-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S88YeNCNON/4MIzv3D2VqEpRg+E/fS2REtvTOvRxuPg2aHEr13QceDOuVy2YxX0x NIzjbs/HKKyq+hnrvs0r6g== 0000003327-98-000047.txt : 19981222 0000003327-98-000047.hdr.sgml : 19981222 ACCESSION NUMBER: 0000003327-98-000047 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALBERTO CULVER CO CENTRAL INDEX KEY: 0000003327 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 362257936 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05050 FILM NUMBER: 98772461 BUSINESS ADDRESS: STREET 1: 2525 ARMITAGE AVE CITY: MELROSE PARK STATE: IL ZIP: 60160 BUSINESS PHONE: 7084503039 MAIL ADDRESS: STREET 1: 2525 ARMITAGE AVENUE CITY: MELROSE PARK STATE: IL ZIP: 60160 10-K 1 ALBERTO-CULVER COMPANY 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1998 -OR- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-5050 ALBERTO-CULVER COMPANY (Exact name of registrant as specified in its charter) Delaware 36-2257936 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2525 Armitage Avenue Melrose Park, Illinois 60160 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (708)450-3000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Class A Common Stock, par value $.22 per share New York Stock Exchange Class B Common Stock, par value $.22 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 re- quired to file such reports) and (2) has been subject to such filing require- ments for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of common stock held by non-affiliates (assuming for this purpose only that all directors and executive officers are affiliates) on November 20, 1998 was $485.9 million for Class A Common Stock and $412.5 million for Class B Common Stock. At November 20, 1998, there were 23,914,132 shares of Class A Common Stock outstanding and 33,147,471 shares of Class B Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts I and II........ Portions of annual report to stockholders for the year ended September 30, 1998, as specifically described herein. Part III.............. Portions of proxy statement and notice of annual meeting of stockholders on January 28, 1999, as specifically described herein. - 1 - FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K and the documents incorporated by reference herein include certain forward- looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on management's current expectations and assessments of risks and uncertainties and reflect various assumptions concerning anticipated results, which may or may not prove to be correct. Some of the factors that could cause actual results to differ materially from estimates or projections contained in such forward looking statements include the pattern of brand sales, including variations in sales volume within periods; competition within the relevant product markets, including pricing, promotional activities, continuing customer acceptance of existing products and the ability to develop and successfully introduce new products; risks inherent in acquisitions and strategic alliances; changes in costs including changes in labor costs, raw material prices or promotional expenses; the costs and effects of unanticipated legal or administrative proceedings; variations in political, economic or other factors such as currency exchange rates, inflation rates, recessionary or expansive trends, tax changes, legal and regulatory changes or other external factors over which Alberto-Culver Company has no control. Alberto-Culver Company disclaims any obligation to update any forward-looking statement in this Annual Report on From 10-K or any incorporated document. PART I ITEM 1. BUSINESS BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION Alberto-Culver Company and its consolidated subsidiaries (herein referred to collectively as the "company", unless indicated otherwise) have two principal business segments. One segment, "Consumer Products" principally includes developing, manufacturing, distributing and marketing branded consumer products worldwide and includes the company's Alberto-Culver USA and Alberto-Culver International business units. This segment also includes the manufacturing of custom label products for other companies and products intended for end use by institutions and industries. The second segment, "Specialty Distribution - Sally", consists of Sally Beauty Company, a specialty distributor of professional beauty supplies with 1,998 stores as of September 30, 1998 in the United States, Puerto Rico, the United Kingdom, Canada, Japan and Germany. Financial information about business segments and geographic area information is incorporated herein by reference to the "Business Segments and Geographic Area Information" note of "Notes to Consolidated Financial Statements" in the company's annual report to stockholders for the year ended September 30, 1998. PRODUCTS The classes of products in the "Consumer Products" business segment include health and beauty care products as well as food and household products. Health and beauty care products accounted for approximately 41%, 43% and 43% of the company's consolidated net sales for the years ended September 30, 1998, 1997 and 1996, respectively. Food and household products accounted for approximately 6%, 7% and 8% of the company's consolidated net sales for the years ended September 30, 1998, 1997 and 1996, respectively. The company's major health and beauty care products in the United States include the ALBERTO VO5, TRESemme and CONSORT lines of hair care products, the ST. IVES SWISS FORMULA line of hair and skin care products, CORTEXX hair care products, FDS feminine deodorant sprays and the TCB line of hair care products for the ethnic market. Food and household products sold in the United States include MRS. DASH salt-free seasonings, MOLLY McBUTTER dairy sprinkles, SUGARTWIN sugar substitute and STATIC GUARD anti-static spray. The company sold its Milani, Diafoods, Thick-It and Smithers institutional food lines in July, 1996. - 2 - The company's consumer products are sold in more than 120 countries. Through its Cederroth subsidiary, the company manufactures and markets health and beauty care products throughout Scandinavia and Europe. Major products include SALVE adhesive bandages, ALBERTO VO5 hair care products, SAMARIN antacids, SELTIN salt substitute, LACTACYD liquid soap, TOPZ cotton buds, SAVETTE wet wipes, BLIW liquid soaps, DATE anti-perspirants and cologne for women, FAMILY FRESH shampoo and shower products, SUKETTER artificial sweetener, HEMANENT home permanents, the ST. IVES SWISS FORMULA line of hair and skin care products, HTH and L300 skin care products and GRUMME TVATTSAPA detergents. In the United Kingdom, the company markets, among other products, the ALBERTO VO5 line of hair care products, the ST. IVES SWISS FORMULA line of hair and skin care products, ALBERTO BALSAM shampoo and conditioner and the TRESemme line of hair care products. INDOLA professional hair colors, shampoos, conditioners and styling products are marketed throughout Europe and other international markets. Other international markets include Australia, Canada, Italy, Mexico, New Zealand and Puerto Rico. The "Specialty Distribution - Sally" business segment represents the operations of Sally Beauty Company, Inc. which operates a network of cash-and-carry professional beauty supply stores and also sells professional beauty products to hairdressers, beauticians and cosmetologists through its full-service distributors. Sally stores provide salon owners, hairdressers and consumers with an extensive selection of hair care and skin care products, cosmetics, styling appliances and other beauty items. Sales of the "Specialty Distribution - Sally" business segment accounted for approximately 53%, 50% and 49% of the company's consolidated net sales for the years ended September 30, 1998, 1997 and 1996, respectively. Many of the company's consumer products are developed in the company's laboratories. New products introduced by the company are assigned product managers who guide the products from development to the consumer. The product managers are responsible for the overall marketing plans for the products and coordinate advertising, promotion and market research activities. MARKETING The company allocates a large portion of its revenues to advertising, promotion and market research. Net earnings are materially affected by these expenditures, which are charged to income in the period incurred. Advertising, promotion and market research expenditures were $257.7 million in 1998, $255.3 million in 1997 and $208.4 million in 1996. Advertising, promotion and market research expenditures relating to a new product will ordinarily constitute a higher percentage of sales than in the case of a well-established product. There can be no assurance that such expenditures will result in consumer acceptance and profitability for a product. The company regards television as the best medium for its advertising and uses it to conduct extensive network, spot and cable television advertising campaigns. The company also advertises through other media such as newspapers, magazines and radio as well as through Sally Beauty Company's direct mailings to professional customers. Extensive advertising and promotion are required to build and protect a product's market position. The company believes there is significant consumer awareness of its major brands and that such awareness is an important factor in the company's operating results. - 3 - COMPETITION The markets for the company's branded consumer products are highly competitive and sensitive to changes in consumer preferences and demands. The company's competitors range in size from large, highly diversified companies (some of which have substantially greater financial resources than the company) to small, specialized producers. The company competes on the basis of product quality and price and believes that brand loyalty and consumer acceptance are important factors. The company's markets are characterized by frequent introductions of competitive products and by the entry of other manufacturers as new competitors, both of which are typically accompanied by extensive advertising and promotional campaigns. Such campaigns are often very costly and can significantly affect the sales and earnings of the company and its competitors. Sally Beauty Company experiences competition from local and regional professional beauty supply stores, full-service dealers calling directly on salons and a wide range of retail outlets carrying a limited selection of professional beauty products. DISTRIBUTION IN THE UNITED STATES Retail health and beauty care products and food and household products for Alberto-Culver USA are sold primarily through the company's sales force consisting of approximately 50 employees and 130 independent brokers calling upon wholesale drug establishments and retail outlets such as supermarkets, drug stores, mass merchandisers and variety stores. Hair care products for the professional trade in the United States are sold by company sales representatives and brokers to beauty supply outlets and to beauty distributors who in turn sell to beauty salons, barber shops and beauty schools. Sally Beauty Company sells professional beauty supplies through full-service distributors and its 1,998 stores located in 46 states, Puerto Rico, the United Kingdom, Canada, Japan and Germany. Sally's stores are self-service, cash-and-carry and are primarily located in shopping centers. Sally operates the world's largest chain of professional beauty supply stores and as such is a major customer of some of the company's competitors in the personal care products industry. Sally sells Alberto-Culver USA's professional hair care products, but these products represent only a small portion of Sally's selection of salon brands. FOREIGN OPERATIONS Products of the company are sold in more than 120 countries or geographic regions, primarily through direct sales by subsidiaries, independent distributors and licensees. The company's foreign operations are subject to risks inherent in transactions involving foreign currencies and political uncertainties. EMPLOYEES In its domestic and foreign operations, the company had approximately 12,700 full-time equivalent employees as of September 30, 1998, consisting of 7,700 hourly personnel and 5,000 salaried employees. At September 30, 1997, the company had approximately 11,000 full-time equivalent employees. The increase in employees during fiscal year 1998 is principally due to the growth in the number of Sally Beauty Company stores. Certain subsidiaries of the company have union contracts covering production, warehouse, shipping and maintenance personnel. The company considers relations with its employees to be satisfactory. - 4 - REGULATION The company is subject to the regulations of several federal and state agencies, including the Federal Food and Drug Administration and the Federal Trade Commission. TRADEMARKS AND PATENTS The company's trademarks, certain of which are material to its business, are registered or legally protected in the United States, Canada and other countries throughout the world in which products of the company are sold. Although the company owns patents and has other patent applications pending, its business is not materially dependent upon patents or patent protection. - 5 - ITEM 2. PROPERTIES The company's properties, plants and equipment are maintained in good condition and are suitable and adequate to support the business. The company's principal properties and their general characteristics are described below: Business Location Type of Facility Segment Company-Owned Properties: Melrose Park, Illinois (2525 Armitage Avenue) Corporate Headquarters, Manufacturing, Warehouse (1) (3) (2020 and 2040 Indian Boundary Drive) Office, Warehouse (1) (2150 N. 15th Avenue) Manufacturing, Warehouse (1) (2100 N. 15th Avenue) Warehouse (1) (1930 George Street) Office, Warehouse (1) Basingstoke, Hampshire, England Office (1) Columbus, Ohio Warehouse (2) Denton, Texas Office, Warehouse (2) Falun, Sweden Office, Manufacturing, Warehouse (1) Jacksonville, Florida Warehouse (2) Madrid, Spain Office, Manufacturing, Warehouse (1) Naguabo, Puerto Rico Manufacturing, Warehouse (1) Naucalpan de Juarez, Mexico Office, Manufacturing, Warehouse (1) North Rocks, New South Wales, Australia Office, Manufacturing, Warehouse (1) Reno, Nevada Warehouse (2) Swansea, Wales, England Office, Manufacturing, Warehouse (1) Toronto, Ontario, Canada Office, Manufacturing, Warehouse (1) Leased Properties: Albertslund, Denmark Office, Warehouse (1) Atlanta, Georgia Warehouse (1) Auckland, New Zealand Office, Warehouse (1) Chatsworth, California Office, Manufacturing, Warehouse (1) Espoo, Finland Office, Warehouse (1) Geneva, Switzerland Office (1) Macedonia, Ohio Warehouse (2) Ontario, California Warehouse (1) Rakkestad, Norway Office, Warehouse (1) Stockholm, Sweden Office, Manufacturing, Warehouse (1) Various (1,998 locations in 46 states, Puerto Rico, the United Kingdom, Japan and Germany) Sally Beauty Company Stores (2) (1) Consumer Products (2) Specialty Distribution - Sally (3) Corporate
- 6 - ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings pending. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended September 30, 1998. EXECUTIVE OFFICERS The following table sets forth the names and current positions of the registrant's executive officers, including their five-year business history and ages. Executive officers of the company and its subsidiaries are elected annually. Name Current Position and Five-Year Business History Age Leonard H. Lavin (1) October, 1994 - Chairman; previously Chairman and 79 Chief Executive Officer for more than five years. Howard B. Bernick (1) October, 1994 - President and Chief Executive Officer; 46 previously President and Chief Operating Officer for more than five years. Bernice E. Lavin (1) July, 1994 - Vice Chairman, Secretary and Treasurer; 73 previously Vice President, Secretary and Treasurer for more than five years. Carol L. Bernick (1) April, 1998 - Vice Chairman and Assistant Secretary, 46 Alberto-Culver Company and President, Alberto-Culver North America, a division of the registrant; October 1994 to April 1998 - Executive Vice President and Assistant Secretary, Alberto-Culver Company and President, Alberto-Culver USA, Inc., a subsidiary of registrant; September, 1992 to October, 1994 - Executive Vice President and Assistant Secretary. William J. Cernugel October, 1993 - Senior Vice President, Finance; 56 April, 1982 to October, 1993 - Vice President, Finance & Controller. Thomas J. Pallone Vice President, Research and Development. 53 Michael H. Renzulli President, Sally Beauty Company, Inc., a subsidiary of 58 registrant.
- 7 - Name Current Position and Five-Year Business History Age Gary P. Schmidt June, 1997 - Vice President, General Counsel and 47 Assistant Secretary; April, 1990 to June, 1998 - Vice-President, General Counsel and Secretary, Fujisawa USA, Inc. Terrence L. Stecz April, 1998 to December, 1998 - President, Alberto-Culver 43 USA, Inc., a subsidiary of the registrant; February, 1994 to March, 1997 - President of Whitehall-Robins Healthcare, American Home Products Corporation; January, 1990 to February, 1994 - President and General Manager of A.H. Robins Consumer Products Division, American Home Products Corporation. Mr. Stecz resigned from the Company on December 11, 1998. Paul H. Stoneham October, 1998 - President, Alberto-Culver International, 37 Inc., a subsidiary of registrant; December, 1997 to September, 1998 - Marketing Director, Hair Care Products - Germany, Procter and Gamble GmbH; January, 1994 to November, 1996 - Marketing Director, Health and Beauty Care Products - U.K., Procter and Gamble (UK) Ltd.; October, 1992 to December, 1993 - Marketing Director - Strategic Planning, OTC Health Care Products - Europe, Procter and Gamble GmbH. (1) Leonard H. Lavin and Bernice E. Lavin are husband and wife. Carol L. Bernick is the wife of Howard B. Bernick and the daughter of Mr. and Mrs. Lavin.
- 8 - PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information required for this Item is incorporated herein by reference to the section entitled "Market Price of Common Stock and Cash Dividends Per Share" and notes 3 and 4 of "Notes to Consolidated Financial Statements" in the registrant's annual report to stockholders for the year ended September 30, 1998. ITEM 6. SELECTED FINANCIAL DATA Information required for this Item is incorporated herein by reference to the section entitled "Selected Financial Data" in the registrant's annual report to stockholders for the year ended September 30, 1998. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required for this Item is incorporated herein by reference to the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the registrant's annual report to stockholders for the year ended September 30, 1998. ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required for this Item is incorporated herein by reference to the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the registrant's annual report to stockholders for the year ended September 30, 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required for this Item is incorporated herein by reference to the consolidated financial statements and notes and "Independent Auditors' Report" of KPMG Peat Marwick LLP in the registrant's annual report to stockholders for the year ended September 30, 1998. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. - 9 - PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required for this Item regarding the directors of the company and regarding delinquent filers pursuant to Item 405 of Regulation S-K is incorporated herein by reference to the sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance", respectively, in the registrant's proxy statement for its annual meeting of stockholders on January 28, 1999. Information concerning Executive Officers of the registrant is included in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION Information required for this Item is incorporated herein by reference to the section entitled "Executive Compensation" in the registrant's proxy statement for its annual meeting of stockholders on January 28, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required for this Item is incorporated herein by reference to the sections entitled "Share Ownership of Directors and Executive Officers" and "Principal Stockholders" in the registrant's proxy statement for its annual meeting of stockholders on January 28, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required for this Item is incorporated herein by reference to the section entitled "Certain Business Relationships" in the registrant's proxy statement for its annual meeting of stockholders on January 28, 1999. - 10 - PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: 1. Financial statements: The consolidated financial statements and notes to be included in Part II, Item 8 are incorporated by reference to the registrant's annual report to stockholders for the year ended September 30, 1998, which is filed as an exhibit to this report. 2. Financial statement schedules: Description Schedule Valuation and Qualifying Accounts II Schedules I, III, IV, and V are omitted as the information required by these schedules is not applicable. 3. Exhibits: Exhibit Number Description 3(i)(a) Copy of Restated Certificate of Incorporation of Alberto-Culver Company (filed as Exhibit 3(a) and incorporated herein by reference from the company's Form 10-K Annual Report for the year ended September 30, 1988). 3(i)(b) Copy of the amendment to the Restated Certificate of Incorporation of Alberto-Culver Company (filed as Exhibit 3(i)(c) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended March 31, 1997). 3(ii) Copy of the By-Laws of Alberto-Culver Company, as amended and in effect as of January 17, 1990 (filed as Exhibit 3(b)(1) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended December 31, 1989). 4 Certain instruments defining the rights of holders of long-term obligations of the registrant and certain of its subsidiaries (the total amount of securities authorized under each of which does not exceed ten percent of the registrant's consolidated assets) are omitted pursuant to part 4 (iii) (A) of Item 601 (b) of Regulation S-K. The registrant agrees to furnish copies of any such instruments to the Securities and Exchange Commission upon request. - 11 - 3. Exhibits: (continued) Exhibit Number Description 4 (a) Copy of Indenture dated June 10, 1998 between Alberto-Culver Company and The First National Bank of Chicago, as Trustee (filed as Exhibit 4(a) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended June 30, 1998). 4 (b) Specimen of 6.375% Debentures due June 15, 2028 (filed as Exhibit 4(b) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended June 30, 1998). 10 (a) Copy of Alberto-Culver Company Management Incentive Plan dated October 27, 1994, as amended * (filed as Exhibit 10(a) and incorporated herein by reference from the company's Form 10-K Annual Report for the year ended September 30,1997). 10 (b) Copy of Alberto-Culver Company Employee Stock Option Plan of 1988, as amended *(filed as Exhibit 10(b) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended December 31, 1997). 10 (c) Copy of Alberto-Culver Company 1994 Shareholder Value Incentive Plan, as amended * (filed as Exhibit 10(c) and incorporated herein by reference from the company's Form 10-K Annual Report for the year ended September 30,1997). 10 (d) Copy of Alberto-Culver Company 1994 Restricted Stock Plan, as amended *(filed as Exhibit 10(d) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended December 31, 1996). 10 (e) Copy of Alberto-Culver Company 1994 Stock Option Plan for Non- Employee Directors, as amended * (filed as Exhibit 10(e) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended December 31, 1997). 10 (f) Copy of Split Dollar Life Insurance Agreement dated September 30, 1993 between Alberto-Culver Company and the trustee of the Lavin Survivorship Insurance Trust * (filed as Exhibit 10(e) and incorporated herein by reference from the company's Form 10-K Annual Report for the year ended September 30, 1993). 10 (g) Form of Severance Agreement between Alberto-Culver Company and certain executive officers * (filed as Exhibit 10(f) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended December 31, 1996). - 12 - 3. Exhibits: (continued) Exhibit Number Description 10 (h) Copy of Multicurrency Credit Agreement dated as of September 11, 1998 among Alberto-Culver Company, Bank of America National Trust and Savings Association as U.S. agent and the other financial institutions parties thereto (filed as Exhibit 10(h) and incorporated herein by reference from the company's Form 10-K Annual Report for the year ended September 30, 1997). 13 Portions of annual report to stockholders for the year ended September 30,1998 incorporated herein by reference. 21 Subsidiaries of the Registrant. 23 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule 27 (a) Amended Financial Data Schedule * This exhibit is a management contract or compensatory plan or arrangement of the registrant. (b) Reports on Form 8-K: None - 13 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on the 11th day of December, 1998. ALBERTO-CULVER COMPANY By /s/ Howard B. Bernick Howard B. Bernick President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Leonard H. Lavin Chairman of the Board December 11, 1998 - ------------------------------------ Leonard H. Lavin and Director /s/ Howard B. Bernick President, Chief Executive December 11, 1998 - ----------------------------------- Howard B. Bernick Officer and Director /s/ Bernice E. Lavin Vice Chairman, Secretary, December 11, 1998 - -------------------------------------- Bernice E. Lavin Treasurer and Director /s/ Carol L. Bernick Vice Chairman, December 11, 1998 - -------------------------------------- Carol L. Bernick Assistant Secretary and Director /s/ William J. Cernugel Senior Vice President, Finance December 11, 1998 - ------------------------------------ William J. Cernugel (Principal Financial & Accounting Officer) /s/ Robert Abboud Director December 11, 1998 A. Robert Abboud /s/ A.G. Atwater, Jr. Director December 11, 1998 A. G. Atwater, Jr. /s/ Robert P. Gwinn Director December 11, 1998 - ------------------------------------ Robert P. Gwinn s/ Allan B. Muchin Director December 11, 1998 - ------------------------------------- Allan B. Muchin /s/ Robert H. Rock Director December 11, 1998 - -------------------------------------- Robert H. Rock /s/ Dr. Harold M. Visotsky Director December 11, 1998 - --------------------------------- Dr. Harold M. Visotsky /s/ William W. Wirtz Director December 11, 1998 - ------------------------------------ William W. Wirtz
- 14 - Independent Auditors' Report The Board of Directors and Stockholders Alberto-Culver Company: On October 22, 1998, we reported on the consolidated balance sheets of Alberto-Culver Company and subsidiaries as of September 30, 1998 and 1997 and the related consolidated statements of earnings, cash flows, and stockholders' equity for each of the years in the three-year period ended September 30, 1998, as contained in the 1998 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1998. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in Item 14(a)2 of the annual report on Form 10-K. That financial statement schedule is the responsibility of the company's management. Our responsibility is to express an opinion on that financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG PEAT MARWICK LLP KPMG PEAT MARWICK LLP Chicago, Illinois October 22, 1998 -14- Schedule II ALBERTO-CULVER COMPANY AND SUBSIDIARIES Valuation and Qualifying Accounts (In thousands) Year Ended September 30, 1998 1997 1996 ---- ---- ---- Allowance for doubtful accounts: Balance at beginning of period $9,042 8,208 5,663 Additions (deductions): Charged to costs and expenses 7,162 5,664 6,309 Uncollectible accounts written off, net of recoveries (5,532) (4,820) (4,326) Allowance for doubtful accounts of acquired company 266 -- 580 Other (70) (10) (18) ----------- ---------- -------- Balance at end of period $10,868 9,042 8,208 ============ ============== ===========
EX-13 2 ANNUAL REPORT TO STOCKHOLDERS
Consolidated Statements of Earnings Alberto-Culver Company and Subsidiaries Year Ended September 30, (In thousands, except per share data) 1998 1997 1996 Net sales $1,834,711 1,775,258 1,590,409 Costs and expenses: Cost of products sold 902,095 880,416 805,080 Advertising, promotion, selling and administrative 791,631 766,117 673,247 Interest expense, net of interest income of $3,563 in 1998, $3,588 in 1997 and $3,837 in 1996 8,607 8,238 12,068 Non-recurring gain (note 8) -- (15,634) -- ------ ------ ------ Total costs and expenses 1,702,333 1,639,137 1,490,395 Earnings before provision for income taxes 132,378 136,121 100,014 Provision for income taxes (note 6) 49,311 50,704 37,270 - ------ ------ ------ Net earnings $83,067 85,417 62,744 ======= ====== ====== Net earnings per share: Basic $1.46 1.53 1.13 ===== ==== ==== Diluted $1.37 1.41 1.06 ===== ==== ==== See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets Alberto-Culver Company and Subsidiaries (In thousands, except per share data) September 30, Assets 1998 1997 Current assets: Cash and cash equivalents $72,395 76,040 Short-term investments 910 11,560 Receivables, less allowance for doubtful accounts of $10,868 in 1998 and $9,042 in 1997 (note 3) 129,063 120,774 Inventories: Raw materials 37,316 44,175 Work-in-process 6,119 7,252 Finished goods 325,769 292,441 ------- ------- Total inventories 369,204 343,868 Prepaid expenses 19,993 28,017 ------ ------ Total current assets 591,565 580,259 Property, plant and equipment (note 7): Land 11,328 10,357 Buildings and leasehold improvements 139,622 124,920 Machinery and equipment 257,458 214,876 ------- ------- Total property, plant and equipment 408,408 350,153 Accumulated depreciation 184,932 159,155 ------- ------- Property, plant and equipment, net 223,476 190,998 Goodwill, net 137,599 114,245 Trade names, net 67,158 70,155 Other assets 48,386 44,402 ------ ------ $1,068,184 1,000,059 ========== ========= Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $2,279 3,582 Current maturities of long-term debt 959 1,361 Accounts payable 177,564 174,322 Accrued expenses (note 2) 112,015 118,447 Income taxes 20,808 13,540 ------ ------ Total current liabilities 313,625 311,252 Long-term debt (note 3) 171,760 149,441 Deferred income taxes 28,260 25,490 Other liabilities 20,548 16,872 Stockholders' equity (note 4): Common stock, par value $.22 per share: Class A authorized 75,000,000 shares; 30,612,798 shares and 24,442,931 shares issued at September 30, 1998 and 1997, respectively 6,735 5,378 Class B authorized 75,000,000 shares; 37,710,655 shares and 37,710,664 shares issued at September 30, 1998 and 1997, respectively 8,296 8,296 Additional paid-in capital 192,610 91,222 Retained earnings 528,733 458,886 Cumulative translation adjustments (note 1) (28,131) (22,555) ------- ------- 708,243 541,227 Less treasury stock, at cost (Class A common stock: 1998 -6,549,947 shares and 1997 - 1,833,315 shares; Class B common stock: 1998 - 4,563,184 shares and 1997 - 4,178,184 shares) (note 4) (174,252) (44,223) -------- ------- Total stockholders' equity 533,991 497,004 ------- ------- $1,068,184 1,000,059 ========== ========= See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows Alberto-Culver Company and Subsidiaries (In thousands) Year ended September 30, 1998 1997 1996 Cash Flows from Operating Activities: Net earnings $83,067 85,417 62,744 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 29,054 28,169 26,159 Amortization of goodwill, trade names and other assets 9,051 8,760 6,757 Non-recurring gain -- (15,634) -- Deferred income taxes 9,924 7,420 (1,858) Other, net (4,724) (1,462) (1,527) Cash effects of changes in (exclusive of acquisitions): Receivables, net (4,185) 296 (2,955) Inventories (15,973) (51,881) (12,287) Prepaid expenses 3,689 (1,196) 302 Accounts payable and accrued expenses (6,726) 17,665 17,930 Income taxes 7,175 2,174 (2,520) ----- ----- ------ Net cash provided by operating activities 110,352 79,728 92,745 ------- ------ ------ Cash Flows from Investing Activities: Short-term investments 10,650 (6,214) (946) Capital expenditures (55,934) (58,196) (40,894) Other assets (3,253) (7,585) (7,313) Proceeds from sale of business -- -- 12,448 Payments for purchased businesses, net of acquired companies' cash (33,889) (15,628) (130,981) Proceeds from insurance settlement -- 28,000 -- Proceeds from disposals of assets 1,664 2,044 1,599 ----- ----- ----- Net cash used by investing activities (80,762) (57,579) (166,087) ------- ------- -------- Cash Flows from Financing Activities: Short-term borrowings (5,478) 1,436 (315) Proceeds from issuance of long-term debt 125,851 550 5,475 Debt issuance costs (2,352) -- -- Repayments of long-term debt (4,009) (6,116) (29,118) Proceeds from sale of receivables -- -- 30,000 Proceeds from exercise of stock options 11,303 5,560 1,717 Cash dividends paid (13,220) (10,909) (9,724) Stock purchased for treasury (145,526) (1,138) (759) -------- ------ ---- Net cash used by financing activities (33,431) (10,617) (2,724) ------- ------- ------ Effect of foreign exchange rate changes on cash 196 (1,703) (308) --- ------ ---- Net increase (decrease) in cash and cash equivalents (3,645) 9,829 (76,374) Cash and cash equivalents at beginning of year 76,040 66,211 142,585 ------ ------ ------- Cash and cash equivalents at end of year $72,395 76,040 66,211 ======= ====== ====== Supplemental Cash Flow Information: Cash paid for: Interest $10,709 11,478 16,333 Income taxes $30,791 42,299 42,589 Non-cash investing and financing activities: Conversion of subordinated debentures into Class A common shares $99,875 -- -- Issuance of Class A common shares for acquisition $4,414 -- -- See accompanying notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity Alberto-Culver Company and Subsidiaries Number of Shares Dollars Additional Cumulative Common Stock Treasury Stock Common Stock Paid-in Retained Translation Treasury (In thousands) Class A Class B Class A Class B Class A Class B Capital Earnings Adjustments Stock Balance at September 30, 1995 13,263 20,944 (2,300) (4,178) $2,918 $4,608 $87,896 $337,506 $(12,966) $(49,059) Net earnings 62,744 Cash dividends (9,724) Stock options exercised 84 688 1,029 Stock issued pursuant to employee incentive plans 25 371 306 Stock purchased for treasury (23) (759) Foreign currency translation loss (462) _________________________________________________________________________________________________ Balance at September 30, 1996 13,263 20,944 (2,214) (4,178) 2,918 4,608 88,955 390,526 (13,428) (48,483) Net earnings 85,417 Cash dividends (10,909) Stock dividend 11,180 16,767 2,460 3,688 (6,148) Stock options exercised 359 1,663 4,389 Stock issued pursuant to employee incentive plans 78 604 1,009 Stock purchased for treasury (56) (1,138) Foreign currency translation loss (9,127) _________________________________________________________________________________________________ Balance at September 30, 1997 24,443 37,711 (1,833) (4,178) 5,378 8,296 91,222 458,886 (22,555) (44,223) Net earnings 83,067 Cash dividends (13,220) Stock options exercised 918 1,606 12,628 Stock issued pursuant to employee incentive plans 56 1,108 692 Stock issued for acquisition 171 2,237 2,177 Stock issued upon conversion of subordinated debentures 6,170 1,357 96,437 Stock purchased for treasury (5,862) (385) (145,526) Foreign currency translation loss (5,576) _________________________________________________________________________________________________ Balance at September 30, 1998 30,613 37,711 (6,550) (4,563) $6,735 $8,296 $192,610 $528,733 $(28,131) $(174,252) ====== ====== ====== ====== ====== ====== ======== ======== ======== ========= See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies PRINCIPLES OF CONSOLIDATION The consolidated financial statements include accounts of Alberto-Culver Company and its subsidiaries ("company"). All significant intercompany accounts and transactions have been eliminated. Certain amounts for prior periods have been reclassified to conform to the current year's presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements. Actual results may differ from these estimates. Management believes these estimates and assumptions are reasonable. FINANCIAL INSTRUMENTS All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. These investments are stated at cost which approximates market value. Short-term investments are stated at cost which is equal to market value at September 30, 1998 and 1997. The carrying amounts of accounts receivable, accounts payable and short-term borrowings approximate fair value due to the short maturities of these financial instruments. The fair value of long-term debt approximates its recorded value. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market (net realizable value). PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Depreciation is provided primarily on the straight-line method based on the estimated useful lives of assets. Expenditures for maintenance and repairs are expensed as incurred. GOODWILL AND TRADE NAMES The cost of goodwill and trade names is amortized on a straight-line basis over periods ranging from ten to forty years. Management periodically considers whether there has been a permanent impairment to the value of goodwill and trade names by evaluating various factors including current operating results, market and economic conditions and anticipated future results and cash flows. Accumulated amortization at September 30, 1998 and 1997 was $30.6 million and $23.8 million, respectively. FOREIGN CURRENCY TRANSLATION Foreign currency balance sheet accounts are translated at rates of exchange in effect at the balance sheet date. Results of operations are translated using the average exchange rates during the period. Realized gains and losses from foreign currency transactions included in the consolidated statements of earnings resulted in losses of $855,000, $1.2 million and $17,000 in 1998, 1997 and 1996, respectively. ADVERTISING, PROMOTION AND MARKET RESEARCH Advertising, promotion and market research costs are expensed as incurred and amounted to $257.7 million, $255.3 million and $208.4 million in 1998, 1997 and 1996, respectively. INCOME TAXES Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are estimated to be recovered or settled. CALCULATION OF EARNINGS PER SHARE Basic earnings per share are based on the weighted average shares outstanding of 56,845,000 in 1998, 55,967,000 in 1997 and 55,571,000 in 1996. Diluted earnings per share are determined by dividing net earnings plus interest expense (net of tax benefit) on the convertible subordinated debentures by the weighted average shares outstanding, after giving effect to common shares to be issued assuming conversion of the convertible subordinated debentures to common shares and other common equivalent shares. Diluted weighted average shares outstanding were 62,420,000 in 1998, 63,377,000 in 1997 and 62,776,000 in 1996. The following table provides a reconciliation of basic and diluted earnings per share: (In thousands) 1998 1997 1996 Net earnings $83,067 85,417 62,744 Interest expense on convertible subordinated debentures, net of tax benefit 2,730 3,640 3,640 ----- ----- ----- Diluted net earnings $85,797 89,057 66,384 ======= ====== ====== Weighted average shares outstanding - basic 56,845 55,967 55,571 Effect of dilutive securities: Assumed conversion of subordinated debentures 4,633 6,178 6,178 Assumed exercise of stock options 917 1,232 1,027 Other 25 -- -- Weighted average shares outstanding - diluted 62,420 63,377 62,776 STOCK-BASED COMPENSATION Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," requires either the adoption of a fair value based method of accounting for stock-based compensation or pro-forma disclosures as if the fair value method was adopted. The company has elected to continue measuring compensation expense for its stock-based plans using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". Pro- forma disclosures assuming the fair value method prescribed by SFAS No. 123 had been used to measure compensation expense are provided in note 5. (2) Accrued Expenses Accrued expenses consist of the following: (In thousands) 1998 1997 Compensation and benefits $48,854 51,549 Advertising and promotions 26,250 29,312 Other 36,911 37,586 ------ ------ $112,015 118,447 ======== ======= (3) Long-Term Debt and Other Financing Arrangements Long-term debt, exclusive of current maturities, consists of the following: (In thousands) 1998 1997 6.375% debentures due June, 2028 $120,000 -- 5.5% convertible subordinated debentures due June, 2005 -- 100,000 6.2% term note due September, 2000 20,000 20,000 Revolving Swedish krona credit agreements due April, 2000 at 4.4% to 11.7% 30,163 27,736 Other, principally foreign borrowings and capitalized leases, at weighted average interest rates of 7.4% in 1998 and 7.6% in 1997 1,597 1,705 ----- ----- $171,760 149,441 ======== ======= Maturities of debt for the next five years are as follows (in thousands) 1999 - $959; 2000 - $50,657; 2001 - $442; 2002 - $298; 2003 - $81; 2004 and later $120,282. In June, 1998, the company issued $120 million of 6.375% debentures due June 15, 2028. The debentures are subject to repayment, in whole or in part, on June 15, 2008 at the option of the holders. In addition, the company has the option to redeem the debentures at any time, in whole or in part, at a price equal to 100% of the principal amount plus accrued interest and, if applicable, a make-whole premium. In July, 1998, the 5.5% convertible subordinated debentures were converted into 6.2 million Class A common shares at a conversion rate of 61.776 shares per $1,000 principal amount of debentures (equivalent to a conversion price of approximately $16.19). The company has a $200 million revolving credit facility which expires in September, 2002. The facility, which is unused at September 30, 1998, can be increased to $300 million under certain conditions and may be drawn in U.S. dollars or certain foreign currencies. In January, 1998, the company renewed an agreement to sell, without recourse, up to $30 million of designated trade receivables on an ongoing basis. The agreement expires in one year and is renewable annually upon the mutual consent of both parties. At September 30, 1998, the facility was fully utilized. Costs related to this agreement are included in administrative expenses. The $200 million revolving credit facility, the term note due September, 2000 and the receivables agreement impose restrictions on such items as total debt, working capital, dividend payments, treasury stock purchases and interest expense. At September 30, 1998, the company was in compliance with these arrangements and $220 million of consolidated retained earnings was not restricted as to the payment of dividends. (4) Stockholders' Equity The company has two classes of common stock, both of which are listed on the New York Stock Exchange. Except for voting, dividend and conversion rights, the Class A and Class B common stock are identical. Class A has one-tenth vote per share and Class B has one vote per share. No dividend may be paid on the Class B unless an equal or greater dividend is paid on the Class A, and dividends may be paid on the Class A in excess of dividends paid, or without paying dividends, on the Class B. All, and not less than all, of the Class A may at any time be converted into Class B on a share-for-share basis at the option of the company. The Class B is convertible into Class A on a share-for-share basis at the option of the holders. Cash dividends for Class B common stock in 1998, 1997 and 1996 were $7.6 million or $.23 per share, $6.5 million or $.195 per share and $5.9 million or $.175 per share, respectively. Cash dividends for Class A common stock in 1998, 1997 and 1996 were $5.6 million or $.23 per share, $4.4 million or $.195 per share and $3.9 million or $.175 per share, respectively. Class A common stock dividends per share have been equal to those of Class B common stock since the Class A shares were issued in April, 1986. At the company's annual meeting in January, 1997, stockholders approved an increase in both Class A and Class B authorized shares from 25,000,000 shares to 75,000,000 shares. In January, 1997, the Board of Directors declared a 100% stock dividend on both the Class A and Class B outstanding shares effective February, 1997. The stock dividend was distributed only on outstanding shares and not on shares held in the treasury. An amount equal to the twenty-two cents per share par value of the additional shares was transferred from retained earnings to common stock. All share and per share information in this report, except for treasury shares and the twenty-two cents per share par value, has been restated to reflect the 100% stock dividend. During fiscal 1998, the Board of Directors authorized the company to purchase up to 6.0 million shares of its Class A common stock. As of September 30, 1998, the company had purchased 5,554,600 Class A common shares under this program at a total cost of $126.1 million. In addition, during fiscal 1998 the Board of Directors authorized the purchase of 385,000 Class B common shares from a related party at a total cost of $11.2 million, which was equal to fair market value on the date of purchase. (5) Stock Option and Restricted Stock Plans Pursuant to its stock option plans, the company is authorized to issue non-qualified options to employees and non-employee directors to purchase a limited number of shares of the company's Class A common stock at a price not less than the fair market value of the stock on date of grant. Options under the plans expire five or ten years from date of grant and are exercisable on a cumulative basis in four equal annual increments commencing one year after the date of grant. A total of 10.6 million shares have been authorized to be issued under the plans. The company accounts for its stock option plans under the intrinsic value method and, accordingly, no compensation cost has been recognized in the consolidated statements of earnings. Had compensation expense for these plans been determined based upon the fair value of stock options on the dates of grant and recognized over the four-year vesting period consistent with SFAS No. 123, the company's pro-forma net earnings and earnings per share for the years ended September 30, 1998, 1997 and 1996 would have been as follows (in thousands, except per share amounts): 1998 1997 1996 Net earnings: As reported $83,067 85,417 62,744 Pro-forma $80,090 83,572 61,688 Basic earning per share: As reported $1.46 1.53 1.13 Pro-forma $1.41 1.49 1.11 Diluted earnings per share: As reported $1.37 1.41 1.06 Pro-forma $1.33 1.38 1.04 The weighted average fair value of options at the date of grant in 1998, 1997 and 1996 was $7.37, $5.72 and $3.67 per option, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: 1998 1997 1996 Expected life 5 years 5 year 5 years Volatility 19.5% 18.7% 18.7% Risk-free interest rate 5.5%-5.9% 6.7%-6.8% 6.0%-6.9% Dividend yield 0.8%-1.0% 0.8%-0.9% 1.1%-1.2% Summarized information on the company's outstanding stock options at September 30, 1998 is as follows (options in thousands): Options Options Outstanding Exercisable Average Weighted Weighted Range of Number Remaining Average Number Average Exercise of Contractual Option of Option Prices Options Life Price Options Price $6.63-$9.94 215 3.6 years $ 9.57 215 $ 9.57 $10.73-$13.38 1,243 6.3 years $12.51 645 $12.19 $16.25-$21.72 721 8.1 years $19.69 139 $19.50 $25.09-$26.63 876 9.0 years $26.19 214 $26.19 Stock option activity under the plans is summarized as follows (options in thousands): Number Weighted of Average Options Option Price Outstanding at September 30, 1995 2,230 $11.06 Granted 1,031 13.59 Exercised (167) 10.30 Canceled (105) 12.24 Outstanding at September 30, 1996 2,989 11.93 Granted 888 19.80 Exercised (490) 11.35 Canceled (132) 15.33 Outstanding at September 30, 1997 3,255 14.03 Granted 927 26.19 Exercised (918) 12.32 Canceled (209) 18.61 Outstanding at September 30, 1998 3,055 $17.92 Exercisable at September 30: 1996 1,054 $10.80 1997 1,296 $11.38 1998 1,213 $15.04 The company is also authorized to grant up to 500,000 shares of Class A common stock to employees under its restricted stock plan. The restricted shares vest on a cumulative basis in four equal annual installments commencing four years after the date of grant. During 1998, employees were granted 73,000 restricted shares at a weighted average fair value of $26.18 per share on the date of grant. At September 30, 1998, there were 194,500 restricted shares outstanding. (6) Income Taxes The provisions for income taxes consist of the following: (In thousands) 1998 1997 1996 Current: Federal $28,176 31,553 27,651 Foreign 6,089 5,716 5,566 State 5,122 6,015 5,911 ----- ----- ----- 39,387 43,284 39,128 ------ ------ ------ Deferred: Federal 6,928 4,849 (2,349) Foreign 2,716 2,549 1,268 State 280 22 (777) --- -- ---- 9,924 7,420 (1,858) ----- ----- ------ $49,311 50,704 37,270 ======= ====== ====== The difference between the effective income tax rate and the United States statutory federal income tax rate is summarized below: 1998 1997 1996 Statutory tax rate 35.0% 35.0% 35.0% Effect of foreign income tax rates (.8) (1.3) (1.5) State income taxes, net of federal tax benefit 2.7 2.9 3.3 Other, net .4 .7 .5 -- -- -- Effective tax rate 37.3% 37.3% 37.3% ==== ==== ==== Significant components of the company's deferred tax assets and liabilities at September 30, 1998 and 1997 are as follows: (In thousands) 1998 1997 Deferred tax assets attributable to: Accrued expenses $11,713 16,456 Inventory adjustments -- 996 Other 380 2,352 --- ----- Total deferred tax assets 12,093 19,804 ------ ------ Deferred tax liabilities attributable to: Depreciation and amortization 28,021 27,503 Inventory adjustments 1,600 -- State income taxes 619 339 --- --- Total deferred tax liabilities 30,240 27,842 ------ ------ Net deferred tax liabilities ($18,147) (8,038) ======== ====== Prepaid expenses at September 30, 1998 and 1997 include $10.1 million and $17.5 million, respectively, of net deferred tax assets. Domestic earnings before income taxes were $105.0 million, $110.9 million (including the non-recurring gain) and $77.9 million in 1998, 1997 and 1996, respectively. Foreign operations had earnings before income taxes of $27.4 million, $25.2 million and $22.1 million in 1998, 1997 and 1996, respectively. Undistributed earnings of the company's foreign operations amounting to $134.9 million are intended to remain permanently invested to finance future growth and expansion. Accordingly, no U.S. income taxes have been provided on those earnings at September 30, 1998. Should such earnings be distributed, the credits for foreign income taxes paid would substantially offset applicable U.S. income taxes. (7) Lease Commitments The major portion of the company's leases are for Sally Beauty Company stores. Other leases cover certain manufacturing and warehousing properties, office facilities, data processing equipment and automobiles. At September 30, 1998, future minimum payments under noncancelable leases are as follows: Operating Capital (In thousands) Leases Leases 1999 $46,813 402 2000 38,773 235 2001 30,044 131 2002 21,295 62 2003 11,597 8 2004 and later 7,863 -- - ---- ----- Total minimum lease payments $156,385 838 ======== === Total rental expense for operating leases amounted to $63.1 million in 1998, $59.6 million in 1997 and $53.0 million in 1996. Certain leases require the company to pay real estate taxes, insurance, maintenance and special assessments. (8) Non-Recurring Gain In the first quarter of 1997, the company received a $28.0 million insurance settlement from the loss of its corporate airplane. The effect on the company's earnings was a non-recurring pre-tax gain of $15.6 million and an increase in net earnings of $9.8 million. Accordingly, basic earnings per share increased $.18 and diluted earnings per share increased $.16. The following table provides pro-forma information excluding the non-recurring gain (in thousands, except per share data): 1998 1997 Pre-tax earnings $132,378 120,487 Net earnings $83,067 75,606 Net earnings per share: Basic $1.46 1.35 Diluted $1.37 1.25 (9) Business Segments and Geographic Area Information The "consumer products" business segment principally includes developing, manufacturing, distributing and marketing branded consumer products worldwide and includes the company's Alberto-Culver USA and Alberto-Culver International business units. This segment also includes products intended for end use by institutions and industries and the manufacturing of custom label products for other companies. The "specialty distribution - Sally" business segment consists of Sally Beauty Company, a specialty distributor of professional beauty supplies. Notes Continued
(9) Business Segments and Geographic Area Information (continued) Segment data for the years ended September 30, 1998, 1997 and 1996 is as follows: Business Segments Information (In thousands) 1998 1997 1996 Net sales: Consumer products: Alberto-Culver USA $ 418,190 444,204 377,468 Alberto-Culver International 460,507 466,530 452,030 ------- ------- ------- Total consumer products 878,697 910,734 829,498 Specialty distribution - Sally 972,792 879,209 771,868 Eliminations (16,778) (14,685) (10,957) ------- ------- ------- $1,834,711 1,775,258 1,590,409 ========== ========= ========= Earnings before provision for income taxes: Consumer products: Alberto-Culver USA $ 25,539 29,243 21,445 Alberto-Culver International 27,194 24,680 21,737 ------ ------ ------ Total consumer products 52,733 53,923 43,182 Specialty distribution - Sally 100,716 89,456 78,871 ------- ------ ------ Operating profit 153,449 143,379 122,053 Non-recurring gain (note 8) -- 15,634 -- Unallocated expenses, net* (12,464) (14,654) (9,971) Interest expense, net of interest income (8,607) (8,238) (12,068) ------ ------ ------- $132,378 136,121 100,014 ======== ======= ======= Identifiable assets: Consumer products: Alberto-Culver USA $ 186,729 205,804 197,478 Alberto-Culver International 341,943 329,887 333,738 ------- ------- ------- Total consumer products 528,672 535,691 531,216 Specialty distribution - Sally 421,050 373,111 308,869 Corporate** 118,462 91,257 69,181 ------- ------ ------ $1,068,184 1,000,059 909,266 ========== ========= ======= Depreciation and amortization expense: Consumer products: Alberto-Culver USA $ 9,949 10,008 7,601 Alberto-Culver International 10,904 11,454 11,376 ------ ------ ------ Total consumer products 20,853 21,462 18,977 Specialty distribution - Sally 16,202 14,001 11,780 Corporate 1,050 1,466 2,159 ----- ----- ----- $38,105 36,929 32,916 ======= ====== ====== Capital expenditures: Consumer products: Alberto-Culver USA $14,594 7,434 11,419 Alberto-Culver International 10,397 16,694 8,885 ------ ------ ----- Total consumer products 24,991 24,128 20,304 Specialty distribution - Sally 15,158 18,608 20,872 Corporate 16,000 15,700 -- ------ ------ ------ 56,149 58,436 41,176 ======= ====== ====== * "Unallocated expenses, net" principally consists of general corporate expenses and foreign exchange gains and losses. **Corporate identifiable assets are primarily cash, cash equivalents, short-term investments and equipment. Geographic data for the years ended September 30, 1998, 1997 and 1996 is as follows: Geographic Area Information (In thousands) 1998 1997 1996 Net sales: United States $1,344,592 1,309,016 1,148,268 Foreign 505,319 484,978 453,709 Eliminations (15,200) (18,736) (11,568) ------- ------- ------- $1,834,711 1,775,258 1,590,409 ========== ========= ========= Operating profit: United States $119,879 113,402 98,288 Foreign 33,570 29,977 23,765 ------ ------ ------ $153,449 143,379 122,053 ======== ======= ======= Identifiable assets: United States $ 568,627 565,578 507,545 Foreign 381,095 343,224 332,540 Corporate* 118,462 91,257 69,181 ------- ------ ------ $1,068,184 1,000,059 909,266 ========== ========= ======= * Corporate identifiable assets are primarily cash, cash equivalents, short-term investments and equipment.
Notes Continued (10) Quarterly Financial Data Unaudited quarterly consolidated statement of earnings information for the years ended September 30, 1998 and 1997 is summarized below (in thousands, except per share amounts): 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter 1998: Net sales $445,400 455,195 467,480 466,636 Cost of products sold $218,040 225,770 227,104 231,181 Net earnings $19,692 19,583 21,155 22,637 Earnings per share: Basic $.35 .34 .38 .39 Diluted $.32 .32 .35 .38 1997 As Reported: Net sales $426,105 439,577 456,210 453,366 Cost of products sold $215,388 218,057 226,734 220,237 Net earnings $ 26,588 17,781 19,210 21,838 Earnings per share: Basic $.48 .32 .34 .39 Diluted $.44 .29 .32 . 36 1997 Pro Forma: Net earnings before non-recurring gain $16,777* 17,781 19,210 21,838 Earnings per share before non-recurring gain: Basic $.30* .32 .34 .39 Diluted $.28* .29 .32 . 36 * Excludes a non-recurring gain of $9.8 million or $.18 basic earnings per share and $.16 diluted earnings per share (note 8). (11) Acquisitions and Divestiture In February, 1996, the company acquired St. Ives Laboratories, Inc. ("St. Ives") for approximately $110 million. St. Ives develops, manufactures and markets personal care products under its St. Ives Swiss Formula brand and manufactures custom label products for other companies. The purchase of St. Ives was funded with the net proceeds available from the July, 1995 issuance of $100 million of 5.5% convertible subordinated debentures and from the sale of certain trade accounts receivable in January, 1996. The acquisition was accounted for as a purchase and, accordingly, the operating results of St. Ives have been included in the company's consolidated financial statements since the date of acquisition. The excess of the aggregate purchase price over the fair market value of net assets acquired of approximately $51 million is being amortized over 40 years. The company also made several other acquisitions during fiscal years 1998, 1997 and 1996, primarily related to Sally Beauty Company's operations, that were insignificant to the consolidated financial statements. In July, 1996, Alberto-Culver USA sold its Milani, DiaFoods, Thick-It and Smithers institutional food lines and granted the purchaser a master distribution license to sell the company's other institutional food products. The transaction resulted in an immaterial gain. Independent Auditors' Report The Board of Directors and Stockholders Alberto-Culver Company: We have audited the accompanying consolidated balance sheets of Alberto-Culver Company and subsidiaries as of September 30, 1998 and 1997, and the related consolidated statements of earnings, cash flows and stockholders' equity for each of the years in the three-year period ended September 30, 1998. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alberto-Culver Company and subsidiaries as of September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1998, in conformity with generally accepted accounting principles. Chicago, Illinois October 22, 1998 KPMG Peat Marwick LLP Management's Discussion and Analysis of Results of Operations and Financial Condition Alberto-Culver Company and Subsidiaries RESULTS OF OPERATIONS Fiscal year 1998 marked the company's seventh consecutive year of record sales and record operating earnings. Net sales for the year ended September 30, 1998 were $1.83 billion, an increase of 3.3% over prior year sales of $1.78 billion. Net sales in 1996 were $1.59 billion. Record net earnings of $83.1 million in 1998 increased 9.9% from 1997 net earnings of $75.6 million before a non-recurring gain. Excluding the 1997 non-recurring gain, basic earnings per share of $1.46 were 11 cents or 8.1% higher than 1997 and diluted earnings per share were $1.37, an increase of 12 cents or 9.6% from 1997. Net earnings in 1996 were $62.7 million, representing basic earnings per share of $1.13 and diluted earnings per share of $1.06. As described in "note 8" to the consolidated financial statements, during fiscal 1997 the company received a $28.0 million insurance settlement from the loss of its corporate airplane. As a result, the company recognized a non-recurring pre-tax gain of $15.6 million and an increase in net earnings of $9.8 million. Accordingly, basic earnings per share in 1997 increased 18 cents and diluted earnings per share increased 16 cents as a result of the non-recurring gain. Fiscal 1998 net earnings decreased $2.4 million or 2.8% compared to fiscal 1997 net earnings including the non-recurring gain. Sales of Alberto-Culver USA consumer products in 1998 were $418.2 million, a decrease of 5.9% from prior year sales of $444.2 million. The 1998 decrease primarily resulted from lower sales for custom label filling operations, St. Ives Swiss Formula facial products and Alberto VO5 shampoo and conditioner. In 1997, sales increased 17.7% over 1996 sales of $377.5 million primarily due to higher sales of St. Ives products in addition to sales increases for TRESemme, TCB, Mrs. Dash, Alberto VO5 Hot Oil and the introduction of new products. Alberto-Culver International consumer products sales were $460.5 million in 1998 compared to $466.5 million in 1997 and $452.0 million in 1996. The fiscal 1998 results were negatively impacted by the effect of foreign exchange rates. Had foreign exchange rates this year been the same as fiscal 1997, Alberto-Culver International sales would have increased 4.3%. The sales increase in 1997 primarily resulted from higher sales of St. Ives products. Sales of the "Specialty distribution - Sally" business segment increased to $972.8 million in 1998 compared to $879.2 million and $771.9 million in 1997 and 1996, respectively. The sales increases of 10.6% in 1998 and 13.9% in 1997 were attributable to sales gains for established Sally Beauty Company outlets, the addition of stores during the year and the expansion of Sally's full service and foreign operations through acquisitions and internal growth. The number of Sally stores increased 33.7% during the last three fiscal years to a total of 1,998 at the end of fiscal 1998 compared to 1,833 and 1,656 at the end of 1997 and 1996, respectively. Cost of products sold as a percentage of sales was 49.2% in fiscal year 1998 compared to 49.6% in 1997 and 50.6% in 1996. The lower cost of products sold percentages in 1998 and 1997 were primarily due to cost savings and changes in product mix favoring higher margin products, offset in part by Sally Beauty Company's relatively higher cost of goods sold percentage. Advertising, promotion, selling and administrative expenses increased 3.3% in 1998 and 13.8% in 1997. The increase in 1998 primarily resulted from the higher selling and administration costs associated with the growth of the Sally Beauty business. The higher 1997 expenses were also attributable to Sally's growth as well as the acquisition of St. Ives and higher advertising, promotion and market research expenses for Alberto-Culver USA. Advertising, promotion and market research expenditures were $257.7 million, $255.3 million and $208.4 million in 1998, 1997 and 1996, respectively. The higher expenses in 1998 were mainly attributable to increased advertising and promotion expenditures for Alberto-Culver International. The increase in 1997 expenses mainly resulted from the acquisition of St. Ives and increased marketing expenditures for Alberto-Culver USA, including the introduction of new products. Interest expense, net of interest income, was $8.6 million, $8.2 million and $12.1 million in 1998, 1997 and 1996, respectively. Interest expense was $12.2 million in 1998 versus $11.8 million in 1997 and $15.9 million in 1996. The decrease in interest expense in 1997 was attributable to the prepayment of $20 million of 9.73% term notes in August, 1996 and a reduction in outstanding revolving Swedish krona debt, including the impact of foreign exchange rates. The provision for income taxes as a percentage of earnings before income taxes was 37.3% in 1998, 1997 and 1996. Factors which influenced the effective tax rates for those years are described in "note 6" to the consolidated financial statements. FINANCIAL CONDITION Working capital at September 30, 1998 was $277.9 million, an increase of $8.9 million from the prior year's working capital of $269.0 million. The resulting current ratio was 1.89 to 1.00 at September 30, 1998 compared to 1.86 to 1.00 last year. Accounts receivable increased 6.9% to $129.1 million from $120.8 million last year. The increase was principally due to the growth of Sally's full service operations. Inventories were $369.2 million at September 30, 1998, up 7.3% compared to $343.9 million last year. The increase was primarily due to higher inventories needed to support the growth of the Sally Beauty business. Net property, plant and equipment increased $32.4 million to $223.5 million at September 30, 1998. The increase resulted primarily from additional Sally stores, warehouse and office expenditures, outlays for machinery, equipment and information systems and the purchase of a replacement corporate airplane, partially offset by depreciation during fiscal 1998. Goodwill and trade names, net of amortization, was $204.8 million as of September 30, 1998, up $20.4 million from 1997. The increase in goodwill and trade names was due to additional goodwill from acquisitions by Sally Beauty Company and Alberto-Culver International partially offset by amortization and the effects of foreign exchange rates. Long-term debt increased $22.3 million principally due to the issuance of $120 million of 6.375% debentures in June, 1998, substantially offset by the conversion of the $100 of million subordinated debentures into Class A common shares in July, 1998. Total stockholders' equity increased $37.0 million to $534.0 million at September 30, 1998. The increase was primarily due to net earnings for the fiscal year and the conversion of the subordinated debentures into Class A common shares, substantially offset by the repurchase of 5.9 million Class A common shares and 385,000 Class B common shares and dividend payments. LIQUIDITY AND CAPITAL RESOURCES The company's primary sources of cash over the past three years have been from funds provided by operating activities, the issuance of $120 million of 6.375% debentures in June, 1998 and the 1996 sale of $30 million of trade accounts receivable. Operating activities provided cash of $110.4 million, $79.7 million and $92.7 million in 1998, 1997 and 1996, respectively. The company has obtained long-term financing as needed to fund acquisitions and other growth opportunities. Funds are occasionally obtained prior to their actual need in order to take advantage of opportunities in the debt markets. In June, 1998, the company issued $120 million of 6.375% debentures due June, 2028. As a result, the company has $230 million remaining on its $350 million shelf registration of debt securities that was filed with the Securities and Exchange Commission in April, 1998. In September, 1997, the company obtained a five-year, $200 million revolving credit facility. The facility, which is unused at September 30, 1998, can be increased to $300 million under certain conditions and may be drawn in U.S. dollars or in certain foreign currencies. Under debt covenants, the company has the ability to incur up to $646 million of additional debt. The primary uses of cash during the three-year period ending September 30, 1998 have been acquisitions of $180.5 million, purchases of treasury stock of $147.4 million, capital expenditures of $155.0 million and cash dividends of $33.9 million. Compared to 1995, cash dividends per share increased 48.4% over the three-year period ended September 30, 1998. Cash dividends paid on Class A and Class B common stock were $.230 per share in 1998, $.195 per share in 1997 and $.175 per share in 1996. The company anticipates that cash flows from operations and available credit will be sufficient to fund operational requirements in future years. During 1999, the company expects that cash will continue to be used for acquisitions, capital expenditures, new product development, market expansion, retirement of debt and dividend payments. The company may also purchase shares of its common stock depending on market conditions. During fiscal 1998, the Board of Directors authorized the company to purchase up to 6.0 million shares of its Class A common stock. As of September 30, 1998, 445,400 shares remained available for purchase under this authorization. In October, 1998, the Board of Directors authorized the purchase of an additional 3.0 million Class A shares. YEAR 2000 READINESS DISCLOSURES Many computer systems use only two digits to represent the year and they may be unable to process accurately information that contains dates before, during or after the year 2000. As a result, organizations that depend on computers are at risk for possible date-based computation errors which could result in erroneous information or system failures that may disrupt their business operations. This is commonly known as the Year 2000 ("Y2K") problem. Most of the software purchased by the company within the last five years is either Y2K compliant or the vendor has certified that Y2K compliant upgrades will be available sufficiently in advance of December 31, 1999. In late 1995, the company inventoried and assessed key financial and operational information systems and prepared a prioritized plan for Y2K systems modifications or replacements. The plan is revised periodically and progress against the plan is monitored and periodically reported to management and the Audit Committee of the Board of Directors. Implementation of required changes to the company's critical systems is currently scheduled to be completed by August, 1999. Certification of critical systems, which includes testing by technicians and key users, is expected to be completed before December 31, 1999. The company's assessment of non-information technology systems (e.g., manufacturing equipment) is expected to be completed by February, 1999, and an action plan will be prepared based on the results. As part of the Y2K readiness plan, the company's most important suppliers and customers have been queried (e.g., by questionnaires) about their Y2K readiness. Additional steps will be taken to reassess their Y2K readiness through additional questionnaires, interviews, on-site visits and other means. The company expects to have a better understanding of the Y2K readiness of these third parties over the next several months. Because of the number of computer systems used by the company, the number of key suppliers and customers and the company's operations around the world, the company presently believes that it could experience some disruption in its business due to the Y2K problem. The company could be materially affected if utilities, governmental entities, suppliers, customers or other third parties with which it does business or that provide essential services are not Y2K compliant. The company currently believes that the greatest risk of disruption in its businesses may exist outside the United States with suppliers or other third-parties that are not Y2K compliant. In addition, both the assessment and mitigation of Y2K exposure outside the US may be complicated by any unrelated foreign entities' unwillingness to provide information about their state of Y2K readiness. The possible consequences of the company, key suppliers or customers not being Y2K complaint by January 1, 2000 include, among other things, temporary plant closings, delays in the delivery of products, delays in the receipt of supplies, and invoice and collection errors. Consequently, the business and results of operations of the company could be materially affected by the inability of the company to conduct its businesses in an ordinary course for a period of time after January 1, 2000. However, the company believes that its Y2K readiness plan, including the contingency planning discussed below, should significantly reduce the adverse effect any such disruptions may have. The company is developing a contingency plan to be followed in the event of a Y2K-related failure of a business-critical system. This plan should be complete by June, 1999 and is expected to include, for example, identification of alternate suppliers and possible increases in inventory levels, including raw materials and packaging. Once developed, contingency plans and related cost estimates will be refined as additional information becomes available. Incremental costs, which include contractor costs to modify existing systems and costs of internal resources dedicated to achieving Y2K compliance, are charged to expense as incurred. These costs are currently expected to total approximately $2.3 million, of which approximately 40% has been spent to date. Incremental costs are presently being funded through operating cash flow. The amounts do not include any costs associated with the implementation of contingency plans, which are in the process of being developed, as discussed above. The costs associated with replacement of computerized systems, hardware and related equipment (currently estimated to be approximately $6.2 million), substantially all of which will be capitalized, are not included in the above estimates. The company's Y2K readiness program is an evolving and ongoing process. Accordingly, our current conclusions as to what constitutes areas of the company's greatest Y2K exposure and the estimates of costs and completion dates, as described above, are subject to change. The Y2K problem has many aspects and potential consequences, some of which are not reasonably foreseeable, and there can be no assurance that unforeseen consequences will not arise. IMPACT OF NEW ACCOUNTING STANDARDS In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which requires the prominent display of comprehensive income and its components in the financial statements. The company is required to comply with SFAS No. 130 in fiscal year 1999 and currently believes its adoption will not have a material effect on the consolidated financial statements. In June, 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for reporting information about operating segments in financial statements. The company is required to comply with SFAS No. 131 in fiscal year 1999 and does not expect its adoption to have a material effect on the consolidated financial statements. In March, 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 revises the accounting treatment of software development costs and requires capitalization of certain costs which the company has historically expensed as incurred. The company is required to comply with SOP 98-1 in fiscal year 2000 and currently believes its adoption will not have a material effect on the consolidated financial statements. INFLATION The company was not significantly affected by inflation during the past three years. Management continuously attempts to resist cost increases and counteract the effects of inflation through productivity improvements, cost reduction programs and price increases within the constraints of the highly competitive markets in which the company operates. MARKET RISK As a multinational corporation that manufactures and markets products in countries throughout the world, the company is subject to certain market risks, including foreign currency, interest rates and government actions. The company uses a variety of practices to manage these market risks, including, when considered appropriate, derivative financial instruments. The company uses derivative financial instruments only for risk management and does not use them for trading or speculative purposes. The company is exposed to potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. The company's primary exposures are to changes in exchange rates for the U.S. dollar versus the Swedish krona, the British pound sterling, the Canadian dollar, the Australian dollar and the Mexican peso. The company's various currency exposures often offset each other, providing a natural hedge against currency risk. Periodically, specific foreign currency transactions (e.g. inventory purchases, royalty payments, etc.) are hedged with forward contracts to reduce the foreign currency risk. Gains and losses on these foreign currency hedges are included in the basis of the underlying hedged transactions. As of September 30, 1998, the company had an outstanding foreign currency contract to sell the equivalent of $1.3 million of Japanese yen to hedge a third-party royalty agreement. The fair value of this agreement results in an immaterial unrecognized gain at September 30, 1998. Interest rate risk is managed through a combination of fixed rate and variable rate debt with varying maturities. At September 30, 1998, variable rate long-term debt was $11.0 million or 6.4% of total long-term debt. The company periodically uses interest rate swaps to manage interest rate risk on debt securities. These instruments allow the company to exchange variable rate debt into fixed rate or fixed rate debt into variable rate. Interest rate differentials paid or received on these arrangements are recognized as adjustments to interest expense over the life of the agreement. At September 30, 1998, the company had one interest rate swap outstanding, which expires in November 1998, in a notional amount of $5.0 million. The fair value of this agreement results in an immaterial unrecognized loss at September 30, 1998. The company is exposed to credit risk on certain assets, primarily cash equivalents, short-term investments and accounts receivable. The credit risk associated with cash equivalents and short-term investments is mitigated by the company's policy of investing in securities with high credit ratings and investing through major financial institutions with high credit ratings. The company provides credit to customers in the ordinary course of business and performs ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the company's customer base. The company currently believes its allowance for doubtful accounts is sufficient to cover customer credit risks.
Selected Financial Data Alberto-Culver Company and Subsidiaries Year ended September 30, (In thousands, except per share data) 1998 1997 1996 1995 1994 Operating Results: Net sales $1,834,711 1,775,258 1,590,409 1,358,219 1,216,119 Cost of products sold 902,095 880,416 805,080 682,589 602,749 Interest expense 12,170 11,826 15,905 9,946 8,630 Earnings before non-recurring gain and income taxes (1) 132,378 120,487 100,014 84,242 71,078 Provision for income taxes (1) 49,311 44,881 37,270 31,591 27,010 Net earnings before non-recurring gain (1) 83,067 75,606 62,744 52,651 44,068 Net earnings per share before non-recurring gain (1) (2): Basic 1.46 1.35 1.13 .95 .79 Diluted 1.37 1.25 1.06 .94 .79 Weighted average shares outstanding: (2) Basic 56,845 55,967 55,571 55,430 56,063 Diluted 62,420 63,377 62,776 57,053 56,083 Shares outstanding at year end: (2) Class A 24,063 22,610 22,229 22,143 22,093 Class B 33,148 33,533 33,533 33,533 33,534 Financial Condition: Current ratio 1.89 to 1 1.86 to 1 1.79 to 1 2.28 to 1 1.86 to 1 Working capital $ 277,940 269,007 226,123 301,706 185,747 Cash, cash equivalents and short-term investments 73,305 87,600 71,557 146,985 50,362 Property, plant and equipment, net 223,476 190,998 175,920 157,791 132,881 Total assets 1,068,184 1,000,059 909,266 815,086 610,208 Long-term debt including debentures 171,760 149,441 161,548 183,094 142,976 Stockholders' equity 533,991 497,004 425,096 370,903 326,970 Cash dividends 13,220 10,909 9,724 8,590 7,708 Cash dividends per share (3) .230 .195 .175 .155 .1375
(1) 1997 excludes a non-recurring gain from an insurance settlement for the loss of the company's corporate airplane (note 8). Pre-tax earnings including the non-recurring gain were $136.1 million. Net earnings including the gain were $85.4 million, after deducting income taxes of $50.7 million, resulting in basic per share of $1.53 and diluted earnings per share of $1.41. (2) Net earnings per share and shares outstanding have been restated to reflect the 100% stock dividend on the company's Class A and Class B outstanding shares in February, 1997. (3) Dividends per share on Class A common stock and Class B common stock have been equal since the Class A shares were issued in April, 1986. Annual 10-K Report Stockholders may obtain a copy of the company's 1998 Form 10-K Report filed with the Securities and Exchange Commission without charge by writing to the Corporate Secretary, Alberto-Culver Company, 2525 Armitage Avenue, Melrose Park, Illinois 60160. Market Price of Common Stock and Cash Dividends Per Share Alberto-Culver Company and Subsidiaries The high and low sales prices of both classes of the company's common stock on the New York Stock Exchange and cash dividends per share in each quarter of fiscal years 1998 and 1997 are as follows: Cash Market Price Range Dividends 1998 1997 Per Share High Low High Low 1998 1997 Class A (NYSE Symbol ACVA): First Quarter $27-7/8 24-1/2 21-3/8 18-3/8 $ .05 .045 Second Quarter $27-3/4 25 24 20 .06 .050 Third Quarter $28-1/2 25 25-5/8 21 .06 .050 Fourth Quarter $25-7/8 17-15/16 26-11/16 21-13/16 .06 .050 $.23 .195 Class B (NYSE Symbol ACV): First Quarter $32-9/16 27-9/16 25 21-3/8 $.05 .045 Second Quarter $32-7/16 29 28-5/8 23-9/16 .06 .050 Third Quarter $32-5/16 28-1/4 30 25 .06 .050 Fourth Quarter $29-3/8 19-3/4 31-9/16 26-1/16 .06 .050 $.23 .195
As of November 20, 1998, stockholders of record totaled 1,084 for Class A shares and 1,097 for Class B shares. EX-21 3 LISTING OF SUBSIDIARIES Exhibit 21 ALBERTO-CULVER COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant State or Other Jurisdiction of Subsidiary Incorporation Alberto-Culver (Australia) Pty. Ltd. Australia Alberto-Culver Canada, Inc. Canada Alberto-Culver Company (U.K.), Limited United Kingdom Alberto-Culver International, Inc. Delaware Alberto-Culver de Mexico, S.A. de C.V. Mexico Alberto-Culver (P.R.), Inc. Delaware Alberto-Culver USA, Inc. Delaware BDM Grange, Ltd. New Zealand Cederroth Holding B.V. Holland Cederroth International AB Sweden CIFCO, Inc. Delaware Indola Cosmetics, B.V. The Netherlands Indola SpA Italy Sally Beauty Company, Inc. Delaware St. Ives Laboratories, Inc. Delaware Subsidiaries of the company omitted from the above table, considered in the aggregate, would not be considered significant. EX-23 4 CONSENT Exhibit 23 Consent of KPMG Peat Marwick LLP The Board of Directors and Stockholders Alberto-Culver Company: We consent to incorporation by reference in the Registration Statements on Form S-8 (Numbers 33-36051, 33-47748, 33-62693, 33-62699, 33-62701, 333-35795, 333-51527, 333-51529 and 333-60059) and Form S-3 (Numbers 333-43711 and 333-49649) of Alberto-Culver Company of our reports dated October 22, 1998, relating to the consolidated balance sheets of Alberto-Culver Company and subsidiaries as of September 30, 1998 and 1997 and the related consolidated statements of earnings, cash flows, and stockholders' equity and related schedule for each of the years in the three-year period ended September 30, 1998, which reports appear or are incorporated by reference in the September 30, 1998 annual report on Form 10-K of Alberto-Culver Company. /s/ KPMG PEAT MARWICK LLP KPMG PEAT MARWICK LLP Chicago, Illinois December 11, 1998 EX-27 5 FINANCIAL DATA SCHEDULE
5 Exhibit 27 ALBERTO-CULVER COMPANY AND SUBSIDIARIES Financial Data Schedule Year Ended September 30, 1998 (in thousands) This schedule contains summary financial information extracted from the consolidated balance sheet as of September 30, 1998 and the consolidated statement of earnings for the year ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 0000003327 ALBERTO-CULVER 1,000 US DOLLARS 12-MOS SEP-30-1998 OCT-1-1997 SEP-30-1998 1.00 72,395 910 129,063 10,868 369,204 591,565 408,408 184,932 1,068,184 313,625 171,760 0 0 15,031 518,960 1,068,184 1,834,711 1,834,711 902,095 902,095 791,631 7,162 12,170 132,378 49,311 83,067 0 0 0 83,067 1.46 1.37
EX-27 6 FDS AMENDED FINANCIAL DATA SCHEDULE
5 Exhibit 27 (a) ALBERTO-CULVER COMPANY AND SUBSIDIARIES Amended Financial Data Schedule Year Ended September 30, 1997 (in thousands) This schedule contains summary financial information extracted from the consolidated balance sheet as of September 30, 1997 and the consolidated statement of earnings for the year ended September 30,7 and is qualified in its entirety by reference to such financial statements. 0000003327 ALBERTO-CULVER 1,000 US DOLLARS 12-MOS SEP-30-1997 OCT-1-1996 SEP-30-1997 1.00 76,040 11,560 129,816 9,042 343,868 580,259 350,153 159,155 1,000,059 311,252 149,441 0 0 13,674 483,330 1,000,059 1,775,258 1,775,258 880,416 880,416 766,117 5,813 11,826 136,121 50,704 85,417 0 0 0 85,417 1.49 1.41
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