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 29, 2000 Commission File Number 0-14449
BeautiControl, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-2036343
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
2121 Midway, Carrollton, TX 75006
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(Address including zip code of principal executive offices)
972/458-0601
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(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 5, 2000.
Title of Each Class of Common Stock Number of Shares Outstanding
----------------------------------- ----------------------------
Common Stock, $0.10 par value 7,231,448 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 [ ]
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Index to BeautiControl, Inc. Consolidated Financial Statements
Page
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Balance Sheets 3-4
Statements of Income 5
Statements of Cash Flows 6
Notes to Financial Statements 7-10
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
February 29, November 30,
2000 1999
(Unaudited)
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 825,001 $ 1,799,205
Short-term investments 3,021,277 3,326,704
Accounts receivable-net of
allowance for doubtful accounts
of $767,600 and $722,700 at
February 29, 2000 and
November 30, 1999, respectively 258,591 601,498
Inventories
Raw materials 4,921,729 4,326,155
Finished goods 5,452,086 6,214,327
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10,373,815 10,540,482
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Deferred income taxes 2,063,462 3,295,872
Income tax receivables 331,674 221,870
Other current assets 886,442 943,865
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Total current assets 17,760,262 20,729,496
PROPERTY AND EQUIPMENT, AT COST 25,637,957 28,814,440
LESS ACCUMULATED DEPRECIATION
AND AMORTIZATION 16,914,468 17,865,734
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8,723,489 10,948,706
OTHER ASSETS
Cost in excess of net tangible
assets, acquired, net of
amortization of $977,700 and
$961,100 at February 29, 2000 and
November 30, 1999, respectively 1,673,643 1,690,214
Investments - -
Other, net of amortization of
$588,200 and $584,900 at February
29, 2000 and November 30, 1999,
respectively 1,828,204 1,827,453
---------- ----------
Total assets $29,985,598 $35,195,869
========== ==========
The accompanying notes are an integral part of these financial statements.
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
February 29, November 30,
2000 1999
(Unaudited)
---------- ----------
CURRENT LIABILITIES
Accounts payable - trade $ 3,002,136 $ 4,205,105
Current maturities of long-term debt 3,683,665 6,364,694
Accrued commissions and awards 2,017,981 2,125,410
Accrued other taxes 1,356,294 1,589,935
Accrued liabilities 2,905,584 3,753,523
Deferred income 909,071 1,888,139
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Total current liabilities 13,874,731 19,926,806
DEFERRED INCOME TAXES 193,211 193,211
LONG TERM BORROWINGS 6,335,937 6,442,662
OTHER LONG-TERM OBLIGATIONS 129,703 143,188
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 - 10,940,248
shares at February 29, 2000 and
November 30, 1999, respectively 1,094,025 1,094,025
Capital in excess of par value 23,920,292 23,912,573
Retained earnings 15,437,971 14,456,745
Accumulated other comprehensive income (95,078) (68,147)
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40,357,210 39,395,196
Less cost of 3,708,800 common shares
held in treasury at February 29, 2000
and November 30, 1999 30,905,194 30,905,194
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9,452,016 8,490,002
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Total liabilities and
stockholders' equity $29,985,598 $35,195,869
========== ==========
The accompanying notes are an integral part of these financial statements.
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
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February 29, February 28,
2000 1999
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Net sales $15,937,425 $16,808,135
Cost of goods sold 3,740,954 4,080,027
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Gross profit 12,196,471 12,728,108
Selling expenses 6,823,110 8,680,259
General and administrative expenses 5,396,673 5,238,404
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12,219,783 13,918,663
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Income (loss) from operations (23,312) (1,190,555)
Other income and expenses
Interest income 116,513 95,252
Interest expense (317,296) (187,246)
Other, net 2,329,170 15,859
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2,128,387 (76,135)
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Income (loss)before income taxes 2,105,075 (1,266,690)
Income taxes (benefit) 1,122,606 (417,169)
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Net income (loss) $ 982,469 ($849,521)
========== ==========
Net income (loss) per common
share - basic $0.14 ($0.12)
Weighted average common shares - basic 7,231,448 7,229,448
Net income (loss) per common share
- assuming dilution $0.14 ($0.12)
Weighted average common shares -
assuming dilution 7,231,879 7,229,448
The accompanying notes are an integral part of these financial statements.
BEAUTICONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Three Months Ended
--------------------------
February 29, February 28,
2000 1999
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Net cash provided by (used in) operating
activities ($2,190,331) ($1,720,497)
Cash flows from investing activities:
Proceeds from sale of investments 300,000 1,500,000
Proceeds from sale of property and equipment 3,850,000 -
Purchase of property and equipment (96,061) (1,213,778)
Purchase of investments - (699,921)
Increase in other assets (34,468) (11,481)
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Net cash provided by (used in)
investing activities 4,019,471 (425,180)
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Cash flows from financing activities:
Proceeds from issuance of common0 stock - 55,001
Increase (decrease) in borrowings 238,155 1,476,230
Payment on long-term debt (3,012,211) (1,600,000)
Principal payments under capital
lease obligation (29,288) (27,986)
Dividends paid - (759,303)
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Net cash provided by (used in)
financing activities (2,803,344) (856,058)
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Net increase (decrease) in cash and
cash equivalents (974,204) (3,001,735)
Cash and cash equivalents at the
beginning of the period 1,799,205 3,164,573
---------- ----------
Cash and cash equivalents at the end
of the period $ 825,001 $ 162,838
========== ==========
Supplemental cash flow information:
Income tax refund - ($690,000)
Interest paid $285,000 $127,000
The accompanying notes are an integral part of these financial statements.
BEAUTICONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED February 29, 2000 AND February 28, 1999
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 29, 2000 and November 30, 1999 and the results of operations and
cash flows for the three months ended February 29, 2000 and February 28,
1999. The results for the three months ended February 29, 2000 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, 1999.
Certain amounts for prior periods may have been reclassified to conform to
current period presentation.
Note 2 - Earnings Per Share
Net income per share is accounted for under the provisions of Financial
Accounting Standards No. 128 which requires companies to present basic
earnings per share including weighted average number of common shares
outstanding and, if applicable, diluted earnings per share which includes
common equivalent shares outstanding. The following table sets forth the
computation of basic and diluted earnings (loss) per share (in thousands,
except per share data):
Three Months Ended
--------------------------
February 29, February 28,
2000 1999
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Numerator:
Numerator for basic and
diluted earnings per
share -- income (loss)
available to common
stockholders $982 ($850)
Denominator:
Denominator for basic
earnings per share --
weighted-average shares 7,231 7,229
Effect of dilutive
Employee stock options 1 -
Denominator for diluted
earnings per share --
adjusted weighted -
average shares and
assumed conversions 7,232 7,229
Basic earnings (loss) per share $0.14 ($0.12)
Diluted earnings (loss) per share $0.14 ($0.12)
During the first quarter of 2000 and 1999, employee stock options to
purchase 1,707,000 and 1,229,000 shares of the Company's common stock,
respectively, were excluded from the computation of earnings per share as
their effect would have been antidilutive.
Note 3 - Debt
During the first quarter of 2000, the Company sold an airplane which was
securing a term loan, and used of portion of the proceeds to pay down the
balance of that loan in the amount of $2,864,200 including principal and
interest. The balance on the loan at February 28, 1999 had been $2,900,000.
The Company has a three-year note and security agreement secured by certain
assets of the Company bearing interest at the prime rate plus .5%. The
agreement provides for a maximum credit availability of $7,000,000 dependent
upon the value of the Company's inventory. At February 29, 2000, the
maximum available credit was $4,291,100. At February 29, 2000, the
outstanding principal under the note and security agreement was $4,291,100.
This amount includes a $1,030,300 balance on a fixed note with a four-year
amortization and a $3,260,800 balance on a revolving loan agreement. The
weighted average interest rate through February 29, 2000 was 9.07%.
The Company has asset financing in the amount of $5,800,000 secured by
certain real estate. The note is a ten-year note amortized over a twenty-
two period bearing a fixed interest rate of 8.33%. At February 29, 2000,
the outstanding balance was $5,728,500. As part of this arrangement, the
Company is required to hold a restricted escrow balance of $850,000.
Long-term debt (thousands) consists of the following:
February 29, November 30,
2000 1999
----- -----
Three year note and security agreement 1,030 1,111
Mortgage financing 5,729 5,753
Less current portion 423 421
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Total long-term debt 6,336 6,443
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Note 4 - Inventories
Inventories (in thousands) consist of the following:
February 29, November 30,
2000 1999
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Finished Goods $ 9,767 $10,407
Raw Materials 5,726 5,118
Reserve for Obsolescence (5,119) (4,985)
------ ------
Total $10,374 $10,540
====== ======
Note 5 - Comprehensive Income
Comprehensive Income is accounted for under the provisions of Financial
Accounting Standards No. 130. Comprehensive Income is defined as the change
in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The components of
comprehensive income (in thousands) are as follows:
Three Months ended
--------------------------
February 29, February 28,
2000 1999
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Net income (loss) $982 ($850)
Other comprehensive income (loss)
Change in cumulative
translation adjustment (19) (30)
Unrealized gains and losses on
investments in debt securities (8) (40)
---- ----
Comprehensive income (loss) $955 ($920)
==== =====
Note 6 - Segment Reporting
The Company's operating segments are based primarily on geographic areas
with the exception of the Company's subsidiary Eventus International, Inc.
Geographic areas include North America and Asia Pacific. The Company's
North America and Asia Pacific segments sell skin care, cosmetic products,
image accessories and health and beauty supplements. The Eventus segment
sells nutritional and drink supplements. Products are sold to customers
through independent sales Consultants or Distributors. The Company
evaluates segment performance based on operating profit or loss with all
intersegment transactions eliminated. The following table summarizes
financial information related to the Company's segments as of February 29,
2000 and February 28, 1999:
2000 1999
------ ------
Net Sales:
North America $14,667 $15,817
Asia Pacific 1,158 889
Eventus 227 331
Eliminations - Intersegment sales (115) (229)
------ ------
Consolidates Net Sales $15,937 $16,808
====== ======
Income (loss) from Operations:
North America $ 599 $1,801
Asia Pacific (458) (563)
Eventus (111) (2,006)
Corporate (1) (53) (423)
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Consolidated Income (loss) from Operations $ (23) ($1,191)
====== ======
(1) Includes corporate expensed expansion costs.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Quarters Ended February 29, 2000 and February 28, 1999. Net sales for the
first quarter were $15,937,425 in 2000 compared with $16,808,135 in 1999.
This decrease included a decline in the North America market in line with
soft sales in the direct selling industry. The overall decrease was
partially offset by the additional sales provided by the Hong Kong branch,
which opened in the second quarter of 1999.
Gross profit margins for the first quarter of 2000 were 76.5% compared with
75.7% for the first quarter of 1999. The increase in profit margins was
primarily the result of a shift in product mix from lower margin
demonstration kits to skin care products. Skin care sales increased due to
the introduction of a new firming product line in January 2000 and a new
skin treatment product in August 1999. Prior year sales of demonstration
kits were higher than normal due to the introduction of a new type of kit in
February 1999.
Selling, general and administrative expenses as a percent of sales decreased
to 76.7% in 2000 from 82.8% in 1999 resulting from an overall decrease in
costs. This is partly due to costs of $1,795,000 for new business expansion
efforts in 1999. Reorganization efforts and cost reductions that were
implemented at the end of 1999 are also resulting in decreased costs.
Other income and expense increased to $2,128,387 in 2000 from ($76,135) in
1999 primarily resulting from a capital gain in connection with the sale of
an airplane.
As a result of the above, the net financial result during the first quarter
of 2000 was $982,469 or $.14 per common share compared with a net loss of
($849,521) or ($.12) per common share in 1999.
Liquidity and Capital Resources
Working capital increased $3,082,800 to $3,885,500 at February 29, 2000 from
$802,700 at November 30, 1999. This was mainly due to a reduction in short-
term debt. During the first quarter of 2000, the Company sold an airplane
as discussed above, which was securing a term loan, and used a portion of
the proceeds to pay down the balance of that loan in the amount of
$2,864,200 including principal and accrued interest. Also affecting working
capital were decreases in trade accounts payable and various accrued
liabilities, which include severance costs, commissions, and property taxes.
Deferred income, composed primarily of orders received but not yet shipped,
decreased due to timing of the shipment of these orders. Offsetting
increases to working capital was a reduction in cash and short-term
investments used to fund operating needs.
The Company has a three-year note and security agreement secured by certain
assets of the Company bearing interest at the prime rate plus .5%. The
agreement provides for a maximum credit availability of $7,000,000 dependent
upon the value of the Company's inventory. At February 29, 2000, the
maximum available credit was $4,291,100. At February 29, 2000, the
outstanding principal under the note and security agreement was $4,291,100.
This amount includes a $1,030,300 balance on a fixed note with a four-year
amortization and a $3,260,800 balance on a revolving loan agreement. The
weighted average interest rate through February 29, 2000 was 9.07%.
The Company has asset financing in the amount of $5,800,000 secured by
certain real estate. The note is a ten-year note amortized over a twenty-
two period bearing a fixed interest rate of 8.33%. At February 29, 2000,
the outstanding balance was $5,728,500. As part of this arrangement, the
Company is required to hold a restricted escrow balance of $850,000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has not been a material change in the Company's exposure to interest
rate risk on investments and foreign currency rate changes since November
30, 1999. Changes to market risk as it relates to interest rate changes on
the Company's financing activities has been minimal. The Company currently
has a three year note and security agreement with an outstanding balance of
$4,291,100 at February 29, 2000 that may be subject to market risk if there
were to be interest rate changes. The current borrowing under the facility
is at 9.25%. If the rate were to increase to 10.25% and the amount
outstanding remained the same, incremental interest expense would reduce
earnings before taxes by $42,911 annually. At February 29, 2000, the
Company also had a ten year note with a balance of $5,728,500, which has a
fixed interest rate and is thus not subject to interest rate volatility. At
November 30, 1999, the Company had a $2,907,600 outstanding balance on a
five year term loan. During the first quarter of 2000, the Company paid off
this term loan.
Financial Instruments
Due to expansion into foreign markets, the Company may be exposed to foreign
currency fluctuations and other related market risks as part of its ongoing
business operations. The Company may periodically use foreign exchange
derivatives, when appropriate, to manage these risks. At present, net
exposure and risk due to foreign currency fluctuations is judged to not
require any derivative activities at this time.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(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, Inc.
(Registrant)
Date: 4/13/00 /s/ RICHARD W. HEATH
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Richard W. Heath
Chairman of the Executive
Committee and Chief Executive Officer
Date: 4/13/00 /s/ SHEILA O'CONNELL COOPER
-------------------------------------
Sheila O'Connell Cooper
President & Chief Operating Officer
Date: 4/13/00 /s/ KRISTI L. HUBBARD
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Kristi L. Hubbard
Senior Vice President - Controller