<PAGE>
================================================================================
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
September 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 October 31, 1995
- ---------------------------------------- -------------------------------
Common Stock, $.01 Par Value 7,025,399
================================================================================
Page 1 of 13 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 September 30, 1995
and December 31, 1994 3
Consolidated Income Statements for the three
months ended September 30, 1995 and 1994 and for
the nine months ended September 30, 1995 and 1994 4
Consolidated Statements of Cash Flows for the
nine months ended September 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 9
PART II - Other Information
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
Page 2 of 13 pages
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ST. IVES LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 732,721 $ 3,465,709
Short term investments 1,249,603
Accounts receivable - trade, less allowance for
doubtful accounts ($823,000 and $410,000
at September 30, 1995 and December 31,
1994, respectively) 27,689,356 20,284,639
Accounts receivable - related party 867,166 382,829
Accounts receivable - other 1,876,039 1,566,553
Inventories 28,937,387 30,045,445
Prepaid and other assets 1,564,960 1,591,065
Income taxes refundable and deferred taxes 3,134,874 1,999,208
----------- -----------
Total current assets 64,802,503 60,585,051
Plant and equipment, net 6,609,160 8,043,491
Other assets 331,991 483,426
----------- -----------
Total assets $71,743,654 $69,111,968
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $11,246,074 $11,337,817
Accrued expenses 11,307,250 9,691,945
Income taxes payable - 610,560
Deferred income taxes 196,530 196,530
Short term debt 2,168,000 3,500,000
----------- -----------
Total current liabilities 24,917,854 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 September 30, 1995 and
December 31, 1994, respectively 70,254 70,194
Paid-in capital 12,423,958 12,382,018
Retained earnings 34,549,833 32,373,433
Cumulative translation adjustments (218,245) (1,050,529)
----------- -----------
Total stockholders' equity 46,825,800 43,775,116
----------- -----------
Total liabilities and stockholders' equity $71,743,654 $69,111,968
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 13 pages
<PAGE>
ST. IVES LABORATORIES, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- ----------------------------
1995 1994 1995 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales (includes related party sales of
$3,832,792 and $4,821,366 for the three
months ended September 30, 1995 and
1994, respectively, and $13,981,766 and
$16,037,906 for the nine months ended
September 30, 1995 and 1994, respectively) $43,803,561 $41,002,442 $125,168,578 $122,084,213
----------- ----------- ------------ ------------
Cost of products sold 23,972,698 21,998,619 69,280,759 66,806,463
Selling, marketing, and administrative
expenses 19,632,649 17,374,156 53,476,908 51,720,458
----------- ----------- ------------ ------------
Operating costs and expenses 43,605,347 39,372,775 122,757,667 118,526,921
----------- ----------- ------------ ------------
Income from operations 198,214 1,629,667 2,410,911 3,557,292
Interest expense 114,968 69,700 350,651 209,621
Other (income), net (149,040) (100,868) (367,694) (241,294)
----------- ----------- ------------ ------------
Income before income taxes 232,286 1,660,835 2,427,954 3,588,965
Provision for income taxes (1,550,788) 849,212 (380,372) 2,009,588
----------- ----------- ------------ ------------
Net income $ 1,783,074 $ 811,623 $ 2,808,326 $ 1,579,377
=========== =========== ============ ============
Net income per share $ 0.25 $ 0.12 $ 0.40 $ 0.23
=========== =========== ============ ============
Dividends per share $ 0.03 $ 0.03 $ 0.09 $ 0.09
=========== =========== ============ ============
Weighted average shares outstanding 7,025,399 7,017,399 7,021,487 7,012,388
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 13 pages
<PAGE>
ST. IVES LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 2,808,326 $ 1,579,377
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,131,231 1,971,312
Deferred income taxes (402) (45,468)
Loss on disposal of land - 1,085,465
Changes in assets and liabilities:
Accounts receivable - trade (7,157,717) (1,130,729)
Accounts receivable - related party (484,337) (672,281)
Accounts receivable - other (282,486) 35,560
Inventories 1,532,058 2,005,695
Prepaid and other assets 79,105 (702,245)
Accounts payable (166,743) (736,709)
Accrued expenses 1,521,305 1,346,069
Income taxes payable (1,754,824) 439,353
------------ ------------
Net cash provided by (used for)
operating activities (1,774,484) 5,175,399
------------ ------------
Cash flow from investing activities:
Proceeds from sale of land - 847,366
Purchase of plant and equipment (646,900) (2,069,661)
Other assets 138,435 72,579
Short term investments 1,249,603 (786)
------------ ------------
Net cash provided by (used for)
investing activities 741,138 (1,150,502)
------------ ------------
Cash flow from financing activities:
Common stock options exercised 42,000 209,000
Cash dividends paid (631,926) (631,326)
Short term debt borrowings 26,145,000 29,947,000
Short term debt repayments (27,477,000) (32,810,000)
------------ ------------
Net cash used for
financing activities (1,921,926) (3,285,326)
------------ ------------
Effect of exchange rate changes on cash 222,284 82,772
------------ ------------
Net increase (decrease) in cash and cash equivalents (2,732,988) 822,343
Cash and cash equivalents at beginning of period 3,465,709 3,024,607
------------ ------------
Cash and cash equivalents at end of period $ 732,721 $ 3,846,950
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 13 pages
<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>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Raw and packaging materials $ 7,215,651 $ 7,027,459
Work in-process 832,307 521,744
Finished goods 20,889,429 22,496,242
----------- -----------
$28,937,387 $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. Significantly, the three- and nine-month periods ending
September 30, 1995 include a tax benefit related to the Board of
Directors' adoption of a plan of dissolution for St. Ives Laboratories
A/S (Denmark). In connection with the planned wind-up of activities
in Denmark, the Company recorded a one-time benefit of $2.5 million,
or $0.36 per share, in the third quarter of 1995 reflecting the
anticipated tax deduction relating to the Company's investment in the
Danish subsidiary.
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 13 pages
<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, $4,720,094 and $13,702,764 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 nine-month periods
ended September 30, 1994, respectively.
Note 6. Subsequent Event - On October 30, 1995, the Registrant entered into an
Agreement and Plan of Merger dated as of October 30, 1995 (the "Merger
Agreement") by and among Alberto-Culver Company, a Delaware
corporation ("Alberto-Culver"), AC Acquiring Co., a Delaware
corporation and a wholly owned subsidiary of Alberto-Culver ("Merger
Sub"), and the Registrant, which provides for the merger (the
"Merger") of Merger Sub with and into the Registrant. In the Merger,
each outstanding share of the Registrant's common stock will be
converted into the right to receive $15.00. Following the Merger, the
Registrant will be held as a wholly owned subsidiary of Alberto-Culver
Company.
The vesting provisions of all outstanding options to purchase shares
of common stock of the Registrant will be accelerated at the time of
the Merger and each holder of a stock option will be entitled to
receive a cash payment equal to the difference between $15.00 and the
exercise price under the stock option multiplied by the number of
shares covered by the option.
The consummation of the Merger is subject to various customary
conditions including approval of the stockholders of the Registrant
and the parties receiving the necessary antitrust approvals. It is
also a condition to the consummation of the Merger that Gary H. Worth,
Chairman and Chief Executive Officer of the Registrant, enter into a
Consulting and Non-Competition Agreement with Alberto-Culver with
respect to the period following the Merger.
Page 7 of 13 pages
<PAGE>
In order to induce Alberto-Culver to enter into the Merger Agreement,
Mr. Worth and certain family members and certain trusts and
partnerships affiliated with Mr. Worth (collectively, the "Worth
Stockholders") have granted to Alberto-Culver an option to purchase a
total of 2,414,770 shares of Registrant common stock, representing
approximately 34% of the Registrant's outstanding common stock. The
option is exercisable only in certain specified circumstances in the
120-day period following termination of the Merger Agreement. Under
the option agreement, the Worth Stockholders have also agreed to vote
in favor of the Merger and to vote against any competing transaction
that might be proposed by a third party prior to consummation of the
Merger.
Subject to receipt of the necessary stockholder approvals, it is
anticipated that the Merger will close in January 1996.
Page 8 of 13 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 third quarter of calendar year 1995 were $43,804,000, an
increase of $2,801,000 (6.8%) 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 $1,298,000 (5.6%) during this period while
international sales decreased $450,000 (4.1%). As compared to the third quarter
of 1994, net sales of the Company's Custom Label Products increased $1,953,000
(28.8%).
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 decrease in net sales in the third
quarter of 1995 as compared to 1994 was primarily due to decreased unit sales in
Latin America. The increase in Custom Label Products sales in the period was
due to increased unit volume to a certain Custom Label customer.
Net sales for the nine-month period ended September 30, 1995 increased
$3,084,000 (2.5%) to $125,168,000 from $122,084,000 in the same period of 1994.
As compared to 1994, the current year's sales increase was due to a $3,026,000
(4.6%) increase in Personal Care Products sales in the United States and a
$2,043,000 (6.6%) increase in international sales, partially offset by a
$1,985,000 (8.1%) decrease in Custom Label Products sales.
Cost of Products Sold
For the three-month period ended September 30, 1995, cost of products sold
increased by $1,974,000, and as a percent of net sales to 54.7% from 53.7% in
the third quarter of 1994. The increase in absolute dollars related, in part,
to higher sales volume in the quarter. In addition, the Company recorded a
$1,100,000 pre-tax charge in the third quarter of 1995 as a provision for
packaging and finished goods inventory obsolescence.
For the nine-month period ended September 30, 1995, cost of products sold
increased by $2,474,000, and as a percent of net sales to 55.3% from 54.7% 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 nine months
of 1995 has resulted in a decrease in factory thru-put and the absorption of
fixed manufacturing overhead.
Page 9 of 13 pages
<PAGE>
Selling, Marketing and Administrative Expenses
Selling, marketing and administrative expenses increased by $2,258,000 in the
third quarter of 1995, and as a percent of net sales to 44.8% from 42.4% in
1994. For the nine-month period ended September 30, 1995, selling, marketing
and administrative expenses increased by $1,756,000, and as a percent of net
sales to 42.7% from 42.4% in 1994.
Selling expenses increased both in absolute dollars and as a percent of net
sales during both the three- and nine-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 third quarter of 1995 were $3,232,000,
representing a decrease of $159,000 (4.7%) from the comparable period of 1994.
For the nine-month period ended September 30, 1995, total marketing expenses
decreased by $1,543,000 (12.2%). During the first nine months of 1995, the
Company reduced the marketing activities within its Personal Care Products
business in the United States, including lower levels of advertising and a
decrease in various consumer promotions.
As compared to the prior year, administrative expenses increased both in
absolute dollars and as a percent of net sales during the third quarter of 1995.
In the third quarter of 1995, the Company's Board of Directors adopted a plan of
dissolution for St. Ives Laboratories, A/S (Denmark). Related to this event,
the Company recorded approximately $540,000 in expenses to reflect the
anticipated close down and liquidation costs of the existing business activities
of the Danish subsidiary. In the third quarter of 1995, the Company recorded
$413,000 in administrative expense to increase its allowance for doubtful
accounts related to trade accounts receivable. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.
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.
Interest Expense
For the third quarter of 1995, interest expense increased to $115,000 from
$70,000 in the same period last year. For the nine-month period ended
Page 10 of 13 pages
<PAGE>
September 30, 1995, interest expense increased to $351,000 from $210,000 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.
Provision for Income Taxes
For the three-month period ended September 30, 1995 and 1994, income tax
(benefit)/expense was ($1,551,000) and $849,000, respectively. For the nine-
month period ended September 30, 1995 and 1994, income tax (benefit)/expense was
($380,000) and $2,010,000, respectively.
The tax benefit for both the three- and nine-month periods in the current year
stems from the Board of Directors' adoption of a plan of dissolution for St.
Ives Laboratories A/S (Denmark). In connection with the planned wind-up of
activities in Denmark, the Company recorded a one-time tax benefit of $2.5
million, or $0.36 per share, in the third quarter of 1995 reflecting the
anticipated tax deduction relating to the Company's investment in the Danish
subsidiary.
Net Income
Net income for the third quarter of 1995 was $1,783,000 or $0.25 per share
versus $812,000 or $0.12 per share in the comparable quarter of 1994. As a
percent of net sales, net income increased to 4.1% in the third quarter of 1995
from 2.0% in the comparable period of 1994.
Foreign Operations
Historically, the Company has incurred operating losses in Denmark and had
accumulated foreign net operating loss carryforwards in Denmark totaling nearly
$5 million as of September 30, 1995. As a result of the Board of Directors'
adoption of a plan of dissolution for St. Ives Laboratories A/S (Denmark), these
historical loss carryforwards will expire and will not be available for use in
future periods. The Company had fully reserved the deferred tax asset relating
to foreign net operating loss carryforwards as of September 30, 1995. See
"Provision for Income Taxes" section in the foregoing for a discussion
concerning the current period tax benefit related to the Denmark dissolution.
The Board's decision related to Denmark was in keeping with the Company's
previously announced plan to limit the impact of foreign losses as it develops
foreign markets. Absent the effect of $540,000 in special close down charges as
described in the "Selling, Marketing and Administrative Expenses" section above,
the Company's Denmark subsidiary posted an after tax loss of $847,000 in the
nine-month period ended September 30, 1995.
Page 11 of 13 pages
<PAGE>
Financial Condition
The Company had cash, cash equivalents and short term investments of $733,000
and $4,715,000 at September 30, 1995 and December 1994, respectively.
Net cash used for operating activities in the nine-month period of 1995 was
$1,774,000 due primarily to increased accounts receivable-trade and a decrease
in income taxes payable, partially offset by net income for the period, reduced
inventories, and a noncash charge for depreciation and amortization. At
September 30, 1995, the Company's working capital level and its current ratio
increased as compared to December 31, 1994.
Capital spending in the nine-month period of 1995 declined to $647,000 from
$2,070,000 in the comparable period of last year. In 1995, the Company has
reduced its purchases of equipment related to its manufacturing and distribution
facilities.
Net cash used for financing activities during the first nine months of 1995 was
$1,922,000 resulting primarily from a decease in short term borrowings. The
Company had $2,168,000 of short term debt outstanding at September 30, 1995,
representing a decrease of $1,332,000 since the beginning of the year. Cash
dividends paid during the first nine months of 1995 were $632,000.
The Company believes that funds generated from operations, 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.
Recent Developments
See Footnote 6 in the Notes to Consolidated Financial Statements for a
discussion concerning a significant subsequent event.
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.
Page 12 of 13 pages
<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.
ST. IVES LABORATORIES, INC.
(Registrant)
Date: November 13, 1995 /s/ JOHN L. BOYLE
------------------------------------
JOHN L. BOYLE
CHIEF FINANCIAL OFFICER
Date: November 13, 1995 /s/ MAC ALLEN CULVER III
-------------------------------------
MAC ALLEN CULVER III
PRESIDENT
Page 13 of 13 pages
<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> SEP-30-1995
<CASH> 732,721
<SECURITIES> 0
<RECEIVABLES> 27,689,356
<ALLOWANCES> 823,000
<INVENTORY> 28,937,387
<CURRENT-ASSETS> 64,802,503
<PP&E> 6,609,160
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,743,654
<CURRENT-LIABILITIES> 24,917,854
<BONDS> 0
<COMMON> 70,254
0
0
<OTHER-SE> 46,755,546
<TOTAL-LIABILITY-AND-EQUITY> 71,743,654
<SALES> 125,168,578
<TOTAL-REVENUES> 125,168,578
<CGS> 69,280,759
<TOTAL-COSTS> 69,280,759
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 350,651
<INCOME-PRETAX> 2,427,954
<INCOME-TAX> (380,372)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,808,326
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
