<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
Quarterly Report Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended Commission file number
March 31, 1995 0-16060
ST. IVES LABORATORIES, INC.
(Exact name of registrant as specified
in its charter)
Delaware 95-4106202
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9201 Oakdale Avenue 91311-6521
Chatsworth, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, (818)709-5500
including area code
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 the latest practicable date.
Class Outstanding at April 30, 1995
- - ----------------------------
Common Stock, $.01 Par Value 7,019,399
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<PAGE>
ST. IVES LABORATORIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Cover sheet 1
Index 2
PART I - Financial Information
Item 1 Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1995
and December 31, 1994 3
Consolidated Income Statements for the three
months ended March 31, 1995 and 1994 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - Other Information
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 11
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ST. IVES LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,885,337 $ 3,465,709
Short term investments 1,249,865 1,249,603
Accounts receivable - trade, less allowance for
doubtful accounts ($410,000 at March 31, 1995
and December 31, 1994) 20,417,824 20,284,639
Accounts receivable - related party 804,639 382,829
Accounts receivable - other 1,542,266 1,566,553
Inventories 28,522,049 30,045,445
Prepaid and other assets 2,069,384 1,591,065
Deferred income taxes 1,999,349 1,999,208
----------- -----------
Total current assets 59,490,713 60,585,051
Plant and equipment, net 7,632,422 8,043,491
Other assets 476,868 483,426
----------- -----------
Total assets $67,600,003 $69,111,968
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,941,859 $11,337,817
Accrued expenses 9,216,978 9,691,945
Income taxes payable 442,373 610,560
Deferred income taxes 196,530 196,530
Short term debt 3,131,000 3,500,000
----------- -----------
Total current liabilities 22,928,740 25,336,852
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value per share, 5,000,000
shares authorized; no shares issued or outstanding
Common stock, $.01 par value per share, 30,000,000
shares authorized; 7,019,399 shares issued
and outstanding at March 31, 1995 and
December 31, 1994 70,194 70,194
Paid-in capital 12,382,018 12,382,018
Retained earnings 32,485,575 32,373,433
Cumulative translation adjustments (266,524) (1,050,529)
----------- -----------
Total stockholders' equity 44,671,263 43,775,116
----------- -----------
Total liabilities and stockholders' equity $67,600,003 $69,111,968
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ST. IVES LABORATORIES, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net sales (includes related party sales of $4,536,130 $38,973,008 $38,348,903
and $4,410,920 for the three months ended ----------- -----------
March 31, 1995 and 1994, respectively)
Cost of products sold 22,082,179 21,153,466
Selling, marketing and
administrative expenses 16,440,791 16,193,760
----------- -----------
Operating costs and expenses 38,522,970 37,347,226
----------- -----------
Income from operations 450,038 1,001,677
Interest expense 125,032 86,671
Other (income), net (96,903) (58,514)
----------- -----------
Income before income taxes 421,909 973,520
Provision for income taxes 99,185 485,452
----------- -----------
Net income $ 322,724 $ 488,068
=========== ===========
Net income per share $ 0.05 0.07
=========== ===========
Dividends per share $ 0.03 $ 0.03
=========== ===========
Weighted average shares
outstanding 7,019,399 7,004,232
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ST. IVES LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------
1995 1994
------------ -------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 322,724 $ 488,068
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 735,822 594,300
Deferred income taxes (141) -
Changes in assets and liabilities:
Accounts receivable - trade 180,815 276,716
Accounts receivable - related party (421,810) (872,825)
Accounts receivable - other 52,287 (390,120)
Inventories 2,023,396 3,002,245
Prepaid and other assets (414,319) (528,996)
Accounts payable (1,489,958) 176,215
Accrued expenses (576,967) (104,076)
Income taxes payable (195,187) 483,725
----------- ------------
Net cash provided by
operating activities 216,662 3,125,252
----------- ------------
Cash flow from investing activities:
Purchase of plant and equipment (260,753) (377,948)
Other assets 19,558 (3,349)
Short term investments (262) (262)
----------- ------------
Net cash used for
investing activities (241,457) (381,559)
----------- ------------
Cash flow from financing activities:
Common stock options exercised - 162,500
Cash dividends paid (210,582) (210,282)
Short term debt borrowings 8,773,000 15,851,000
Short term debt repayments (9,142,000) (20,025,000)
----------- ------------
Net cash used for
financing activities (579,582) (4,221,782)
----------- ------------
Effect of exchange rate changes on cash 24,005 (22,265)
----------- ------------
Net decrease in cash and cash equivalents (580,372) (1,500,354)
Cash and cash equivalents at beginning of period 3,465,709 3,024,607
----------- ------------
Cash and cash equivalents at end of period $ 2,885,337 $ 1,524,253
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ST. IVES LABORATORIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
Note 1. General - The consolidated financial statements included herein
have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. The interim financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All
adjustments are of a normal recurring nature. These consolidated
financial statements should be read in conjunction with the financial
statements and the notes thereto included in the St. Ives
Laboratories, Inc.'s annual report on Form 10-K for the year ended
December 31, 1994.
Note 2. Inventories - The components of inventories were:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- ------------
<S> <C> <C>
Raw and packaging materials $ 7,656,934 $ 7,027,459
Work in-process 494,728 521,744
Finished goods 20,370,387 22,496,242
----------- -----------
$28,522,049 $30,045,445
=========== ===========
</TABLE>
Finished goods inventories include the cost of materials, direct labor
and manufacturing overhead.
Note 3. Income taxes - The provision for income taxes differs from the
amount obtained by applying the federal statutory income tax rate to
income before provision for income taxes due to the effect of foreign
operations, state income taxes net of federal tax benefit and other
factors.
Note 4. Net income per share amounts have been computed using the
weighted average number of shares outstanding. For the periods
presented, stock options have an immaterial dilutive effect.
6
<PAGE>
ST. IVES LABORATORIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
------------------------------------------------------
(Unaudited)
Note 5. Reclassifications - Historically, the Company has recorded an expense
for certain promotional and marketing allowances that were shown on
the face of a customer invoice as a deduction from the list price
(herein referred to as the "off-invoice allowances"). Following a
recent industrywide trend, the Company changed its invoicing
methodology in 1995 by substantially eliminating off-invoice
allowances in North America. Simultaneously, the Company reduced its
list prices which are used to record net sales when products are
shipped. In order to provide consistency and allow for the comparison
of results between periods, $4,297,000 of costs relating to off-
invoice allowances that were previously included as a selling expense
(Selling, marketing, and administrative expenses) were reclassified
against net sales for the three-month period ended March 31, 1994.
7
<PAGE>
ST. IVES LABORATORIES, INC.
---------------------------
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Net Sales
Net sales for the first quarter of calendar year 1995 were $38,973,000, an
increase of $624,000 (1.6%) over the comparable period of 1994. See Note 5
"Reclassifications" in the Notes to Consolidated Financial Statements for a
discussion of a reclassification that affects net sales. Personal Care Products
sales in the United States increased $1,482,000 (7.0%) during this period while
international sales increased $1,101,000 (11.6%). As compared to the first
quarter of 1994, net sales of the Company's Custom Label Products decreased
$1,959,000 (25.1%).
The increase in United States Personal Care Products sales was primarily due to
the incremental sales volume generated from certain new SWISS FORMULA(R)
products that have been introduced over the past twelve months. A slight
decline in unit volume on existing products was partially offset by a modest
price increase. Also, and as previously reported, the Company believes that
Personal Care Products sales in the United States during the first quarter of
1994 were adversely affected by lost shipping and selling days due to severe
winter weather in the East. Accordingly, the Company believes that the current
period net sales increase in the United States is higher than would otherwise be
the case. The decrease in Custom Label Products sales in the period was due to
decreased unit sales to customers other than the Company's largest custom label
account. International sales increased principally due to higher unit sales in
existing geographical markets.
Cost of Products Sold
For the three-month period ended March 31, 1995, cost of products sold increased
by $929,000, and as a percent of net sales to 56.7% from 55.2% in the first
quarter of 1994. The increase in absolute dollars related, in part, to higher
sales volume in the quarter. The increase in the cost of products sold
percentage was primarily related to a lower gross margin within the Company's
Custom Label Products business that resulted from customer purchase decisions.
Selling, Marketing and Administrative Expenses
Selling, marketing and administrative expenses increased by $247,000 (1.5%) in
the first quarter of 1995 and represented the same percentage of net sales in
both quarterly periods. Selling and distribution expenses increased both in
absolute dollars and as a percent of sales during the period. The increase in
selling expenses was primarily the result of additional selling and promotional
activities incurred in connection with the Company's ongoing efforts to
penetrate
8
<PAGE>
Selling, Marketing and Administrative Expenses (Continued)
foreign markets. The higher level of distribution expenses was due to the
incurrence of costs designed to improve the overall efficiency of the Company's
warehouse operations. Total marketing expenditures for the first quarter were
$4,116,000, representing a decrease of 8.8% from the comparable period of 1994.
This decrease was due to reduced marketing activities within the Company's
Personal Care Products category worldwide, including lower levels of advertising
and decreased sales of bonus pack merchandise. Administrative expenses
decreased both in absolute dollars and as a percent of sales in the first
quarter of 1995 as compared to the prior year. The Company benefited from net
foreign currency transaction gains of $157,000 during the first quarter of 1995
primarily due to U.S. Dollar exchange fluctuations relative to the Danish
Kroner. Also, and as previously reported, during the first quarter of 1994, the
Company recorded a $175,000 after-tax charge, or $0.03 per share, to reflect the
estimated costs of repair and refurbishment of its facilities after the January
17, 1994 Northridge earthquake. Absent this earthquake charge, administrative
expenses increased during the first quarter of 1995 as compared to the prior
year.
Interest Expense
For the first quarter of 1995, interest expense increased to $125,000 from
$87,000 in the same period last year. The increase is due to higher interest
rates and other factors, partially offset by lower daily average borrowings
during the first quarter of 1995.
Other income, net
For the first quarters of 1995 and 1994, other income, net primarily reflects
earnings from invested cash and short term investments.
Provision for Income Taxes
During the first quarters of 1995 and 1994, taxes on income were $99,000 and
$485,000, respectively, or 23.5% and 49.9%, respectively, of income before
income taxes. The decrease in the effective tax rate in the first quarter of
1995 was primarily due to the effect of foreign subsidiary operating income
which was shielded from current period income taxes through the use of
historical net operating losses.
9
<PAGE>
Net Income
Net income for the first quarter of 1995 was $323,000 or $0.05 per share versus
$488,000 or $0.07 per share in the comparable quarter of 1994. As a percent of
net sales, net income declined to 0.8% in the first quarter of 1995 from 1.3% in
the comparable period of 1994. The decrease in net income was primarily due to
a lower gross margin, higher selling and distribution expenses, and increased
interest expense.
Financial Condition
The Company had cash, cash equivalents and short term investments of $4,135,000
and $4,715,000 at March 31, 1995 and December 31, 1994, respectively.
Net cash provided by operating activities in the first quarter of 1995 was
$217,000 due primarily to lower inventory levels which were partially offset by
reductions in various current liabilities. As compared to December 31, 1994,
the Company lowered total inventories by $1,523,000 almost exclusively in
finished goods. The decrease in accounts payable was related to the timing of
purchases and the resulting timing of payments to vendors. Depreciation and
amortization was a $736,000 noncash charge in the period. At March 31, 1995,
the Company's working capital level and current ratio increased when compared to
December 31, 1994.
Capital spending in the first quarter of 1995 represented normal purchases of
plant and equipment that are designed to maintain capacity and efficiencies in
the Company's manufacturing and distribution facilities.
Net cash used for financing activities in the first quarter of 1995 was $580,000
resulting from a reduction in short term borrowing levels and the payment of
cash dividends. During the first quarter of 1995, the Company reduced its short
term borrowing levels by $369,000 primarily by lowering inventory levels and
reducing cash and cash equivalents. Cash dividends paid during the first
quarter of 1995 were $211,000.
The Company believes that funds generated from operations, cash, cash
equivalents, short term investments and its bank line of credit will be
sufficient to satisfy its anticipated cash requirements for current operations
and the foreseeable future.
10
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports
No event has occurred during the quarter for which this report is filed
that would require the filing of a report on Form 8-K and, therefore, no
such report has been filed.
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.
ST. IVES LABORATORIES, INC.
(Registrant)
Date: May 10, 1995 /s/ JOHN L. BOYLE
---------------------------
JOHN L. BOYLE
CHIEF FINANCIAL OFFICER
Date: May 10, 1995 /s/ MAC ALLEN CULVER III
----------------------------
MAC ALLEN CULVER III
PRESIDENT
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,885,337
<SECURITIES> 1,249,865
<RECEIVABLES> 20,417,824
<ALLOWANCES> 410,000
<INVENTORY> 28,522,049
<CURRENT-ASSETS> 59,490,713
<PP&E> 7,632,422
<DEPRECIATION> 0
<TOTAL-ASSETS> 67,600,003
<CURRENT-LIABILITIES> 22,928,740
<BONDS> 0
<COMMON> 70,194
0
0
<OTHER-SE> 44,601,069
<TOTAL-LIABILITY-AND-EQUITY> 67,600,003
<SALES> 38,973,008
<TOTAL-REVENUES> 38,973,008
<CGS> 22,082,179
<TOTAL-COSTS> 22,082,179
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,032
<INCOME-PRETAX> 421,909
<INCOME-TAX> 99,185
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 322,724
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
