<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 26, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________________ to _______________
Commission file number 0-14756
THE COSMETIC CENTER, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1266697
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8700 ROBERT FULTON DRIVE,
COLUMBIA, MARYLAND 21046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 410-309-4600
8839 Greenwood Place, Savage, Maryland 20763
--------------------------------------------
Former Address if Changed Since Last Report
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 ___
As of October 15, 1997, 10,015,101 shares of Class C Common Stock, par value
$.01 per share, and no shares of Class A Common Stock, par value $.01 per
share, or Class B Common Stock, par value $.01 per share, were outstanding.
Total Pages - 12
<PAGE>
THE COSMETIC CENTER, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 31,
ASSETS 1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 3,591 $ 3,479
Accounts receivable, net ................................... 1,321 -
Inventories ................................................ 89,935 31,713
Deferred tax assets ........................................ 2,879 -
Prepaid expenses and other ................................. 1,332 773
--------- ---------
Total current assets ..................................... 99,058 35,965
Property and equipment, net ...................................... 14,625 7,616
Other assets ..................................................... 1,116 589
Intangible assets related to businesses acquired, net ............ 5,890 1,451
--------- ---------
Total assets ............................................. $ 120,689 $ 45,621
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 24,925 $ 2,242
Accrued expenses and other ................................. 9,812 2,385
--------- ---------
Total current liabilities .............................. 34,737 4,627
Note payable - parent ............................................ 13,255 -
Due to parent .................................................... - 12,315
Long-term debt ................................................... 37,423 -
Other long-term liabilities ...................................... 5,266 -
Stockholders' equity:
Common stock, $1.00 par value; 1,000 shares authorized;
1 share issued and outstanding prior to the Merger ...... -- --
Class A common stock, $.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding ............ -- --
Class B common stock, $.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding ............ -- --
Class C common stock, $.01 par value; 40,000,000 shares
authorized; 10,015,101 shares issued and outstanding .... 100 --
Additional paid in capital ................................. 39,068 28,536
Retained earnings (deficit) ................................ (9,160) 143
--------- ---------
Total stockholders' equity ............................... 30,008 28,679
--------- ---------
Total liabilities and stockholders' equity ............... $ 120,689 $ 45,621
========= =========
</TABLE>
See Notes to Unaudited Condensed Financial Statements
2
<PAGE>
THE COSMETIC CENTER, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPT. 26, SEPT. 30, SEPT. 26, SEPT. 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ................................................ $ 45,355 $ 19,996 $ 94,687 $ 48,970
------------ ------------ ------------ ------------
Cost of sales including buying, occupancy and distribution 32,250 12,824 65,908 32,150
Selling, general and administrative expenses ............. 13,330 6,300 31,732 19,517
Business consolidation costs ............................. -- -- 4,000 --
------------ ------------ ------------ ------------
Operating expenses ....................................... 45,580 19,124 101,640 51,667
------------ ------------ ------------ ------------
(Loss) income from operations ............................ (225) 872 (6,953) (2,697)
Interest expense ......................................... (1,120) (308) (2,292) (699)
Other income (expense), net .............................. 26 -- (38) --
------------ ------------ ------------ ------------
(Loss) income before income taxes ........................ (1,319) 564 (9,283) (3,396)
Provision for income taxes ............................... -- 15 20 45
------------ ------------ ------------ ------------
Net (loss) income ........................................ $ (1,319) $ 549 $ (9,303) $ (3,441)
============ ============ ============ ============
Net (loss) income per common share ....................... $ (0.13) $ 0.06 $ (1.00) $ (0.41)
============ ============ ============ ============
Weighted average shares outstanding ...................... 10,015,101 8,479,335 9,345,665 8,479,335
============ ============ ============ ============
</TABLE>
See Notes to Unaudited Condensed Financial Statements.
3
<PAGE>
THE COSMETIC CENTER, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
SEPT. 26, SEPT. 30,
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................. ($ 9,303) ($ 3,441)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization .......................................... 2,839 1,539
Change in assets and liabilities, net of aquired assets and liabilities:
Increase in accounts receivable, net ................................ (194) --
Increase in inventories ............................................. (5,902) (4,795)
Decrease in prepaid expenses and other current assets ............... 819 72
Decrease in other assets ............................................ 804 --
Increase in accounts payable ........................................ 11,324 1,955
Increase (decrease) in accrued expenses and other ................... 1,340 (76)
Decrease in other long-term liabilities ............................. (2,480) --
-------- --------
Net cash used for operating activities ................................... (753) (4,746)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................................................... (3,463) (2,804)
Acquisition of business, net of cash acquired ............................ (19,883) --
-------- --------
Net cash used for investing activities ................................... (23,346) (2,804)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under long-term debt ...................................... 23,271 --
Increase in due to parent ................................................ 940 6,769
-------- --------
Net cash provided by financing activities ................................ 24,211 6,769
-------- --------
Net increase (decrease) in cash and cash equivalents ..................... 112 (781)
Cash and cash equivalents at beginning of period ......................... 3,479 3,421
Cash and cash equivalents at end of period ............................... $ 3,591 $ 2,640
======== ========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ............................................................ $ 1,356 --
Income taxes, net of refunds ........................................ 36 --
</TABLE>
See Notes to Unaudited Condensed Financial Statements.
4
<PAGE>
THE COSMETIC CENTER, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Cosmetic Center, Inc. (the "Company") is an approximately 85% owned
subsidiary of Revlon Consumer Products Corporation ("RCPC" and together with
its subsidiaries, "Products Corporation"), which is a direct wholly owned
subsidiary of Revlon, Inc.
On April 25, 1997, Prestige Fragrance & Cosmetics, Inc. ("PFC"), then a
wholly owned subsidiary of RCPC, merged with and into The Cosmetic Center,
Inc. (prior to the merger, "CCI"), with the Company being the surviving
corporation (the "Merger"). The Merger has been accounted for as a reverse
acquisition using the purchase method of accounting, and PFC is considered to
be the acquiring entity and CCI the acquired entity for accounting purposes,
even though the Company is the surviving legal entity. The historical
financial statements of the Company for the period prior to the Merger include
the results of operations of PFC only, and for the period subsequent to the
Merger include the results of operations of both entities. As a result of the
Merger, the Company changed its fiscal year to a 52- or 53-week year ending on
or about December 31. See Note 3.
The accompanying Condensed Financial Statements are unaudited. In
management's opinion, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation have been made.
In the Unaudited Condensed Financial Statements, the Company has made a
number of estimates and assumptions relating to the assets and liabilities,
the disclosure of contingent assets and liabilities and the reporting of
revenues and expenses to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
The results of operations and financial position, including working
capital, for interim periods are not necessarily indicative of results to be
expected for a full year, due, in part, to seasonal fluctuations, which are
normal for the Company's business.
Merchandise Inventories
The Company's inventories, consisting primarily of cosmetics, fragrances,
hair and personal care products and related items, are valued at the lower of
cost or market. Cost is determined using the weighted average cost method.
Rental Expenses
Certain store leases provide for minimum rentals plus additional rentals
computed as a percentage of net sales in excess of amounts specified in the
applicable lease as minimum rentals. The Company accrues percentage rent
expense during interim periods based on actual net sales in excess of the
prorated annual amounts specified in the related lease.
5
<PAGE>
THE COSMETIC CENTER, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(2) NET (LOSS) INCOME PER SHARE
Net (loss) income per common share is computed by dividing net loss by the
weighted average number of common and, when dilutive, common equivalent shares
outstanding. Weighted average shares outstanding is computed assuming that the
8,479,335 shares of Class C Common Stock that RCPC received in exchange for
its one share of PFC stock were outstanding and owned by RCPC for all periods
prior to the Merger. Immediately after the Merger, the number of shares
outstanding was 10,015,101. Stock options are the only common share
equivalents. There is no material difference between primary and fully diluted
loss per share.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
establishes a new standard for computing and presenting earnings per share.
SFAS No. 128 will be effective for interim and annual financial statements
issued after December 15, 1997. The Company does not believe that the adoption
of SFAS No. 128 will have a material impact on the Company's reported earnings
per share.
(3) THE MERGER
On April 25, 1997, pursuant to the Agreement and Plan of Merger among CCI,
RCPC and PFC dated as of November 27, 1996 and amended as of February 20, 1997
and March 20, 1997 (the "Merger Agreement"), the Company consummated the
previously announced merger of PFC with and into CCI, with the Company
surviving the Merger. Pursuant to the Merger, RCPC received 8,479,335 shares
of the Company's newly issued Class C Common Stock, par value $.01 per share
(the "Class C Common Stock"), the only class of the Company's stock
outstanding after the Merger, in exchange for its one share of PFC stock
outstanding prior to the Merger. As a result of the Merger, CCI's stockholders
were entitled to receive, for each share of Class A Common Stock or Class B
Common Stock held, one share of newly issued Class C Common Stock or, at each
stockholder's election and subject to the limitation discussed below, $7.63 in
cash (the "Cash Election"). Holders of options to purchase CCI's Class A
Common Stock or Class B Common Stock with an exercise price of less than $7.63
were entitled to receive for each such option they held an equivalent option
to purchase Class C Common Stock or, at each such optionholder's election and
subject to the limitation discussed below, cash equal to the difference
between $7.63 and the exercise price per share of such options. The right of
stockholders and optionholders to receive cash was limited to an aggregate of
2,829,065 shares and options for shares. Holders of 3,688,440 shares of Class
A Common Stock and Class B Common Stock in the aggregate and 86,500 options
exercised their Cash Election so that after proration 2,764,116 shares of
Class A Common Stock and Class B Common Stock in the aggregate were accepted
for Cash Election. The number of shares of Class C Common Stock owned by RCPC
after the Merger constitutes approximately 85% of the outstanding Class C
Common Stock after giving effect to the Cash Election.
6
<PAGE>
THE COSMETIC CENTER, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Merger is being accounted for as a reverse acquisition using the
purchase method of accounting with RCPC effectively acquiring approximately
85% of CCI for a deemed purchase price of approximately $27.9 million. This
amount was allocated to the assets of CCI acquired and liabilities of CCI
assumed, to the extent of RCPC's ownership interest, based upon their
preliminary estimated fair values. A total of $4.5 million, representing the
excess of acquisition cost over fair value of CCI's net tangible assets, has
been allocated to goodwill and is being amortized over 40 years. The deemed
purchase price (in millions) has been allocated to CCI's assets and
liabilities as follows:
<TABLE>
<S> <C>
Inventory $ 52.3
Property and equipment, net 6.3
Goodwill 4.5
Accounts payable and accrued liabilities (24.3)
Long-term debt (14.2)
Other, net 3.2
--------
Purchase price $ 27.9
========
</TABLE>
Pro Forma Results of Operations
The Company's results of operations have incorporated CCI's results of
operations commencing upon the effective date of the Merger. The summary pro
forma information below combines the actual results of each of CCI and PFC for
the period from January 1, 1997 to the effective date of the Merger and the
actual results of the Company from the effective date of the Merger to
September 26, 1997, and, for the period from January 1, 1997 to the effective
date of the Merger, reflects the increased amortization of goodwill, increased
interest expense and certain income tax adjustments related to the Merger and
the Cash Election that would have been incurred had the Merger and the Cash
Election occurred on January 1, 1997. The summary pro forma information (in
millions, except per share amount) is not necessarily indicative of the
results of operations of the Company had the Merger and the Cash Election
occurred at January 1, 1997, nor is it necessarily indicative of future
results.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 26, 1997
<S> <C>
Sales $ 130.3
Operating loss (9.1)
Net loss $ (12.5)
==========
Net loss per common share $ (1.24)
==========
</TABLE>
(4) LONG - TERM DEBT
In connection with the Merger, on April 25, 1997 the Company entered into a
loan and security agreement (the "New Facility") and paid the then outstanding
balance of $14.0 million on the previous credit facility of CCI (the "Former
Facility") with borrowings under the New Facility. On April 28, 1997, the
Company used approximately $21.2 million of borrowings under the New Facility
to fund the Cash Election associated with the Merger. The New Facility, which
expires on April 30, 1999, provides up to $70 million of revolving credit tied
to a borrowing base of 65% of eligible inventory, as defined in the New
Facility. Borrowings under the New Facility are collateralized by the
Company's accounts receivable and inventory (and proceeds therefrom). Under
the New Facility, the Company may borrow at its option at LIBOR plus 2.25% or
at the bank's prime rate plus 0.5%. The Company also pays a commitment fee
equal to one-quarter of one percent per annum. Interest is payable on a
monthly basis except for interest on LIBOR rate loans with a maturity of less
than three months, which is payable at the end of the LIBOR rate loan period
and interest on LIBOR rate loans with a maturity of more than three months,
7
<PAGE>
THE COSMETIC CENTER, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
which is payable every three months. If the Company terminates the New
Facility, the Company is obligated to pay a prepayment penalty of $700,000 if
the termination occurs before the first anniversary date of the New Facility
and $175,000 if the termination occurs after the first anniversary date. The
New Facility contains various restrictive covenants and requires the Company
to maintain a minimum tangible net worth and a minimum interest coverage
ratio.
(5) BUSINESS CONSOLIDATION
As a result of the Merger, the Company incurred business consolidation
costs of approximately $4.0 million in connection with the consolidation of
certain warehouse, distribution and headquarters operations of PFC into the
Company. As of September 26, 1997, the balance of the business consolidation
liability was approximately $1.5 million, which consisted of $1.0 million in
accrued expenses and $0.5 million in other long-term liabilities.
(6) SUBSEQUENT EVENTS
On October 9, 1997, the Company executed an agreement pursuant to which the
Company sold its wholesale customer list in return for a percentage of the net
sales made to customers on such list during the next three years.
On October 13, 1997, the Company entered into an agreement with Creative
Hairdressers, Inc., a privately held hair salon operator ("Distributor"),
pursuant to which Distributor will provide at cost all of the Company's
requirements of professional hair care products for sale in its retail stores.
In consideration for this distribution arrangement, the Company will allow the
Distributor to operate hair salons within its retail stores and will share
the gross profits on all professional hair care product sales with
Distributor.
8
<PAGE>
THE COSMETIC CENTER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BASIS OF PRESENTATION
As described in Note 1 to the Unaudited Condensed Financial Statements, the
Merger has been accounted for as a reverse acquisition, pursuant to which PFC
is considered to be the acquiring entity and CCI the acquired entity for
accounting purposes, even though the Company is the surviving legal entity. As
a result, the financial statements of the Company include PFC results of
operations in all periods presented and CCI results of operations from
April 25, 1997, the date of the Merger. The following discussion and analysis
should be read in conjunction with the Unaudited Condensed Financial
Statements and notes thereto included herein.
GENERAL
At September 26, 1997, the Company operated 198 outlet stores and 64 retail
stores in 43 states. The outlet stores offer a wide range of first quality,
first quality excess, returned and refurbished, and discontinued brand name
cosmetics, fragrances and personal care products at discounted prices. The
outlet stores are generally located in outlet malls and operate under the
names "Prestige Fragrance & Cosmetics," "Colours & Scents," "Visage" and "The
Cosmetic Warehouse," with seven stores operated principally for employees of
Products Corporation. The retail stores are generally located in strip malls
under the name "The Cosmetic Center(R)" located in the greater metropolitan
market areas of Washington, D.C.; Richmond, Virginia; Baltimore, Maryland;
Chicago, Illinois; Charlotte/Raleigh/Durham, North Carolina; and Philadelphia,
Pennsylvania and sell approximately 25,000 brand name prestige and
mass-merchandised cosmetic products. The Company also has full service salons,
offering hair cutting, coloring and styling and manicure services in 59 of
these retail stores.
RESULTS OF OPERATIONS
Net sales for the three months ended September 26, 1997 were $45.4 million,
an increase of $25.4 million, or 127%, from the $20.0 million in net sales for
the three months ended September 30, 1996. Net sales for the nine months ended
September 26, 1997 were $94.7 million, an increase of $45.7 million, or 93.4%,
from the $49.0 million in net sales for the nine months ended September 30,
1996. The increases in net sales are primarily attributable to the acquisition
of CCI, which contributed approximately $28.2 million and $49.6 in net sales
for the three and nine months ended September 26, 1997, respectively, and were
partially offset by a decline in PFC comparable store sales primarily due to
disruptions experienced in the distribution and warehouse consolidation and in
the post - Merger transition and the impact of the UPS strike during August
1997. The Company operated 262 stores at September 26, 1997 and 190 stores at
September 30, 1996. Excluding the CCI stores acquired in the Merger, PFC
comparable store sales for the three months ended September 26, 1997 declined
to $16.1 million from $19.7 million for the three months ended September 30,
1996 and comparable store sales for the nine months ended September 26, 1997
declined to $42.1 million from $47.9 million for the nine months ended
September 30, 1996 for the reasons stated above.
Cost of sales, including buying, occupancy and distribution expenses
("COS"), was $32.3 million (71.1% of net sales) for the three months ended
September 26, 1997 compared to $12.8 million (64.1% of net sales) for the
three months ended September 30, 1996 and $65.9 million (69.6% of net sales)
for the nine months ended September 26, 1997 compared to $32.2 million (65.7%
of net sales) for the nine months ended September 30, 1996. COS as a
percentage of net sales for the three months and nine months ended September
26, 1997 increased primarily as a result of higher COS in the CCI stores
included from the date of the Merger associated with the product mix in such
stores.
Selling, general and administrative ("SG&A") expenses were $13.3 million
(29.4% of net sales) for the three months ended September 26, 1997 compared to
$6.3 million (31.5% of net sales) for the three months ended September 30,
1996 and $31.7 million (33.5% of net sales) for the nine months ended
September 26, 1997 compared to $19.5 million (39.9% of net sales) for the nine
months ended September 30, 1996. SG&A expenses as
9
<PAGE>
THE COSMETIC CENTER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
a percentage of net sales decreased in the three months and nine months ended
September 26, 1997, primarily due to the benefit of certain synergies achieved
as a result of the consolidation of the CCI and PFC operations.
In the quarter ended June 27, 1997, the Company incurred business
consolidation costs of $4.0 million in connection with the consolidation of
certain warehouse, distribution and headquarters operations of PFC into the
Company.
Interest expense was $1.1 million for the three months ended September 26,
1997 compared to $0.3 million for the three months ended September 30, 1996
and $2.3 million for the nine months ended September 26, 1997 compared to $0.7
million for the nine months ended September 30, 1996. The increase in interest
expense for the 1997 periods is primarily attributable to higher outstanding
borrowings as a result of the Cash Election and the repayment of the Former
Facility.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $0.8 million for the nine months
ended September 26, 1997 and $4.7 million for the nine months ended September
30, 1996. The decrease in cash used for operating activities resulted
primarily from improved working capital management. Net cash used for
investing activities was $23.3 million for the nine months ended September 26,
1997 and $2.8 million for the nine months ended September 30, 1996. The
increase in cash used for investing activities was due primarily to the Cash
Election in connection with the Merger. Net cash provided by financing
activities was $24.2 million for the nine months ended September 26, 1997
compared to $6.8 million for the nine months ended September 30, 1996. The
increase in cash provided by financing activities in the 1997 period resulted
primarily from borrowings under the New Facility to fund the Cash Election and
repay the Former Facility.
On April 25, 1997, pursuant to the Merger Agreement, the Company
consummated the merger of PFC, then a wholly owned subsidiary of RCPC, with
and into CCI, with the Company surviving the Merger. See Note 3 to the
Company's Unaudited Condensed Financial Statements.
The Company expects that its future cash needs will result primarily from
the cash required in connection with the payment of costs and expenses
associated with the Merger, costs to integrate the operations of CCI and PFC
costs to expand the operations of the Company following the Merger, including
store openings and closings, capital expenditures, and debt service on the
New Facility. The Company estimates that capital expenditures for the remainder
of 1997 will be approximately $1 million. The Company believes that funds
available from the New Facility and internally generated funds will provide
sufficient cash to meet the Company's cash needs for the next year.
Pursuant to a Tax Sharing Agreement, each of the subsidiaries of RCPC,
including, from the effective date of the Merger, the Company, has agreed to
pay to RCPC an amount equal to its liability for federal, state and local
income taxes (including estimated taxes), if any. Since the payments to be
made by subsidiaries of RCPC, including the Company, to RCPC under the Tax
Sharing Agreement will be determined by the amount of taxes that such
subsidiaries would otherwise have to pay if they were to file separate
federal, state or local income tax returns, the Tax Sharing Agreement will
benefit RCPC to the extent RCPC can offset the taxable income generated by
such subsidiaries, including the Company, against losses and tax credits
generated by RCPC and its other subsidiaries. The Company expects that, as a
result of anticipated operating losses, no significant federal tax payments or
payments in lieu of taxes pursuant to the Tax Sharing Agreement will be made
by the Company for 1997.
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended September 26, 1997
as well as other public documents of the Company contains forward looking
statements which involve risks and uncertainties. The Company's actual results
may differ materially from those discussed in such forward looking statements.
Such statements include, without limitation, statements regarding the amount
of costs and expenses associated with the
10
<PAGE>
THE COSMETIC CENTER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Merger, costs to integrate the operations of the Company and PFC, costs to
expand the operations of the Company, including store openings and closings,
the amount of required capital expenditures, expectations as to the Company's
cash flows from operations and the pro forma financial information and
assumptions contained in Note 3. Readers are urged to consider statements
which use the terms "believes," "does not believe," "no reason to believe,"
"expects," "plans," "intends," "estimates," "anticipated," "or "anticipates"
to be uncertain and forward looking. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. In addition to factors that may be described in
the Company's Commission filings, including this filing, the following factors,
among others, could cause the Company's actual results to differ materially
from those expressed in any forward looking statements made by the Company: the
inability to generate sufficient cash flows from operations to fund new store
openings, unanticipated costs and expenses associated with the Merger,
unanticipated costs or difficulties or delays in integrating the operations of
CCI and PFC and expanding the operations of the Company, unanticipated capital
expenditures, including costs associated with store openings and closings,
actions by competitors that may have greater capital resources than the
Company, including combinations within the retail industry and successful new
retail store concepts, the lack of viability of the Company's new salon
arrangement, the unavailability of product or the loss of suppliers, including
secondary source suppliers, general business and economic conditions, and
other factors described from time to time in the Company's reports filed with
the SEC.
EFFECT OF NEW ACCOUNTING STANDARD
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which establishes new standards for computing and
presenting earnings per share. SFAS No. 128 will be effective for interim and
annual financial statements issued after December 15, 1997. The Company does
not believe that the adoption of SFAS No. 128 will have a material impact on
the Company's reported earnings per share.
11
<PAGE>
PART II
ITEM 2. CHANGES IN SECURITIES
The information required with respect to this Item 2 was included in Item 2
of the Company's quarterly report on Form 10-Q for the quarterly period ended
March 28, 1997 and, pursuant to the Instruction to Part II of Form 10-Q, an
additional report of the information need not be made.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information required with respect to this Item 4 was included in Item 4
of the Company's quarterly report on Form 10-Q for the quarterly period ended
March 28, 1997 and, pursuant to Instruction 6 to Item 4 of Form 10-Q, this
item is answered by reference to such information in such report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K for the quarterly period ended September 26, 1997 -
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE COSMETIC CENTER, INC.
(Registrant)
Date: November 5, 1997 By : /s/ I. HOWARD DIENER
------------------------
I. HOWARD DIENER
President and Chief Executive Officer
Date: November 5, 1997 By: /s/ BRUCE E. STROHL
-----------------------
BRUCE E. STROHL
Senior Vice President - Finance and
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The Cosmetic
Center, Inc.'s September 26, 1997 financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-END> SEP-26-1997
<CASH> 3,591
<SECURITIES> 0
<RECEIVABLES> 1,331
<ALLOWANCES> 10
<INVENTORY> 89,935
<CURRENT-ASSETS> 99,058
<PP&E> 23,862
<DEPRECIATION> 9,237
<TOTAL-ASSETS> 120,689
<CURRENT-LIABILITIES> 34,737
<BONDS> 50,678
0
0
<COMMON> 100
<OTHER-SE> 29,908
<TOTAL-LIABILITY-AND-EQUITY> 120,689
<SALES> 94,687
<TOTAL-REVENUES> 94,687
<CGS> 65,908
<TOTAL-COSTS> 97,640
<OTHER-EXPENSES> 4,038
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,283)
<INCOME-TAX> 20
<INCOME-CONTINUING> (9,303)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,303)
<EPS-PRIMARY> (1.00)
<EPS-DILUTED> (1.00)
