lease obligations (89) (85)
Dividends paid - (2,278
------- -------
Net cash provided by (used in) financing activities (3,273) 565
------- -------
Effect of exchange rate differences on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents 1,683 (2,597)
Cash and cash equivalents at the beginning of the period 1,799 3,165
------- -------
Cash and cash equivalents at the end of the period 3,482 568
======= =======
Supplemental cash flow information:
Income taxes (refund) $ - $ (2,085)
Interest paid 752 600
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
BEAUTICONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables are in thousands, except per share data)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of the Company, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
August 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending November 30, 2000. The accompanying financial
statements include the accounts of BeautiControl, Inc. and all of its
subsidiaries (the "Company"). All significant intercompany accounts and
transactions have been eliminated.
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, 2000.
Certain reclassifications have been made to prior period statements to
conform to the current period presentation.
<PAGE>
NOTE 2 - NET INCOME (LOSS) PER SHARE
<TABLE>
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
Three Months Ended Nine Months Ended
August 31, August 31,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic:
Net income (loss)
available to common
stockholders $ 219 $ (1,686) $ 2,186 $ (3,887)
Weighted average common
shares outstanding 7,231,448 7,231,448 7,231,448 7,230,791
Basis net income (loss)
per share $ 0.03 $ (0.23) $ 0.30 $ (0.30)
Diluted:
Net income (loss)
available to common
stockholders $ 219 $ (1,686) $ 2,186 $ (2,201)
Weighted average common
shares outstanding 7,231,448 7,231,448 7,231,448 7,230,791
Add effect of dilutive
securities:
Employee stock options 68,385 - 36,997 -
Weighted average common
shares outstanding
assuming conversion 7,299,833 7,231,448 7,268,445 7,230,791
Diluted net income (loss)
per share $ 0.03 $ (0.54) $ 0.03 $ (0.54)
</TABLE>
During the third quarter of 2000 and 1999, employees' stock options to
purchase 1,023,350 and 1,225,975 shares of the Company's common stock,
respectively, were excluded from the computation of earnings per share as
their effect would have been antidilutive.
<PAGE>
NOTE 3 - LONG-TERM 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
August 31, 2000, the interest rate was 10%, and the weighted average
interest rate through August 31, 2000 was 10%. At August 31, 2000, the
outstanding principal under the note and security agreement was $3.9
million. This amount includes a $.9 million balance on a fixed note with
monthly principal payments of $27,000 and a $3.0 million balance on a
revolving loan agreement. A balloon payment of $.3 million is due May 4,
2002 on the fixed note. The agreement provides for a maximum credit
availability of $7 million dependent upon the value of the Company's
inventory. At August 31, 2000, the maximum available credit was $3.5
million.
The Company has asset financing in the amount of $5.8 million 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 $48,000. A
balloon payment of $4.4 million is due June 1, 2009. At August 31, 2000,
the outstanding balance was $5.7 million. As part of this arrangement, the
<TABLE>
Company is required to hold a restricted escrow balance of $850,000. Long-
term debt is summarized as follows:
August 31, November 30,
2000 1999
-------- --------
<S> <C> <C>
Three-year note and security agreement $ 870 $ 1,111
Mortgage financing 5,678 5,753
Less current portion 427 421
-------- --------
Total long-term debt $ 6,121 $ 6,443
======== ========
</TABLE>
NOTE 4 - INVENTORIES
<TABLE>
Inventories consist of the following:
August 31, November 30,
2000 1999
-------- --------
<S> <C> <C>
Finished goods $ 9,072 $ 10,407
Raw materials 5,450 5,118
Reserve for obsolescence (5,130) (4,985)
-------- --------
Total inventories $ 9,392 $ 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 non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners.
<TABLE>
The components of comprehensive income (loss) are as follows:
Three Months Ended Nine Months Ended
August 31, August 31,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 219 $ (1,686) $ 2,187 $ (3,887)
Other comprehensive income
(loss):
Change in cumulative
translation adjustment 2 21 18 (32)
Unrealized gains and
losses on investments
in debt securities 22 (13) 8 (56)
Reclassification
adjustment for losses
included in earnings,
net of tax 24 42
------- ------- ------- -------
Comprehensive income (loss) $ 243 $ (1,654) $ 2,213 $ (3,933)
======= ======= ======= =======
</TABLE>
<PAGE>
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:
<TABLE>
Three Months Ended Nine Months Ended
August 31, August 31,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales:
North America $ 14,102 $ 14,657 $ 45,120 $ 46,228
Asia Pacific 494 1,625 2,507 3,894
Eventus 140 325 550 1,160
Intersegment sales (69) (196) (333) (589)
------- ------- ------- -------
Consolidated Net Sales $ 14,667 $ 16,411 $ 47,844 $ 50,693
Income (loss) from
Operations:
North America $ 932 $ (539) $ 3,395 $ 1,585
Asia Pacific (700) (542) (1,662) (1,794)
Eventus (94) (994) (383) (4,224)
Corporate (1) (63) (278) (158) (1,149)
------- ------- ------- -------
Consolidated Income (loss)
from Operations $ 75 $ (2,353) $ 1,192 $ (5,582)
(1) Includes corporate expensed expansion costs.
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 2000 COMPARED TO THREE MONTHS ENDED AUGUST 31,
1999
Net sales. Net sales for the third quarter were $14.7 million in 2000
compared to $16.4 million. The majority of this decrease was due to a
decline in sales for the Asia Pacific and Eventus segments. North America
reported a slight decrease in quarter over quarter sales.
Gross profit. Gross profit margins for the third quarter of 2000 were 77.0%
compared with 75.7% for the third quarter of 1999. The increase in profit
margins is the result of a continuing shift in product mix toward higher
margin glamour and skin care products boosted by the introduction of new
products in August of 2000.
Selling, general and administrative expenses. Selling, general and
administrative expenses as a percent of sales decreased to 76.5% in 2000
from 90.1% in 1999 resulting from the continued trend of decreased costs
in 2000. The Company is continuing to see positive effects from the
reorganization efforts and cost reductions that were implemented at the end
of 1999. Those effects included changes in internal management of the
business, staffing and strategy. In addition, the Company is operating more
efficiently in 2000 due to these changes.
Other income and expense. Other income and expense increased to $.1 million
in the third quarter of 2000 from ($.2) million in the third quarter of 1999
primarily resulting from the sale of a trademark.
Net income. As a result of the above, the net financial results for the
three months ended August 31, 2000 were $.2 million or $.03 per common share
compared to a ($1.7) million net loss or $(.23) loss per share in 1999.
NINE MONTHS ENDED AUGUST 31, 2000 COMPARED TO NINE MONTHS ENDED AUGUST 31,
1999
Net sales. Sales decreased for the first nine months of 2000 to $47.8
million from $50.7 million. The majority of this change resulted from a
decrease in Asia Pacific and Eventus sales. Sales in 1999 for these
segments were positively impacted by grand opening events that were held in
the second quarter to promote the Company's new businesses. Also impacting
2000 sales was a decline in North American sales.
Gross profit. Gross profit margins for the first three-quarters of 2000 were
76.6% compared with 76.5% for the first three quarters of 1999. The slight
increase in profit margins is the result of two offsetting trends. A
positive impact on profit margins is the result of a shift in product mix,
attributable to the introduction of new products in 2000, toward higher
margin skin care and glamour products. The offsetting impact is due to
changes in demonstration kits and the introduction of other new selling aids
initiated by a strategy that includes an emphasis on providing the
Consultants an increased value on selling tools.
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative costs decreased for the first nine months of 2000 to 74.1%
from 87.5% due to reorganization efforts, cost reductions and decreased
expansion and development costs for new businesses.
Other income and expense. Other income and expense increased to $2.1 million
in 2000 from ($.2) million in 2000 primarily resulting from a capital gain
in connection with the sale of an airplane.
Net income. As a result of the above, net financial results during the first
nine months of 2000 were $2.2 million or $.30 per common share compared with
a net loss of ($3.9) million or ($.54) per common share in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $5.3 million to $6.1 million at August 31, 2000
from $.8 million at November 30, 1999. The Company's financial position
strengthened during the first nine months of 2000 with cash and investments
increasing $1.4 million to $6.5 million at August 31, 2000. Items 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,
also 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
August 31, 2000, the interest rate was 10%, and the weighted average
interest rate through August 31, 2000 was 10%. The agreement provides for a
maximum credit availability of $7 million dependent upon the value of the
Company's inventory and that a minimum borrowing level be maintained. At
August 31, 2000, the available credit on the revolving loan agreement was
$3.4 million. At August 31, 2000, the outstanding principal under the note
and security agreement was $3.9 million. This amount includes a $.9 million
balance on a fixed note with monthly principal payments of $27,000 and a $3
million balance on a revolving loan agreement. A balloon payment of $.3
million is due May 4, 2002 on the fixed note.
The Company has asset financing in the amount of $5.8 million 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 $48,000. A
balloon payment of $4.5 million is due June 1, 2009. At August 31, 2000,
the outstanding balance was $5.7 million. As part of his arrangement, the
Company is required to hold a restricted escrow balance of $850,000.
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain statements in ITEM 2. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION" 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: the possible
inability of Tupperware to complete the acquisition of the Company, the
risks and uncertainties associated with integrating the two companies and
retaining key personnel, 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.
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
$3.9 million at August 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 $40,000 annually. At August 31, 2000, the Company also had a ten-
year note with a balance of $5.7 million, which has a fixed interest rate
and is thus not subject to interest rate volatility.
<PAGE>
PART II - OTHER INFORMATION
ITEM 5.
SUBSEQUENT EVENTS
On September 13, 2000, the Company signed a merger agreement with Tupperware
Corporation ("Tupperware"). On September 20, 2000, a subsidiary of
Tupperware set forth a tender offer for all outstanding shares of the
Company's stock for a purchase price of $7.00 per common share. The tender
offer is anticipated to close on October 17, 2000.
Based on the intention of BeautiControl to merge with Tupperware, Sheila
O'Connell Cooper, the Chief Operating Officer and President of
BeautiControl, elected to terminate her employment with BeautiControl
effective September 30, 2000. The employment agreement and related
severance agreement related to this termination resulted in severance
payments of approximately $1.2 million. This severance payment will not be
reflected in the Company's financial statements but will be incorporated
into purchase accounting adjustments to be made upon completion of the
merger.
On October 10, 2000, M. Douglas Tucker, a former employee of the Company,
filed a Plaintiff's Original Complaint and Jury Demand ("Complaint") in the
United States District Court, Northern District of Texas, Dallas Division.
This Complaint alleges age and sex discrimination, breach of contract and
detrimental reliance against BeautiControl Cosmetics, Inc. The relief
sought in the Compliant includes monetary damages totaling no less than $2.5
million and other unspecified amounts relating to benefits and cost of suit.
No assessment of probability regarding the outcome of this complaint can be
determined at this time. However, the Company believes it has meritorious
defenses to, and will vigorously defend against, the allegations. Based
upon opinion of counsel, the Company believes that the outcome of this
litigation will not have a material adverse effect upon the Company's
financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.28 Schedule 14D-9 (Filed with the Securities and Exchange
Commission on September 15, 2000 and incorporated herein by
reference).
27* Financial Data Schedule
* Filed herewith
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
BeautiControl, Inc.
(Registrant)
Date: October 13, 2000 By: /s/ RICHARD W. HEATH
--------------------------
Richard W. Heath
Chief Executive Officer
Date: October 13, 2000 By: /s/ KRISTI L. HUBBARD
---------------------------
Kristi L. Hubbard
Executive Vice President of Finance and Operations
and Chief Financial Officer
