<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
June 30, 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 July 31, 1995
------------------------------------- ----------------------------
Common Stock, $.01 Par Value 7,025,399
================================================================================
Page 1 of 11 pages
<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 June 30, 1995
and December 31, 1994 3
Consolidated Income Statements for the three
months ended June 30, 1995 and 1994 and for
the six months ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 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>
Page 2 of 11 pages
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ST. IVES LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,848,036 $ 3,465,709
Short term investments 1,249,603
Accounts receivable - trade, less allowance for
doubtful accounts ($410,000 at June 30, 1995
and December 31, 1994) 25,498,545 20,284,639
Accounts receivable - related party 1,017,603 382,829
Accounts receivable - other 2,063,402 1,566,553
Inventories 29,062,584 30,045,445
Prepaid and other assets 2,193,781 1,591,065
Deferred income taxes 2,000,849 1,999,208
----------- -----------
Total current assets 63,684,800 60,585,051
Plant and equipment, net 7,146,212 8,043,491
Other assets 435,091 483,426
----------- -----------
Total assets $71,266,103 $69,111,968
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $10,451,693 $11,337,817
Accrued expenses 9,603,278 9,691,945
Income taxes payable 1,262,889 610,560
Deferred income taxes 196,530 196,530
Short term debt 4,547,000 3,500,000
----------- -----------
Total current liabilities 26,061,390 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; 7,025,399
and 7,019,399 shares issued and outstanding
at June 30, 1995 and December 31, 1994,
respectively 70,254 70,194
Paid-in capital 12,423,958 12,382,018
Retained earnings 32,977,521 32,373,433
Cumulative translation adjustments (267,020) (1,050,529)
----------- -----------
Total stockholders' equity 45,204,713 43,775,116
----------- -----------
Total liabilities and stockholders' equity $71,266,103 $69,111,968
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 11 pages
<PAGE>
ST. IVES LABORATORIES, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales (includes related party sales of
$5,612,844 and $6,805,620 for the three
months ended June 30, 1995 and 1994,
respectively, and $10,148,974 and
$11,216,540 for the six months ended
June 30, 1995 and 1994, respectively) $42,392,009 $42,732,868 $81,365,017 $81,081,771
----------- ----------- ----------- -----------
Cost of products sold 23,225,882 23,654,378 45,308,061 44,807,844
Selling, marketing and
administrative expenses 17,403,468 18,152,542 33,844,259 34,346,302
----------- ----------- ----------- -----------
Operating costs and expenses 40,629,350 41,806,920 79,152,320 79,154,146
----------- ----------- ----------- -----------
Income from operations 1,762,659 925,948 2,212,697 1,927,625
Interest expense 110,651 53,250 235,683 139,921
Other (income), net (121,751) (81,912) (218,654) (140,426)
----------- ----------- ----------- -----------
Income before income taxes 1,773,759 954,610 2,195,668 1,928,130
Provision for income taxes 1,071,231 674,924 1,170,416 1,160,376
----------- ----------- ----------- -----------
Net income $ 702,528 $ 279,686 $ 1,025,252 $ 767,754
=========== =========== =========== ===========
Net income per share $0.10 $0.04 $0.15 $0.11
=========== =========== =========== ===========
Dividends per share $ 0.03 $ 0.03 $ 0.06 $ 0.06
=========== =========== =========== ===========
Weighted average shares outstanding 7,019,597 7,015,388 7,019,498 7,009,841
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 11 pages
<PAGE>
ST. IVES LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 1,025,252 $ 767,754
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,360,880 1,251,743
Deferred income taxes 359 (46,101)
Impairment in land value - 1,081,000
Changes in assets and liabilities:
Accounts receivable - trade (4,875,906) (491,920)
Accounts receivable - related party (634,774) (587,991)
Accounts receivable - other (456,849) (153,955)
Inventories 1,451,861 2,365,316
Prepaid and other assets (528,716) (802,645)
Accounts payable (979,124) 1,602,864
Accrued expenses (188,667) 15,747
Income taxes payable 638,329 330,015
------------ ------------
Net cash provided by (used for)
operating activities (3,187,355) 5,331,827
------------ ------------
Cash flow from investing activities:
Purchase of plant and equipment (405,601) (1,006,541)
Other assets 37,335 39,151
Short term investments 1,249,603 (524)
------------ ------------
Net cash provided by (used for)
investing activities 881,337 (967,914)
------------ ------------
Cash flow from financing activities:
Common stock options exercised 42,000 209,000
Cash dividends paid (421,164) (420,804)
Short term debt borrowings 16,478,000 17,343,000
Short term debt repayments (15,431,000) (24,206,000)
------------ ------------
Net cash provided by (used for)
financing activities 667,836 (7,074,804)
------------ ------------
Effect of exchange rate changes on cash 20,509 4,835
------------ ------------
Net decrease in cash and cash equivalents (1,617,673) (2,706,056)
Cash and cash equivalents at beginning of period 3,465,709 3,024,607
------------ ------------
Cash and cash equivalents at end of period $ 1,848,036 $ 318,551
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 11 pages
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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>
June 30, December 31,
1995 1994
----------- ------------
<S> <C> <C>
Raw and packaging materials $ 8,116,947 $ 7,027,459
Work in-process 552,114 521,744
Finished goods 20,393,523 22,496,242
----------- -----------
$29,062,584 $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.
Page 6 of 11 pages
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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, $4,685,637 and $8,982,670 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- and six-month periods
ended June 30, 1994 respectively.
Page 7 of 11 pages
<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 second quarter of calendar year 1995 were $42,392,000, a
decrease of $341,000 (0.8%) from 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 $247,000 (1.1%) during this period while
international sales increased $1,392,000 (13.4%). As compared to the second
quarter of 1994, net sales of the Company's Custom Label Products decreased
$1,980,000 (19.7%).
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. In addition, a
slight decline in unit volume on existing products was partially offset by a
modest price increase. Internationally, the increase in net sales in the second
quarter of 1995 as compared to 1994 was primarily due to increased unit sales in
existing geographical markets. The Company's ongoing efforts to penetrate
foreign markets has historically resulted in sales growth, although no specific
rate of increase can be reasonably estimated at this time. The decrease in
Custom Label Products sales in the period was due to lower unit volume,
including a $1,193,000 decrease in net sales to the Company's largest Custom
Label account.
Net sales for the six-month period ended June 30, 1995 increased $283,000 (0.3%)
to $81,365,000 from $81,082,000 in the same period of 1994. As compared to
1994, the current year's sales increase was due to a $1,729,000 (4.0%) increase
in Personal Care Products sales in the United States and a $2,493,000 (12.5%)
increase in international sales, substantially offset by a $3,939,000 (22.1%)
decrease in Custom Label Products sales.
Cost of Products Sold
For the three-month period ended June 30, 1995, cost of products sold decreased
by $428,000, and as a percent of net sales to 54.8% from 55.4% in the second
quarter of 1994. The decrease in absolute dollars related, in part, to lower
sales volume in the quarter. The decrease in the cost of products sold
percentage during the period was primarily related to product mix resulting from
customer purchase decisions within the Company's Personal Care Products business
in the United States.
Page 8 of 11 pages
<PAGE>
For the six-month period ended June 30, 1995, cost of products sold increased by
$500,000, and as a percent of net sales to 55.7% from 55.3% in the same period
of 1994. The percentage increase was primarily related to a lower gross margin
within the Company's Custom Label Products category. The significant decrease
in Custom Label Products sales during the first six months of 1995 has resulted
in a decrease in factory thru-put and the absorption of fixed manufacturing
overhead.
Selling, Marketing and Administrative Expenses
Selling, marketing and administrative expenses decreased by $749,000 in the
second quarter of 1995, and as a percent of net sales to 41.1% from 42.5% in
1994. For the six-month period ended June 30, 1995, selling, marketing and
administrative expenses decreased by $502,000, and as a percent of net sales to
41.6% from 42.4% in 1994.
Selling expenses increased both in absolute dollars and as a percent of net
sales during both the three- and six-month periods as a result of additional
selling and promotional activities within the Company's Personal Care Products
category worldwide. In the United States, the Company believes that increased
competitive activity in the Health and Beauty Care industry, coupled with its
practice of meeting competitive pressures, raised the effective level of selling
expenses in 1995. Internationally, selling expenses increased primarily due to
the Company's ongoing efforts to penetrate foreign markets.
Total marketing expenditures for the second quarter of 1995 were $3,729,000,
representing a decrease of $985,000 (20.9%) from the comparable period of 1994.
For the six-month period ended June 30, 1995, total marketing expenses decreased
by $1,384,000 (15.0%). During the first six months of 1995, the Company reduced
the marketing activities within its Personal Care Products business worldwide,
including lower levels of advertising and a decrease in various consumer
promotions.
As compared to the prior year, administrative expenses decreased both in
absolute dollars and as a percent of net sales during both the three- and six-
month periods of 1995. As previously reported, the Company recorded a $627,000
after-tax charge, or $.09 per share, in the second quarter of 1994 to reflect
the impairment in value on the eventual sale of the Company's land located in
Ontario, California. Also, and as previously reported, during the first quarter
of 1994, the Company recorded a $175,000 after-tax charge, or $.03 per share, to
reflect the estimated costs of repair and refurbishment of its facilities after
the January 17, 1994 Northridge earthquake. The Company also benefited from net
foreign currency transaction gains of $172,000 during the first six months of
1995 primarily due to U.S. Dollar fluctuations relative to the Danish Kroner.
Page 9 of 11 pages
<PAGE>
Interest Expense
For the second quarter of 1995, interest expense increased to $111,000 from
$53,000 in the same period last year. For the six-month period ended June 30,
1995, interest expense increased to $236,000 from $140,000 in 1994. The higher
level of interest expense in 1995 versus 1994 is due to higher interest rates
and other factors, partially offset by lower daily average borrowings.
Other (income), net
For both the three- and six-month periods ended June 30, 1995, other (income),
net primarily reflects earnings from invested cash and short term investments.
Provision for Income Taxes
For the three-month period ended June 30, 1995 and 1994, taxes on income were
$1,071,000 and $675,000, respectively. For the six-month period ended June 30,
1995 and 1994, taxes on income was $1,170,000 and $1,160,000, respectively. For
the current year, the decrease in the effective tax rate as compared to the
prior year was related to the profitability of the Company's international
subsidiaries.
Net Income
Net income for the second quarter of 1995 was $703,000, or $0.10 per share,
versus $280,000, or $0.04 per share, in the comparable quarter of 1994. As a
percent of net sales, net income increased to 1.7% in the second quarter of 1995
from 0.7% in the comparable period of 1994. The increase in net income was
primarily due to the decrease in administrative expenses. As mentioned
previously, the second quarter of 1994 included a $627,000 after-tax charge for
the impairment in value on the eventual sale of the Company's land.
Financial Condition
The Company had cash, cash equivalents and short term investments of $1,848,000
and $4,715,000 at June 30, 1995 and December 1994, respectively.
Net cash used for operating activities in the six-month period of 1995 was
$3,187,000 due primarily to increased accounts receivable-trade and a lower
level of accounts payable, partially offset by a decrease in finished goods
inventory, net income for the period, and noncash charges for depreciation and
amortization. The increase in accounts receivable-trade was largely due to
higher international trade receivables in connection with increasing
international sales. Accounts payable decreased primarily due to the timing of
payments to vendors. At June 30, 1995, the Company's working capital level and
its current ratio increased as compared to December 31, 1994.
Page 10 of 11 pages
<PAGE>
Capital spending in the six-month period of 1995 declined to $405,000 from
$1,007,000 in the comparable period of last year. In 1995, the Company reduced
its purchases of plant and equipment related to its manufacturing and
distribution facilities.
Net cash provided by financing activities in the first six months of 1995 was
$668,000 primarily due to an increase in short term borrowings. The Company had
$4,547,000 of short term debt outstanding at June 30, 1995, representing an
increase of $1,047,000 since the beginning of the year. The increase in short
term debt was used primarily to fund higher levels of accounts receivable. Cash
dividends paid during the first six months of 1995 were $421,000.
The Company believes that funds generated from operation, cash, cash equivalents
and its bank line of credit will be sufficient to satisfy its anticipated cash
requirements for current operations and the foreseeable future.
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: August 7, 1995 /s/ JOHN L. BOYLE
-----------------
JOHN L. BOYLE
CHIEF FINANCIAL OFFICER
Date: August 7, 1995 /s/ MAC ALLEN CULVER III
------------------------
MAC ALLEN CULVER III
PRESIDENT
Page 11 of 11 pages
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,848,036
<SECURITIES> 0
<RECEIVABLES> 25,498,545
<ALLOWANCES> 410,000
<INVENTORY> 29,062,584
<CURRENT-ASSETS> 63,684,800
<PP&E> 7,146,212
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,266,103
<CURRENT-LIABILITIES> 26,061,390
<BONDS> 0
<COMMON> 70,254
0
0
<OTHER-SE> 45,134,459
<TOTAL-LIABILITY-AND-EQUITY> 71,266,103
<SALES> 81,365,017
<TOTAL-REVENUES> 81,365,017
<CGS> 45,308,061
<TOTAL-COSTS> 45,308,061
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 235,683
<INCOME-PRETAX> 2,195,668
<INCOME-TAX> 1,170,416
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,025,252
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
