FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended February 28, 1997 Commission File Number 0-14449
BeautiControl Cosmetics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2036343
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
2121 Midway, Carrollton, TX 75006
(Address including zip code of principal executive offices)
972/458-0601
(Registrant's telephone number including area code)
Indicated below is the number of shares outstanding of each class of the
registrant's common stock, as of April 7, 1997.
Title of Each Class of Common Stock Number of Shares Outstanding
Common Stock, $0.10 par value 5,910,698 shares
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
1
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statement
Index to BeautiControl Cosmetics, Inc. Consolidated Financial
Statement
Page
Balance Sheet 3-4
Statements of Income 5
Statements of Cash Flows 6
Notes to Financial Statements 7-8
2
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
February 28, November 30,
1997 1996
CURRENT ASSETS
Cash and cash equivalents $396,333 $884,384
Short-term investments 357,519 360,397
Accounts receivable-net of
allowance for doubtful accounts
of $520,900 and $487,800 at
February 28, 1997 and
November 30, 1996, respectively 1,391,980 1,103,915
Inventories
Raw materials 6,404,869 6,092,260
Finished goods 9,494,390 8,744,714
15,899,259 14,836,974
Deferred income taxes 1,850,892 1,850,892
Other current assets 900,883 679,672
Total current assets 20,796,866 19,716,234
PROPERTY AND EQUIPMENT, AT COST 21,613,081 21,464,387
LESS ACCUMULATED DEPRECIATION
AND AMORTIZATION 12,513,864 12,100,577
9,099,217 9,363,810
OTHER ASSETS
Cost in excess of net tangible
assets, acquired, net of
amortization of $778,800 and
$762,300 at February 28, 1997 and
November 30, 1996, respectively 1,872,492 1,889,063
Investments 2,397,112 2,403,326
Other, net of amortization of
$529,400 and $517,900 at February
28, 1997 and November 30, 1996,
respectively 559,904 537,849
Total assets $34,725,591 $33,910,282
<FN>
The accompanying notes are an integral part of these statements.
3
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
February 28, November 30,
1997 1996
CURRENT LIABILITIES
Short-term borrowings $6,500,000 $3,900,000
Accounts payable - trade 2,499,716 2,926,454
Sales tax payable 660,445 938,451
Accrued commissions and awards 1,425,187 2,089,530
Accrued compensation 551,839 1,020,108
Accrued liabilities 281,483 1,183,787
Deferred income 423,405 349,655
Accrued state and federal income
taxes 1,588,493 1,772,236
Total current liabilities 13,930,568 14,180,221
DEFERRED INCOME TAXES 419,384 419,384
COMMITMENTS & CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock
Authorized - 1,000,000 shares,
$.10 par value
Issued and outstanding - none
Common stock
Authorized - 20,000,000 shares,
$.10 par value
Issued - 9,619,498 and
9,521,361 shares at
February 28, 1997 and
November 30, 1996, respectively 961,950 952,136
Capital in excess of par value 13,409,127 12,720,192
Unrealized losses on investment,
net of taxes (33,620) (33,620)
Retained earnings 36,943,376 36,577,163
51,280,833 50,215,871
Less cost of 3,708,800
common shares held in treasury
at February 28, 1997 and
November 30, 1996 30,905,194 30,905,194
20,375,639 19,310,677
Total liabilities and
stockholders' equity $34,725,591 $33,910,282
<FN>
The accompanying notes are an integral part of these statements.
4
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
February 28, February 29,
1997 1996
Sales $16,051,680 $16,304,786
Cost of goods sold 3,905,430 3,702,010
Gross profit 12,146,250 12,602,776
Selling expenses 6,508,817 7,126,828
General and administrative expenses 4,162,184 4,415,329
10,671,001 11,542,157
Income from operations 1,475,249 1,060,619
Other income and expenses
Interest income 30,037 41,203
Other, net 42,349 70,857
72,386 112,060
Income before income taxes 1,547,635 1,172,679
Income taxes 568,994 505,177
Net income $978,641 $667,502
Net income per common and common
equivalent share $.16 $.11
Weighted average common and common equivalent 6,309,942 6,067,373
shares
<FN>
The accompanying notes are an integral part of these statements.
5
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Three Months Ended
February 28, February 29,
1996 1997
Net cash provided by (used in)
operating activities ($3,023,592) $378,977
Cash flows from investing activities:
Proceeds from sale of investments - 240,000
Purchase of property and equipment (148,694) (185,470)
Purchase of investments - -
Purchase of other assets - (44,384)
Net cash provided by (used in)
investing activities (148,694) 10,146
Cash flows from financing activities:
Proceeds from issuance of common
stock 698,749 10,406
Short-term borrowings 2,600,000 700,000
Purchase of treasury stock - (318,208)
Dividends paid (614,514) (616,753)
Net cash provided by (used in)
financing activities 2,684,235 (224,555)
Net increase (decrease) in cash and
cash equivalents (488,051) 164,568
Cash and cash equivalents at the
beginning of the period 884,384 855,856
Cash and cash equivalents at the end
of the period $ 396,333 $1,020,424
Supplemental cash flow information:
Income taxes $ 625,000 $ 100,000
Interest 93,407 31,819
<FN>
The accompanying notes are an integral part of these statements.
6
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
Note 1 - Basis of Presentation
In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments, consisting of only
normal recurring adjustments, necessary to present fairly the
financial position as of February 28, 1997 and November 30, 1996
and the results of operations and cash flows for the three months
ended February 28, 1997 and February 29, 1996. The results for
the three months ended February 28, 1997 are not necessarily
indicative of the results for the year.
While the Company believes that the disclosures presented are
adequate to make the information not misleading, it is suggested
that these financial statements be read in conjunction with the
consolidated financial statements and notes included in the
Company's annual report on Form 10-K for the year ended November
30, 1996.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operation
Quarters Ended February 28, 1997 and February 29, 1996. Net sales
for the first quarter were $16,052,000 in 1997 compared to
$16,305,000 in 1996. The first quarter of 1996 offered several
new products including an extension to the Company s successful
REGENERATION line - REGENERATION Extreme Repair Hand Therapy.
Impacting sales for the first quarter of 1997 was the decision to
delay the introduction of REGENERATION GOLD, a new skin repair
product, until the second quarter. The strategy to guarantee the
quality of the product s effectiveness and refine its unique
packaging system will enable the Company to ensure that overall
product execution is a complete success. Also planned for the
second quarter is the national implementation of new lower cost
entry and training programs for our Consultants which were
successful in both Louisiana and Mississippi test markets in
1996.
Gross profit margins for the first quarter of 1997 were 75.7%
compared to 77.3% in 1996. Directly affecting this change were
sales incentives that included higher product discounts offered
to Consultants effectively lowering net sales and thus, gross
profit margins. Also, the first quarter of 1997 included a
recruiting promotion that caused sales to increase in the
supplements product line and demonstration kits. These carry a
higher cost and lower profit margins that were offset by
decreases in commissions as a percent of sales.
Selling, general and administrative expenses as a percent of
sales decreased from 70.8% in 1996 to 66.5% in 1997. As
mentioned above, the result of the recruiting promotion in the
first quarter of 1997 caused sales to increase in both
demonstration kits and sales aids. Because these product lines
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are not commissionable, Consultant commissions as a percent of
sales were down. Also affecting the decrease in first quarter
expenses was the reduction in cost and professional fees
associated with the implementation of new recruiting and training
programs and targeted market expansions.
Other income and expenses decreased from $112,000 in 1996 to
$72,000 in 1997.
Net income increased 47% from $668,000 in 1996 to $979,000 in
1997 primarily due to lower selling, general and administrative
expenses mentioned above.
Liquidity and Capital Resources
Working Capital at February 28, 1997 was $6,866,000 compared to
$5,536,000 at November 30, 1996. This change is caused from
increases in net trade accounts receivable and inventories, which
are partially offset by increases in short-term borrowings and
overall reductions in accrued items.
The Company s cash position decreased from $884,000 at November
30, 1996 to $396,000 at February 28, 1997. Decreases in cash are
a result of reductions to trade accounts payable, sales tax
payable, and various accrued liabilities which include
commissions, compensation and property taxes.
The Company has a $15,000,000 line of credit available to use
primarily for share repurchase in the event that the Company
believes its stock is undervalued and if operating cash is needed
for the business. The interest rate is based on a LIBOR rate
plus a spread that adjusts with the debt ratio. The current
expiration date is November 30, 1998; however, this revolving two
year credit line can be extended annually and balances can be
termed out at any time during the two years for a three year
amortization. A commitment fee of .25% is paid quarterly based
on the unused portion of this line of credit. The weighted
average interest rate for first quarter 1997 was 6.74%; for 1996
the average was 6.71%. The outstanding balance at February 28,
1997 was $6,500,000 compared to $3,900,000 at November 30, 1996.
During 1996 and first quarter 1997, the Company used its
borrowings primarily for building inventory. Management believes
that this outstanding balance will be reduced by cash flow from
operations; however, it may continue to use this line of credit
as originally intended, as necessary for the growth of its
business.
New Accounting Standards
In December 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128)
Earnings Per Share. SFAS 128 requires companies to present basic
earnings per share and, if applicable, diluted earnings per
share. This replaces primary and fully diluted earnings per
share that is currently required under APB Opinion 15. The
Company will be required to adopt SFAS 128 on December 1, 1997
but at present will continue to report earnings per share under
APB 15. Currently, the Company has not yet determined the effect
of adopting SFAS 128.
8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Index to Exhibits
11 BeautiControl Cosmetics, Inc. and
Subsidiaries - Computation of Earnings per
Common Share - filed herewith.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant had duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BeautiControl Cosmetics, Inc.
(Registrant)
Date: 4/10/97 /s/ RICHARD W. HEATH
Richard W. Heath
President, Chief
Executive Officer
Date: 4/10/97 /s/ M. DOUGLAS TUCKER
M. Douglas Tucker
Senior Vice
President -Finance &
Principle Financial
Officer
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