As filed with the Securities and Exchange Commission on June 14, 2002
Registration No. 333-89382
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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
(708) 450-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Gary P. Schmidt, Esq.
Alberto-Culver Company
2525 Armitage Avenue
Melrose Park, Illinois 60160
(708) 450-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Frederick C. Lowinger, Esq. Michael A. Campbell, Esq.
Carol M. Lind, Esq. Mayer, Brown, Rowe & Maw
Sidley Austin Brown & Wood 190 South LaSalle
Bank One Plaza Chicago, Illinois 60603
Chicago, Illinois 60603 (312) 782-0600
(312) 853-7000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell nor does it seek an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated June 14, 2002.
6,000,000 Shares
Alberto-Culver Company
Class B Common Stock
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All of the shares of Class B common stock in the offering are being sold by
the selling stockholders identified in this prospectus. Alberto-Culver Company
will not receive any proceeds from the sale of the shares.
The Class B common stock is listed on the New York Stock Exchange under the
symbol "ACV." The last reported sale price of the Class B common stock on June
12, 2002 was $53.24 per share.
See "Risk Factors" beginning on page 5 to read about some of the factors
you should consider before buying shares of Alberto-Culver's Class B common
stock.
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Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
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Per Share Total
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Initial price to public............................... $ $
Underwriting discount................................. $ $
Proceeds, before expenses, to the selling stockholders $ $
To the extent that the underwriters sell more than 6,000,000 shares of
Class B common stock, the underwriters have the option to purchase up to an
additional 900,000 shares of Class B common stock from certain trusts over
which Carol L. Bernick, Vice-Chairman and a director of Alberto-Culver Company,
has voting and investment power at the initial price to public less the
underwriting discount.
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The underwriters expect to deliver the shares against payment in New York,
New York on , 2002.
Goldman, Sachs & Co. Merrill Lynch & Co.
Banc of America Securities LLC Salomon Smith Barney
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Prospectus dated , 2002.
[PHOTOS OF ALBERTO-CULVER COMPANY PRODUCTS]
1
TABLE OF CONTENTS
Page
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Prospectus Summary................................................................... 1
Risk Factors......................................................................... 5
Forward-Looking Statements........................................................... 11
Price Range of Class B Common Stock and Dividends.................................... 12
Use of Proceeds...................................................................... 12
Capitalization....................................................................... 13
Selected Consolidated Financial Data................................................. 14
Management's Discussion and Analysis of Results of Operations and Financial Condition 16
Business............................................................................. 25
Management........................................................................... 31
Selling Stockholders................................................................. 33
Description of Capital Stock......................................................... 35
Shares Eligible for Future Sale...................................................... 37
Underwriting......................................................................... 38
Legal Matters........................................................................ 40
Experts.............................................................................. 40
Where You Can Find More Information.................................................. 40
Incorporation by Reference........................................................... 40
Index to Consolidated Financial Statements........................................... F-1
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In this prospectus, references to "Alberto-Culver," the "company," "we,"
"our" and "us" refer to the Alberto-Culver Company and its subsidiaries, unless
the context requires otherwise. References to our common stock without
designation refer to both our Class A common stock and Class B common stock
together.
The following are trademarks and servicemarks owned by us which appear in
this prospectus: Advanced Alberto VO5, Alberto, Alberto Balsam, Alberto
European, Alberto Family Fresh, Alberto Get Set, Alberto VO5, Antiall,
Armstrong-McCall, Beauty Systems Group, Bliw, BSG, Comb-Thru, Consort, Date,
Farmaco, FDS, Grumme Tvattsapa, HTH, Hydrology, Indola, Just for Me, L300,
Molly McButter, Motions, Mrs. Dash, Pharbio, Pro-Line, Sally, Sally Beauty
Supply, Salve, Samarin, Savette, Seltin, Soft & Beautiful, Soft & Beautiful
Botanicals, Soraya, St. Ives Swiss Formula, Static Guard, SugarTwin, Suketter,
TCB, Topz, TRESemme, Veritas, Victory Beauty Systems and VO5.
The following are trademarks and servicemarks of other companies which
appear in this prospectus: Clairol (Procter & Gamble Haircare LLC), Graham Webb
(Graham Webb International Limited Partnership), Jordan (Jordan Tannborster),
L'Oreal (L'Oreal S.A.), Matrix (Matrix Essentials, Inc.), Paul Mitchell (John
Paul Mitchell Systems), Redken (Redken Laboratories, Inc.), Revlon (Revlon
Consumer Products Corporation), Sebastian (Sebastian International, Inc.), TIGI
(Mascolo Brothers Limited) and Wella (The Wella Corporation).
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus
and the documents incorporated by reference. You should read this entire
prospectus carefully, especially the risks of investing in the Class B common
stock discussed under "Risk Factors" on pages 5-10.
ALBERTO-CULVER COMPANY
Alberto-Culver Company and its consolidated subsidiaries have three
principal business segments. Our consumer products business includes two
segments, Alberto-Culver North America and Alberto-Culver International, which
develop, manufacture, distribute and market branded consumer products
worldwide. These branded consumer products primarily consist of beauty and
health care products and food and household products. Alberto-Culver North
America includes our consumer products operations in the United States and
Canada, while Alberto-Culver International sells our consumer products in more
than 120 other countries. Our third segment, Specialty Distribution--Sally,
consists of two operations: (1) Sally Beauty Supply, a domestic and
international chain of cash-and-carry outlets offering professional beauty
supplies to both professionals and retail consumers and (2) Beauty Systems
Group, a full-service beauty products distributor offering professional brands
directly to salons and through professional-only outlets in exclusive
geographic territories.
Our Core Strengths
Alberto-Culver's steady growth and leadership position in global beauty
products is due to several core strengths.
. Global Consumer Beauty Brands. Our global consumer products business has
a long history with established brand names and generated approximately
$1 billion in sales from over 120 countries in fiscal year 2001.
. Number One Chain of Cash-and-Carry Beauty Supply Stores in the United
States. We hold the number one domestic position in cash-and-carry
professional beauty distribution through our branded network of nearly
2,000 Sally Beauty Supply stores in the United States.
. Leading Supplier Within the Fragmented Direct-to-Salon Segment. Sally's
Beauty Systems Group operates under exclusive territory licenses, selling
professional-only brands directly to salons through approximately 900
professional sales consultants and 480 stores.
. Number Two Position in the Profitable Ethnic Hair Care Category. We
believe that we hold the number two position by revenue in the domestic
ethnic hair care category with our strong brands, including Motions, TCB,
Soft & Beautiful and Just For Me.
. Consistent Outperformance of Hair Care and Skin Care Brands.
Alberto-Culver's hair care and skin care brands continue to exceed the
growth of the daily hair care/styling and skin care categories.
. Ten Consecutive Years of Record Sales and Record Earnings. During the
last ten years, our sales have almost tripled and our net earnings have
almost quadrupled, demonstrating our solid, consistent financial track
record.
. Strong Cash Flow and Balance Sheet. Alberto-Culver's history of strong
cash flow and earnings growth has enabled us to maintain a conservative
capital structure and a high level of operational and strategic
flexibility.
1
. Experienced Management Team. The second generation of the founding family
of Alberto-Culver, along with a management team with substantial
experience and expertise, leads the business with a continued vision of
building and growing a premier consumer products and specialty beauty
products distribution company.
Our Strategy
Alberto-Culver maintains a consistent operating strategy that provides
significant opportunities for growth across its global beauty brands, Sally
Beauty Supply stores and Beauty Systems Group. Our strategy includes the
following:
. Consolidate and streamline the fragmented direct-to-salon segment;
. Continue product innovation;
. Increase consumer products profit margins through product optimization
and further maximization of our global infrastructure;
. Continue roll-out of Sally Beauty Supply stores; and
. Acquire and grow consumer beauty brands and businesses.
THE OFFERING
Class B common stock offered by
selling stockholders......... 6,000,000 shares
Common stock outstanding....... There were 25,708,144 shares of Class A common stock and
32,331,640 shares of Class B common stock outstanding as of
June 12, 2002. The number of shares outstanding will not
change as a result of this offering.
Use of proceeds................ The company will not receive any of the proceeds of this offering.
Risk factors................... For a discussion of factors you should consider before buying
shares of Class B common stock, see "Risk Factors" in this
prospectus.
Class B Common Stock NYSE
symbol....................... ACV
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Alberto-Culver was incorporated under the laws of the State of Delaware in
1961. Our principal executive office is located at 2525 Armitage Avenue,
Melrose Park, Illinois 60160-1163, and our telephone number is (708) 450-3000.
We maintain a web site at "www.alberto.com." Information presented on our web
site does not constitute part of this prospectus.
2
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data appearing below should be read
together with the consolidated financial statements, notes and "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
included elsewhere in this prospectus and with the consolidated financial
statements, notes and other financial information we are incorporating by
reference. The summary consolidated financial data for, and as of the end of
each of the fiscal years 1997 through 2001 is derived from our audited
consolidated financial statements. The summary consolidated financial data for,
and as of the end of the six months ended March 31, 2001 and 2002 is derived
from our unaudited consolidated financial statements. In our opinion, the
unaudited consolidated financial statements reflect all adjustments, consisting
only of normal, recurring adjustments, necessary for a fair presentation of
such periods. Our results of operations for the six months ended March 31, 2002
do not necessarily indicate what our operating results will be for the full
fiscal year.
Six Months Ended
March 31,
(Unaudited) Fiscal Year Ended September 30,
-------------------- -------------------------------------------------
2002 2001 2001 2000 (1) 1999 1998 1997 (2)
---------- --------- --------- --------- --------- --------- ---------
(In thousands, except per share data)
Operating Results:
Net sales (3)........................ $1,272,022 1,156,809 2,494,180 2,247,163 1,975,928 1,834,711 1,775,258
Cost of products sold (3)............ 653,512 597,218 1,217,429 1,105,750 973,702 902,095 880,416
Interest expense..................... 13,353 13,931 27,309 23,747 14,849 12,170 11,826
Earnings before income taxes......... 95,298 75,028 167,236 154,281 133,783 132,378 136,121
Provision for income taxes........... 33,354 25,510 56,860 51,097 47,493 49,311 50,704
Net earnings (4)..................... 61,944 49,518 110,376 103,184 86,290 83,067 85,417
Net earnings per share (4) (5):
Basic............................. 1.09 0.88 1.96 1.85 1.53 1.46 1.53
Diluted........................... 1.05 0.86 1.91 1.83 1.51 1.37 1.41
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Weighted Average Shares
Outstanding (5):
Basic............................. 57,077 55,978 56,176 55,790 56,378 56,845 55,967
Diluted........................... 58,890 57,592 57,838 56,410 57,162 62,420 63,377
Shares Outstanding at Period End (5):
Class A........................... 25,449 23,648 23,871 22,982 22,768 24,063 22,610
Class B........................... 32,332 32,957 32,957 32,957 32,957 33,148 33,533
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Financial Condition:
Current ratio........................ 2.11 to 1 2.25 to 1 2.25 to 1 2.17 to 1 1.92 to 1 1.89 to 1 1.86 to 1
Working capital...................... $ 443,082 445,557 486,646 399,748 309,153 277,940 269,007
Cash, cash equivalents and short-term
investments......................... 100,569 141,451 202,839 114,951 57,816 73,305 87,600
Property, plant and equipment, net... 247,081 232,047 235,822 240,091 238,753 223,476 190,998
Total assets......................... 1,561,675 1,435,572 1,516,501 1,385,598 1,181,494 1,065,343 998,056
Long-term debt....................... 321,122 332,305 321,183 340,948 225,173 171,760 149,441
Stockholders' equity................. 772,321 678,499 736,009 632,260 565,780 531,150 495,001
Cash dividends....................... 9,912 8,858 18,215 16,182 14,394 13,220 10,909
Cash dividends per share (5) (6)..... 0.1725 0.1575 0.3225 0.290 0.255 0.230 0.195
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(1)Fiscal year 2000 includes a non-recurring gain from the sale of a trademark.
The non-recurring gain increased earnings before income taxes by $9.3
million, net earnings by $6.0 million and basic and diluted earnings per
share by 11 cents.
(2)Fiscal year 1997 includes a non-recurring gain from an insurance settlement
for the loss of our corporate airplane. The non-recurring gain increased
earnings before income taxes by $15.6 million, net earnings by $9.8 million
and basic and diluted earnings per share by $0.18 and $0.16, respectively.
3
(3)In the first quarter of fiscal year 2002, we adopted the provisions of the
Financial Accounting Standards Board's (FASB) Emerging Issues Task Force
(EITF) Issue No. 00-14, "Accounting for Certain Sales Incentives," and Issue
No. 00-25, "Vendor Income Statement Characterization of Consideration Paid
to a Reseller of the Vendor's Products." EITF Issue No. 00-14 addresses the
recognition, measurement and income statement classification for various
types of sales incentives including coupons, rebates and free products. EITF
Issue No. 00-25 addresses the income statement classification for various
types of consideration paid by a vendor to a retailer. In connection with
the adoption of EITF Issue Nos. 00-14 and 00-25, we reclassified certain
amounts for the first half of fiscal year 2001 to conform to the current
year presentation resulting in a $59.3 million reduction in net sales, a
$5.8 million increase in cost of products sold and a $65.1 million decrease
in promotion expenses for the six months ended March 31, 2001. Consolidated
net earnings were not affected by these reclassifications.
Net sales, cost of products sold and promotion expense for the fiscal years
ended September 30, 2001, 2000, 1999, 1998 and 1997 have not been restated
for the adoption of EITF Issue Nos. 00-14 and 00-25 in the selected
financial data table above. The impact of the adoption on the fiscal year
ended September 30, 2001 has been quantified and, when restated, will result
in a $115.1 million reduction in net sales, an $11.1 million increase in
cost of products sold and a $126.2 million decrease in promotion expense. We
are in the process of completing the reclassifications for the fiscal years
ended September 30, 2000, 1999, 1998 and 1997 and, when completed later this
fiscal year, we expect that the reported consolidated net sales for each of
the fiscal years will be reduced by approximately 4-6%. Consolidated net
earnings will not be affected by these reclassifications.
(4)We implemented the FASB's Statement of Financial Accounting Standards (SFAS)
No. 142, "Goodwill and Other Intangible Assets," in the first quarter of
fiscal year 2002 for previously acquired intangibles. As required by SFAS
No. 142, we ceased the amortization of goodwill and trade names effective
October 1, 2001. In accordance with SFAS No. 142, results for fiscal years
prior to fiscal year 2002 have not been restated for the effects of ceasing
goodwill and trade name amortization. Had goodwill and trade name
amortization been discontinued effective October 1, 1996, net earnings and
earnings per share would have been as follows (in thousands, except per
share data):
Six Months
Ended Fiscal Year Ended September 30,
March 31, ------------------------------------
2001 2001 2000 1999 1998 1997
(Unaudited) ---------- ------- ------- ------ ------ ------
Pro forma net earnings..................... $53,750 119,100 111,016 92,350 88,407 90,733
Pro forma net earnings per share (5) :
Basic................................... $ 0.96 2.11 1.99 1.64 1.56 1.63
Diluted................................. $ 0.93 2.06 1.97 1.62 1.45 1.50
(5)Net earnings per share, shares outstanding and cash dividends per share have
been restated to reflect the 100% stock dividend on our Class A and Class B
outstanding shares in February 1997.
(6)Cash 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.
4
RISK FACTORS
You should consider carefully all of the information we have included or
incorporated by reference in this prospectus before you decide whether to buy
the Class B common stock offered hereby. In particular, you should consider
carefully the risk factors described below.
If any of the following risks actually occur, our business, results of
operations and/or financial condition may materially suffer. In that event, the
trading prices of our common stock could fall, and you may lose all or part of
the money you paid to buy our Class B common stock.
RISKS RELATED TO OUR BUSINESS
We cannot assure the successful implementation of our growth strategy.
As part of our growth strategy, we seek to increase profit margins through
improved pricing and cost efficiencies, expand our geographic coverage,
leverage our global infrastructure, extend our existing brands and acquire and
grow select beauty brands and businesses.
Factors beyond our control, such as the price of raw materials or a general
economic downturn, may limit our ability to reduce costs or improve pricing,
thereby preventing us from obtaining additional profit margin improvements.
Implementation of our strategy involves the continued expansion of our
Sally Beauty Supply stores and our Beauty Systems Group operations, both in the
United States and abroad. There can be no guarantee that we will be able to
acquire businesses or lease desirable store locations or that existing store
locations will continue to be as profitable as in the past. There also can be
no guarantee that we will be able to acquire and grow beauty brands and
businesses.
Implementation of our strategy also involves the continued growth of our
consumer products businesses in Europe, Scandinavia, Latin America, Asia and
other international markets. We may have difficulty hiring and retaining
qualified key employees or otherwise successfully managing the required
maintenance and expansion of our infrastructure in these markets. We may have
difficulty maintaining our successful distribution infrastructure and alliances
in each of our major international markets.
The advertising and marketing expenditures relating to extending our
existing brands through new products and the relaunching of existing products
will typically 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 new or relaunched product.
Changes in our relationships with our suppliers could have a material adverse
effect on our business.
We are dependent on our relationships with our suppliers of beauty
products, including our exclusive distributor contracts with certain
professional-only brands such as Matrix, Paul Mitchell, Graham Webb, Redken,
TIGI and Sebastian in portions of the United States, Canada and Mexico.
Although we presently have no reason to believe that any of our major suppliers
will cancel their distribution agreements with us (such agreements are
cancelable on as little as 30 days notice), such a loss could cause a reduction
in the sales of beauty products and the loss of the corresponding profit
margins. Any such cancellation could have a material adverse effect on our
business, results of operations and/or financial condition.
5
We are also dependent upon suppliers of our key raw materials and
third-party fillers. As with our suppliers of beauty products, although we have
no reason to believe that any of our major materials suppliers or third-party
fillers will terminate or materially reduce or modify their relationship with
us, such a loss, reduction or modification could have a material adverse effect
on our business, results of operations and/or financial condition.
We face competition in the beauty and health care products and beauty supply
industries.
We face a variety of competitors in the domestic and international markets
for our branded consumer products, some of which are significantly larger and
more diversified and have substantially greater financial and marketing
resources than we have. We compete with these companies primarily on the basis
of:
. product innovation,
. ensuring product quality,
. appropriately pricing products,
. maintaining brand loyalty,
. anticipating and responding quickly to changing consumer preferences,
. providing strong and effective marketing support,
. ensuring product availability and optimizing supply chain efficiencies
with suppliers and retailers, and
. maintaining strong relationships with suppliers and customers.
Our Sally Beauty Supply stores face domestic and international competition
from a wide range of retail outlets, including mass merchandisers, drug stores
and supermarkets, which carry a full line of beauty and health care products.
In addition, our Beauty Systems Group competes with local and regional beauty
supply stores and full-service dealers selling competing products directly to
salons. Sally Beauty Company also faces competition from certain manufacturers
in international markets, which use their own sales force to distribute their
professional beauty products directly to salons.
Our markets are characterized by frequent introductions of new products and
by the entry of other manufacturers as new competitors, both of which are
typically accompanied by extensive advertising and marketing campaigns. Such
campaigns are often very costly and can significantly affect our sales and
earnings.
Increased competition in the beauty and health care products and beauty
supplies industries could reduce our sales and profit margins and have a
material adverse effect on our business, results of operations and/or financial
condition.
Distribution delays or interruptions could decrease our sales and profitability.
We are highly dependent on ground and overseas transportation to deliver
materials to our manufacturing facilities and merchandise to our distribution
centers. We are also dependent on ground transportation to deliver merchandise
from our distribution centers to each of our stores and to retail customers
which sell our consumer products. We rely on our vendors to provide our
distribution centers with merchandise on a timely basis and on our internal
inventory replenishment systems and procedures to assure that our stores and
outlets for our beauty products have adequate merchandise in stock. Failure of
merchandise to reach its destination on a timely basis could result in stores
not being adequately stocked. Distribution delays or interruptions resulting
from:
. third-party vendor delays in production, filling and/or shipping,
6
. work stoppages as a result of labor unrest or strikes,
. problems in hiring or training employees,
. disruptions in our internal inventory replenishment systems, the
introduction of new systems or procedures or computer malfunctions,
or other factors could have a material adverse effect on our business, results
of operations and/or financial condition.
Shifts or decreases in market demand could result in significant markdowns of
our inventory and in loss of profitability.
We carry extensive inventory, largely as a result of the operations of
Sally Beauty Company. Material shifts or decreases in market demand for
merchandise could result in us carrying inventory that cannot be sold at
anticipated retail prices and could result in significant markdowns and
warehouse capacity problems. Failure to maintain proper inventory levels and
purchase appropriate merchandise could result in a material adverse effect on
our business, results of operations and/or financial condition.
In addition, general economic conditions that place pressure on the budgets
of our customers and consumers could limit the income they otherwise have
available to spend on our products and in our Sally Beauty Supply stores or to
buy products distributed by the Beauty Systems Group, which could have a
material adverse effect on our business, results of operations and/or financial
condition.
Our success depends, in part, on our key employees.
Our success will depend, in part, on our ability to retain our key
employees. These employees have substantial experience and expertise in our
business and have made significant contributions to our growth and success. The
unexpected loss of one or more of our key employees could have a material
adverse effect on our business, results of operations and/or financial
condition. See "Management."
Our business is exposed to domestic and foreign currency fluctuations.
Our international sales are generally denominated in foreign currencies,
and this revenue could be materially affected by currency fluctuations.
Approximately 23% of our sales were from international operations in fiscal
year 2001. Our primary exposures are to fluctuations in exchange rates for the
United States dollar versus the Swedish krona, the British pound sterling, the
Canadian dollar, the Euro, the Australian dollar, the Mexican peso and the
Argentine peso. Changes in currency exchange rates may also affect the relative
prices at which we and our foreign competitors sell products in the same
market. Although we occasionally hedge some exposures to changes in foreign
currency exchange rates arising in the ordinary course of business, we cannot
assure you that foreign currency fluctuations will not have a material adverse
effect on our business, results of operations and/or financial condition.
Our ability to conduct business in or import products from international
markets may be affected by legal, regulatory, political and economic risks.
Our ability to capitalize on growth in new international markets and to
grow or maintain the current level of operations in our existing international
markets is subject to risks associated with international operations. These
include:
. unexpected changes in regulatory requirements and
. new tariffs or other barriers to some international markets.
7
We are also subject to political and economic risks in connection with our
international operations, including:
. political instability,
. changes in diplomatic and trade relationships, and
. economic fluctuations in specific markets.
We cannot predict whether quotas, duties, taxes or other similar
restrictions will be imposed by the United States, the European Union or other
countries upon the import or export of our products in the future, or what
effect any of these actions would have on our business, results of operations
and/or financial condition. Changes in regulatory or geopolitical policies and
other factors may have a material adverse affect on our business in the future
or may require us to modify our current business practices.
RISKS RELATED TO OUR COMMON STOCK AND THE OFFERING
The prices of our common stock may fluctuate which may cause our Class B common
stock to trade at a substantially lower price than you paid.
Various factors, such as economic conditions and volatility in the
financial markets, including changes in investor sector preferences;
announcements or significant developments with respect to the beauty and health
care products or beauty care industries; actual or anticipated variations in
our quarterly or annual financial results; the introduction of new products by
us or our competitors; changes in other conditions or trends in our industries
or in any of our significant markets; changes in governmental regulation; or
changes in securities analysts' estimates of our future performance or that of
our competitors or our industries; could cause the market prices of our common
stock to fluctuate substantially or our Class B common stock to trade at a
substantially lower price than you paid.
Shares eligible for future sale may have a potential adverse effect on our
stock price.
Upon completion of this offering, we expect that 2,207,562 shares of Class
A common stock and 9,219,723 shares of Class B common stock will be
beneficially owned by Leonard H. and Bernice E. Lavin, their daughter Carol L.
Bernick and her husband Howard B. Bernick, assuming the underwriters do not
exercise their over-allotment option. The number of shares of Class A common
stock and Class B common stock outstanding, as of June 12, 2002, was 25,708,144
and 32,331,640, respectively.
Future sales of substantial amounts of shares of either class of our common
stock in the public market could adversely affect the prevailing market prices
of our common stock and could impair our ability to raise capital through
future sales of our equity securities. All of the shares sold in this offering
will be freely tradable without restriction under the Securities Act, unless
purchased by our affiliates. See "Shares Eligible for Future Sale."
Alberto-Culver, its directors, including Mr. and Mrs. Lavin, Mr. and Mrs.
Bernick and William W. Wirtz, Michael H. Renzulli (President of Sally Beauty
Company), the selling stockholders and certain trusts and other entities over
which the Lavins, Bernicks and Mr. Wirtz have voting and investment power, will
agree not to sell or transfer any Class A common stock or Class B common stock
without the prior written approval of Goldman, Sachs & Co. for a period of 90
days from the date of this prospectus, subject to certain exceptions. Sales of
a substantial number of shares of either class of our common stock following
the expiration of these lock-up periods could cause the prices of our common
stock to fall. See "Underwriting."
We may decide in the future to declassify our common stock and revert to a
single class capital structure.
In 1986, we established our current dual class common stock capital
structure consisting of Class A and Class B common shares. The principal
differences between the Class A common stock and the
8
Class B common stock are (i) voting rights--one-tenth and one vote per share,
respectively, and (ii) dividend rights--no dividend may be paid on Class B
common stock unless an equal or greater dividend is paid on Class A common
stock, and dividends may be paid on Class A common stock in excess of dividends
paid or without paying dividends on Class B common stock. The shares of Class B
common stock have historically traded at a premium to the shares of Class A
common stock. Over the 36 months ending April 30, 2002, this premium has ranged
from 3.9% to 25.6%, based on closing stock prices. On May 29, 2002, the day
before the filing of the registration statement relating to this offering, the
Class B common stock closed at $52.43, a 10.6% premium to the Class A closing
price. See "Description of Capital Stock."
Under the terms of the amendment to our restated certificate of
incorporation approved by the stockholders in 1986 (and as we disclose annually
in our proxy statement and financial statement footnotes), all, but not less
than all, of the Class A shares may at any time be converted into Class B
shares on a share-for-share basis at the option of the company. From
time-to-time, the Board of Directors has considered the question of whether it
would be advisable and in the best interests of Alberto-Culver and its
shareholders to declassify the two classes of common stock and revert to the
single class capital structure which existed before 1986.
Most recently, in the spring of 2002, the Board undertook a serious review
of a possible declassification. Although no action or Board vote was undertaken
in that regard, it was the sense of the Board that a declassification would
have significant merit, but that it may not be advisable and in the best
interests of the company and its shareholders at that time because of a
difficult accounting issue, which has arisen as a result of recently issued
accounting guidance. That accounting issue arises from the fact that (i)
employee stock options and restricted stock are granted in shares of Class A
common stock and (ii) pursuant to Issue 41 of the FASB's EITF Issue No. 00-23
(effective January 24, 2002), a declassification may result in either "variable
accounting" treatment or a new "measurement date" for outstanding options and
unvested restricted stock in shares of Class A common stock, either of which
would materially reduce reported net earnings with a non-cash charge in the
period of declassification and in each quarter of the remaining vesting periods
of the outstanding options and restricted stock. In order to reduce or
eliminate an earnings charge related to a potential future declassification,
the Board is considering issuing stock options and restricted stock grants in
the future in shares of Class B common stock rather than Class A common stock.
The Board reserves the right to revisit this matter from time-to-time and at
any time could conclude that it would be advisable and in the best interests of
the company and its shareholders to pursue a declassification with or without a
resolution of this accounting issue.
If the two classes of common stock were to be declassified, it is possible
that, at least in the short-term thereafter, the shares of common stock which
had previously been represented by Class B shares would trade below the market
prices at which the Class B common stock had traded previously.
Our principal stockholders could significantly influence decisions pertaining
to the company, and the anti-takeover effect of two classes of stock and
associated voting rights and other provisions of our organizational documents
could discourage attempts to acquire us.
Holders of our Class B common stock are entitled to one vote per share and
holders of our Class A common stock are entitled to one-tenth of one vote per
share. Currently, the shares beneficially owned by members of the Lavin and
Bernick families represent 39.2% of the voting power of our common stock. Upon
completion of this offering, assuming the underwriters do not exercise their
over-allotment option, members of the Lavin and Bernick families will
beneficially own 2,207,562 shares of Class A common stock and 9,219,723 shares
of Class B common stock, representing 27.0% of the voting power of our common
stock. Accordingly, if they vote in the same manner, members of the Lavin and
Bernick families will still be able to significantly affect the disposition of
many matters
9
submitted to a vote of our stockholders, including the election of directors,
mergers, acquisitions, dispositions, going private transactions and other
extraordinary corporate transactions and their terms. In addition, various
provisions of our organizational documents may have the effect of discouraging
a third party from pursuing a non-negotiated takeover of us. See "Description
of Capital Stock."
The dividend rights of our classes of common stock vary.
The cash dividends paid on our Class A common stock and Class B common
stock have been identical since the original issuance of Class A common stock
in 1986. However, under our restated certificate of incorporation, dividends
may be paid on the Class A common stock in excess of dividends paid, or without
paying dividends, on the Class B common stock. See "Description of Capital
Stock--Dividends and Distributions."
10
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein may
contain 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 the ability to
develop and successfully introduce new products, ensuring product
quality, pricing, promotional activities, introduction of competing
products and continuing customer acceptance of existing products,
. loss of distributorship rights,
. risks inherent in acquisitions and strategic alliances,
. the loss of one or more key employees,
. the effects of a prolonged United States or global economic downturn or
recession,
. changes in costs, including changes in labor costs, raw material prices
or advertising and marketing expenses,
. the costs and effects of unanticipated legal or administrative
proceedings, and
. variations in political, economic or other factors such as currency
exchange rates, inflation rates, tax changes, legal and regulatory
changes or other external factors over which we have no control.
Alberto-Culver has no obligation to update any forward-looking statement in
this prospectus or any incorporated document.
11
PRICE RANGE OF CLASS B COMMON STOCK AND DIVIDENDS
Our Class B common stock is quoted on the New York Stock Exchange under the
symbol "ACV." The following table shows, for the fiscal periods indicated, the
high and low sales prices per share as reported on the NYSE Composite Tape.
High Low
------ ------
Fiscal Year Ending September 30, 2002:
First Quarter......................... $45.90 $38.13
Second Quarter........................ 55.82 42.80
Third Quarter (through June 12, 2002). 57.91 51.15
Fiscal Year Ended September 30, 2001:
First Quarter......................... $43.50 $28.44
Second Quarter........................ 42.75 36.88
Third Quarter......................... 44.45 37.15
Fourth Quarter........................ 46.26 37.35
Fiscal Year Ended September 30, 2000:
First Quarter......................... $27.63 $22.31
Second Quarter........................ 27.13 19.38
Third Quarter......................... 31.81 23.19
Fourth Quarter........................ 31.50 27.38
We paid cash dividends for Class B common stock of $.3225 per share in
fiscal year 2001 and $.29 per share in fiscal year 2000. Our current quarterly
dividend for Class B common stock is $.09 per share. See "Description of
Capital Stock--Dividends and Distributions."
On June 12, 2002, the last reported sales price on the NYSE was $53.24 per
share for our Class B common stock. On June 12, 2002, there were 882 holders of
record of our Class B common stock.
USE OF PROCEEDS
Alberto-Culver will not receive any of the proceeds of the shares of Class
B common stock sold by the selling stockholders.
12
CAPITALIZATION
The following table shows our short-term borrowings and capitalization as
of March 31, 2002. As we will not receive any of the proceeds of the sale of
the Class B common stock sold by the selling stockholders and all of the shares
to be sold are already outstanding, our short-term borrowings and
capitalization will not change as a result of this offering. You should read
this information in conjunction with our consolidated financial statements and
related notes and the other financial information appearing elsewhere in or
incorporated by reference in this prospectus.
March 31, 2002
(Unaudited)
--------------
(Dollars in thousands, except per share data)
Short-term borrowings and current maturities of long-term debt................ $ 3,268
==========
Long-term debt, excluding current maturities:
8.25% senior notes due November 2005....................................... $ 200,000
6.375% debentures due June 2028 (1)........................................ 120,000
Revolving credit facility (2).............................................. --
Other...................................................................... 1,122
----------
Total long-term debt....................................................... 321,122
----------
Stockholders' equity:
Common stock, par value $0.22 per share:
Class A authorized 75,000,000 shares; issued 30,612,798 shares (3)..... 6,735
Class B authorized 75,000,000 shares; issued 37,710,655 shares......... 8,296
Additional paid-in capital................................................. 195,644
Retained earnings.......................................................... 831,824
Accumulated other comprehensive income--foreign currency translation....... (86,944)
Deferred compensation...................................................... (6,705)
Treasury stock, at cost (Class A common stock--5,163,531 shares; Class B
common stock--5,379,015 shares).......................................... (176,529)
----------
Total stockholders' equity................................................. 772,321
----------
Total capitalization.......................................................... $1,093,443
==========
--------
(1) The debentures are subject to repayment, in whole or in part, on June 15,
2008 at the option of the holders.
(2) We have a $250 million revolving credit facility which expires in September
2002. The facility may be drawn in U.S. dollars or certain foreign
currencies.
(3) Does not include 5,742,182 shares of Class A common stock issuable upon the
exercise of outstanding employee and director stock options as of March 31,
2002.
13
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data appearing below should be read
together with the consolidated financial statements, notes and "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
included elsewhere in this prospectus and with the consolidated financial
statements, notes and other financial information we are incorporating by
reference. The selected consolidated financial data for, and as of the end of
each of the fiscal years 1997 through 2001 is derived from our audited
consolidated financial statements. The selected consolidated financial data
for, and as of the end of the six months ended March 31, 2001 and 2002 is
derived from our unaudited consolidated financial statements. In our opinion,
the unaudited consolidated financial statements reflect all adjustments,
consisting only of normal, recurring adjustments, necessary for a fair
presentation of such periods. Our results of operations for the six months
ended March 31, 2002 do not necessarily indicate what our operating results
will be for the full fiscal year.
Six Months Ended
March 31
(Unaudited) Fiscal Year Ended September 30,
-------------------- -------------------------------------------------
2002 2001 2001 2000 (1) 1999 1998 1997 (2)
---------- --------- --------- --------- --------- --------- ---------
(In thousands, except per share data)
Operating Results:
Net sales (3)........................... $1,272,022 1,156,809 2,494,180 2,247,163 1,975,928 1,834,711 1,775,258
Cost of products sold (3)............... 653,512 597,218 1,217,429 1,105,750 973,702 902,095 880,416
Interest expense........................ 13,353 13,931 27,309 23,747 14,849 12,170 11,826
Earnings before income taxes............ 95,298 75,028 167,236 154,281 133,783 132,378 136,121
Provision for income taxes.............. 33,354 25,510 56,860 51,097 47,493 49,311 50,704
Net earnings (4)........................ 61,944 49,518 110,376 103,184 86,290 83,067 85,417
Net earnings per share (4) (5):
Basic................................ 1.09 0.88 1.96 1.85 1.53 1.46 1.53
Diluted.............................. 1.05 0.86 1.91 1.83 1.51 1.37 1.41
---------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding (5):
Basic................................ 57,077 55,978 56,176 55,790 56,378 56,845 55,967
Diluted.............................. 58,890 57,592 57,838 56,410 57,162 62,420 63,377
Shares Outstanding at Period End (5):
Class A.............................. 25,449 23,648 23,871 22,982 22,768 24,063 22,610
Class B.............................. 32,332 32,957 32,957 32,957 32,957 33,148 33,533
---------------------------------------------------------------------------------------------------------------
Financial Condition:
Current ratio........................... 2.11 to 1 2.25 to 1 2.25 to 1 2.17 to 1 1.92 to 1 1.89 to 1 1.86 to 1
Working capital......................... $ 443,082 445,557 486,646 399,748 309,153 277,940 269,007
Cash, cash equivalents and short-term
investments............................ 100,569 141,451 202,839 114,951 57,816 73,305 87,600
Property, plant and equipment, net...... 247,081 232,047 235,822 240,091 238,753 223,476 190,998
Total assets............................ 1,561,675 1,435,572 1,516,501 1,385,598 1,181,494 1,065,343 998,056
Long-term debt.......................... 321,122 332,305 321,183 340,948 225,173 171,760 149,441
Stockholders' equity.................... 772,321 678,499 736,009 632,260 565,780 531,150 495,001
Cash dividends.......................... 9,912 8,858 18,215 16,182 14,394 13,220 10,909
Cash dividends per share (5) (6)........ 0.1725 0.1575 0.3225 0.290 0.255 0.230 0.195
--------
(1) Fiscal year 2000 includes a non-recurring gain from the sale of a
trademark. The non-recurring gain increased earnings before income taxes by
$9.3 million, net earnings by $6.0 million and basic and diluted earnings
per share by 11 cents.
(2) Fiscal year 1997 includes a non-recurring gain from an insurance settlement
for the loss of our corporate airplane. The non-recurring gain increased
earnings before income taxes by $15.6 million, net earnings by $9.8 million
and basic and diluted earnings per share by $0.18 and $0.16, respectively.
(3) In the first quarter of fiscal year 2002, we adopted the provisions of the
FASB's EITF Issue No. 00-14, "Accounting for Certain Sales Incentives," and
Issue No. 00-25, "Vendor Income Statement Characterization of Consideration
Paid to a Reseller of the Vendor's Products." EITF Issue No. 00-14
addresses the recognition, measurement and income statement classification
for various types of sales incentives including coupons, rebates and free
products. EITF Issue No. 00-25 addresses the income statement
classification for various types of consideration paid by a vendor to a
retailer. In connection with the adoption of EITF Issue Nos. 00-14 and
00-25, we reclassified certain amounts for the first half of fiscal
14
year 2001 to conform to the current year presentation resulting in a $59.3
million reduction in net sales, a $5.8 million increase in cost of products
sold and a $65.1 million decrease in promotion expenses for the six months
ended March 31, 2001. Consolidated net earnings were not affected by these
reclassifications.
Net sales, cost of products sold and promotion expense for the fiscal years
ended September 30, 2001, 2000, 1999, 1998 and 1997 have not been restated
for the adoption of EITF Issue Nos. 00-14 and 00-25 in the selected
financial data table above. The impact of the adoption on the fiscal year
ended September 30, 2001 has been quantified and, when restated, will
result in a $115.1 million reduction in net sales, an $11.1 million
increase in cost of products sold and a $126.2 million decrease in
promotion expense. We are in the process of completing the
reclassifications for the fiscal years ended September 30, 2000, 1999, 1998
and 1997 and, when completed later this fiscal year, we expect that the
reported consolidated net sales for each of the fiscal years will be
reduced by approximately 4-6%. Consolidated net earnings will not be
affected by these reclassifications.
(4) We implemented the FASB's SFAS No. 142, "Goodwill and Other Intangible
Assets," in the first quarter of fiscal year 2002 for previously acquired
intangibles. As required by SFAS No. 142, we ceased the amortization of
goodwill and trade names effective October 1, 2001. In accordance with SFAS
No. 142, results for fiscal years prior to fiscal year 2002 have not been
restated for the effects of ceasing goodwill and trade name amortization.
Had goodwill and trade name amortization been discontinued effective
October 1, 1996, net earnings and earnings per share would have been as
follows (in thousands, except per share data):
Six Months
Ended Fiscal Year Ended September 30,
March 31, ------------------------------------
2001 2001 2000 1999 1998 1997
(Unaudited) ---------- ------- ------- ------ ------ ------
Pro forma net earnings....... $53,750 119,100 111,016 92,350 88,407 90,733
Pro forma net earnings
per share (5):
Basic.................. $ 0.96 2.11 1.99 1.64 1.56 1.63
Diluted................ $ 0.93 2.06 1.97 1.62 1.45 1.50
(5) Net earnings per share, shares outstanding and cash dividends per share
have been restated to reflect the 100% stock dividend on our Class A and
Class B outstanding shares in February 1997.
(6) Cash 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.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Three Months and Six Months Ended March 31, 2002 Compared to Three Months
and Six Months Ended March 31, 2001
We achieved record second quarter net sales of $657.8 million in fiscal
year 2002, up $64.8 million or 10.9% over the comparable period of the prior
year. For the six-month period ending March 31, 2002, net sales reached a new
high of $1.27 billion, representing a 10.0% increase compared to last year's
six-month period. Fiscal year 2002 sales were negatively impacted by the effect
of foreign exchange rates. Had foreign exchange rates this year been the same
as the second quarter and first half of fiscal year 2001, sales would have
increased 12.2% for the second quarter and 10.9% for the first half.
Net earnings were $32.7 million for the three months ended March 31, 2002,
or 26.1% higher than the prior year's second quarter net earnings of $25.9
million. Basic earnings per share of 57 cents in the second quarter of fiscal
year 2002 were 11 cents or 23.9% higher than the same period of fiscal year
2001. Diluted earnings per share for the current quarter increased 22.2% to 55
cents versus 45 cents in the same period of the prior year.
Net earnings for the six months ended March 31, 2002 were $61.9 million, or
25.1% higher than the prior year's first half net earnings of $49.5 million.
Basic earnings per share of $1.09 in fiscal year 2002 were 21 cents or 23.9%
higher than the same period of fiscal year 2001. Diluted earnings per share
increased 22.1% to $1.05 compared to 86 cents in the first half of fiscal year
2001.
As discussed under "New Accounting Standards," we discontinued the
amortization of goodwill and trade names at the beginning of fiscal year 2002.
Had last year's results been restated to eliminate goodwill and trade name
amortization, net earnings for the three months and six months ended March 31,
2002 would have increased $4.5 million or 16.1% and $8.2 million or 15.2%,
respectively, compared to the prior year. Basic earnings per share for the
three-month and six-month periods ended March 31, 2002 would have increased 7
cents or 14.0% and 13 cents or 13.5%, respectively, versus the prior year while
diluted earnings per share would have increased 7 cents or 14.6% and 12 cents
or 12.9%, respectively.
Compared to the same periods of the prior year, sales of Alberto-Culver
North America consumer products increased 7.3% and 9.6% in the second quarter
and first six months of fiscal year 2002, respectively. The second quarter and
first half increases were primarily due to higher sales for TRESemme shampoos,
conditioners and styling products, St. Ives Swiss Formula lotions and body
washes and the TCB, Soft & Beautiful Botanicals and Just For Me ethnic hair
care lines, along with increased sales for custom label filling operations.
Higher sales of TRESemme Hydrology also contributed to the first half increase.
Sales of Alberto-Culver International consumer products decreased 1.6% in
the second quarter and 1.1% in the first half of fiscal year 2002 compared to
last year. Fiscal year 2002 sales were negatively impacted by the effect of
foreign exchange rates. Had foreign exchange rates this year been the same as
the second quarter and first six months of fiscal year 2001, International
sales would have increased 4.1% and 2.6%, respectively.
Our Specialty Distribution--Sally business segment achieved sales increases
of 15.6% for the second quarter and 12.8% for the first six months of fiscal
year 2002. The sales increases were mainly
16
attributable to the expansion of Sally's full-service operations, higher sales
for established Sally Beauty Company outlets and the addition of stores during
the year. At March 31, 2002, Sally had 2,502 company-owned stores and 130
franchise stores offering a full range of professional beauty supplies.
Cost of products sold as a percentage of net sales was 51.7% for the second
quarter and 51.4% for the first six months of fiscal year 2002 compared to
51.1% for the second quarter and 51.6% for the first half of the prior year.
The increased cost of products sold percentage in the second quarter of fiscal
year 2002 was primarily attributable to a reduction in sales due to higher
stocking allowances related to new products and increased sales of lower margin
custom label products. Compared to the same period of the prior year, the
decreased cost of products sold percentage in the first half of fiscal year
2002 was primarily attributable to increased sales of higher margin consumer
products and lower manufacturing costs, partially offset by increased stocking
allowances and increased sales of lower margin custom label products.
Compared to the prior year, advertising, marketing, selling and
administrative expenses in fiscal year 2002 increased $16.9 million or 6.9% for
the second quarter and $38.6 million or 8.2% for the first six months. The
increase primarily resulted from the higher selling and administrative costs
associated with the growth of the Sally Beauty Company business and higher
expenditures for advertising and marketing.
Advertising and marketing expense was $47.2 million for the second quarter
and $93.3 million for the first half of fiscal year 2002 versus $46.4 million
for the second quarter and $87.7 million for the first half of fiscal year
2001. The increase primarily resulted from higher advertising expenditures for
Alberto-Culver North America related mainly to TRESemme Hydrology, TRESemme
shampoos and conditioners and St. Ives Swiss Formula facials.
The provision for income taxes as a percentage of earnings before income
taxes was 35.0% for the second quarter and first half of fiscal year 2002
compared to 34.9% for the second quarter and 34.0% for the first half of the
prior year. The higher tax rate for the first half of fiscal year 2002 is
mainly due to the mix of foreign taxable earnings.
Fiscal Year 2001 Compared to Fiscal Years 2000 and 1999
Fiscal year 2001 marked our tenth consecutive year of record sales and
record operating earnings. Net sales for the year ended September 30, 2001 were
$2.49 billion, an increase of 11.0% over prior year sales of $2.25 billion. Net
sales in 1999 were $1.98 billion.
Record net earnings of $110.4 million in 2001 increased 13.6% from the
prior year's net earnings of $97.2 million before the non-recurring gain
described below. Excluding the fiscal year 2000 non-recurring gain, basic
earnings per share of $1.96 in fiscal year 2001 were 22 cents or 12.6% higher
than fiscal year 2000. Diluted earnings per share before the non-recurring gain
increased 11.0% to $1.91 in fiscal year 2001 from $1.72 in fiscal year 2000.
In fiscal year 2000, we sold a European trademark with a nominal carrying
value for $10.0 million. As a result, we recognized a non-recurring pre-tax
gain of $9.3 million and an increase in net earnings of $6.0 million.
Accordingly, basic and diluted earnings per share increased 11 cents as a
result of the gain. Fiscal year 2001 net earnings increased $7.2 million or
7.0% compared to fiscal year 2000 net earnings including the non-recurring gain.
Sales of Alberto-Culver North America consumer products in fiscal year 2001
increased to $616.9 million from $551.6 million in fiscal year 2000. The
current year sales increase primarily resulted from
17
the Pro-Line International business acquired in March 2000, the introduction of
TRESemme Hydrology and higher sales for St. Ives Swiss Formula facial products
and body washes, the Motions line of hair care products and the Alberto VO5
Herbals line of shampoos and conditioners. In fiscal year 2000, sales increased
18.4% compared to 1999 sales of $466.0 million primarily due to higher sales of
the Alberto VO5 Herbals line of shampoos and conditioners, St. Ives Swiss
Formula facial and body wash product lines, the Motions line of hair care
products, TRESemme hair care products and higher sales for custom label filling
operations, along with the inclusion of sales related to the Pro-Line
acquisition.
Alberto-Culver International consumer products sales increased 1.8% to
$445.8 million in 2001 compared to $437.9 million in 2000. The fiscal year 2001
results were negatively impacted by the effect of foreign exchange rates. Had
foreign exchange rates in fiscal year 2001 been the same as 2000,
Alberto-Culver International sales would have increased 10.0%, primarily due to
sales increases for Alberto-Culver's European and Latin American businesses. In
fiscal year 2000, Alberto-Culver International's sales increased 1.6% to $437.9
million from $431.0 million in fiscal year 1999.
Sales of the Specialty Distribution--Sally business segment increased to
$1.46 billion in fiscal year 2001, compared to $1.28 billion and $1.10 billion
in 2000 and 1999, respectively. The sales increases of 14.0% in 2001 and 16.8%
in 2000 were attributable to the expansion of Sally's full service operations,
higher sales for established Sally Beauty Company outlets and the addition of
stores during the year. The number of Sally stores increased 21.5% during the
last three fiscal years to a total of 2,428 at September 30, 2001 compared to
2,325 and 2,157 at the end of fiscal years 2000 and 1999, respectively.
Cost of products sold as a percentage of sales was 48.8% in fiscal year
2001 compared to 49.2% in 2000 and 49.3% in 1999. The lower cost of products
sold percentage in fiscal year 2001 compared to the prior year was primarily
due to the introduction of higher margin new products and lower costs.
Advertising, promotion, selling and administrative expenses increased 11.3%
in fiscal year 2001 and 14.2% in 2000. The increases in fiscal years 2001 and
2000 primarily resulted from the higher selling and administration costs
associated with the growth of the Sally Beauty Company business and higher
expenditures for advertising, promotion and market research.
Advertising, promotion and market research expenditures were $305.1
million, $286.4 million and $259.7 million in fiscal years 2001, 2000 and 1999,
respectively. The higher expenses in fiscal year 2001 were mainly attributable
to increased advertising and promotion expenditures for Alberto-Culver North
America primarily related to the launch of TRESemme Hydrology and the
acquisition of Pro-Line, and higher expenses for Alberto-Culver International
primarily related to Advanced Alberto VO5, the introduction of a new product
line in Mexico and the fiscal year 2000 acquisition of a skin care business in
Poland.
Interest expense, net of interest income, was $21.8 million, $19.2 million
and $12.7 million in fiscal years 2001, 2000 and 1999, respectively. Interest
expense was $27.3 million in fiscal year 2001 versus $23.7 million in 2000 and
$14.8 million in 1999. The increase in interest expense in fiscal year 2001 was
primarily attributable to an additional $8.4 million of interest expense
related to the $200 million of 8.25% senior notes issued in April 2000. The
higher interest expense was partially offset by lower interest expense related
to the repayment of borrowings under the revolving credit facility, the payoff
of the $20.0 million of notes payable which matured in September 2000, and the
repayment of borrowings under the Swedish krona revolving credit facility.
Interest income in fiscal year 2001 was $5.5 million, compared to $4.5 million
in 2000 and $2.1 million in 1999. The increase in fiscal year 2001 was
principally due to higher interest income resulting from investing the net
proceeds of the senior notes for a full year and interest income earned on cash
generated by operations during the year.
18
The provision for income taxes as a percentage of earnings before income
taxes was 34.0% in 2001, 33.1% in 2000 and 35.5% in 1999. The higher tax rate
in fiscal year 2001 was primarily due to the mix of foreign taxable earnings.
Financial Condition
March 31, 2002 versus September 30, 2001
Working capital at March 31, 2002 was $443.1 million, a decrease of $43.5
million from $486.6 million at September 30, 2001. The resulting ratio of
current assets to current liabilities was 2.11 to 1.00 at March 31, 2002
compared to 2.25 to 1.00 at September 30, 2001. The decrease in working capital
and the ratio of current assets to current liabilities was primarily due to the
cash paid for the acquisitions of Armstrong-McCall and other full-service
beauty supply distributors by Sally Beauty Company during the first quarter of
fiscal year 2002, offset in part by working capital generated from operations.
Cash and cash equivalents decreased $101.8 million during the first six
months of fiscal year 2002 primarily due to the $101.2 million of acquisitions
of full-service beauty supply distributors by Sally Beauty Company, the
repurchase of $40.0 million of accounts receivable previously sold under the
company's conduit facility and $32.2 million of capital expenditures, partially
offset by cash flows from operating activities.
Accounts receivable increased $39.1 million to $208.7 million during the
first six months of fiscal year 2002 primarily due to the repurchase of $40.0
million of accounts receivable previously sold under the company's conduit
facility.
Inventories increased $30.6 million or 6.4% to $508.9 million during the
first six months of fiscal year 2002 principally due to the acquisitions of
full-service beauty supply distributors and the growth of Sally Beauty Company.
Net goodwill increased $69.9 million during the first six months of fiscal
year 2002 mainly due to goodwill from acquisitions during the year, partially
offset by the effects of foreign exchange rates.
Accounts payable increased $18.7 million to $210.1 million during the first
half of fiscal year 2002 primarily due to increased inventory levels required
to support sales growth.
Income taxes payable and deferred income taxes decreased $15.6 million to
$54.0 million during the first six months of fiscal year 2002 mainly due to the
timing of tax payments and tax benefits realized from the exercise of employee
stock options in fiscal year 2002.
Accumulated other comprehensive income--foreign currency translation
increased $25.7 million during the first half of fiscal year 2002 primarily due
to the effect of the devaluation of the Argentine peso.
September 30, 2001 versus September 30, 2000
Working capital at September 30, 2001 was $486.6 million, an increase of
$86.9 million from the prior year's working capital of $399.7 million. The
resulting current ratio was 2.25 to 1.00 at September 30, 2001 compared to 2.17
to 1.00 last year. The increase in working capital and the current ratio was
primarily due to higher cash, cash equivalents and short-term investments
principally resulting from cash generated from operating activities during the
year.
Accounts receivable increased 10.0% to $169.7 million from $154.2 million
last year. The increase was principally due to increased sales.
19
Inventories were $478.3 million at September 30, 2001, up 7.4% compared to
$445.3 million last year. The increase primarily resulted from acquisitions and
the growth of the Sally Beauty Company and Alberto-Culver North America
businesses.
Net property, plant and equipment decreased $4.3 million to $235.8 million
at September 30, 2001. The decrease resulted primarily from depreciation during
fiscal year 2001 and the effects of foreign exchange rates, substantially
offset by expenditures for additional Sally stores, acquisitions, office
facilities, machinery and equipment and information systems.
Accounts payable of $191.4 million at September 30, 2001 increased $7.6
million compared to 2000, primarily due to the timing of inventory purchases
and vendor payments, partially offset by the effects of foreign exchange rates.
Long-term debt decreased $19.8 million to $321.2 million at September 30,
2001 principally due to the elimination of borrowings under our Swedish krona
revolving credit facility.
Total stockholders' equity increased $103.7 million to $736.0 million at
September 30, 2001. The increase was primarily due to net earnings for the
fiscal year and proceeds from the exercise of employee stock options, partially
offset by dividend payments and the weakening of certain foreign currencies
against the United States dollar.
Liquidity and Capital Resources
Fiscal Year 2001 Compared to Fiscal Years 2000 and 1999
Our primary sources of cash over the past three years have been from funds
provided by operating activities and the issuance of $200 million of 8.25%
senior notes in April 2000. Operating activities provided cash of $165.2
million, $119.1 million and $83.6 million in 2001, 2000 and 1999, respectively.
We have obtained long-term financing as needed to fund acquisitions and
other growth opportunities. We may also obtain funds prior to their actual need
in order to take advantage of opportunities in the debt markets. In April 2000,
we issued $200 million of 8.25% senior notes due November 2005. In June 1998,
we issued $120 million of 6.375% debentures due June 2028. In September 1997,
we obtained a five-year, $200 million revolving credit facility, which was
increased to $250 million in fiscal year 2000. The facility, which had no
borrowings outstanding at September 30, 2001 or 2000, may be drawn in U.S.
dollars or in certain foreign currencies. Under debt covenants, we have the
ability to incur up to $780 million of additional borrowings.
The primary uses of cash during the three-year period ending September 30,
2001 were $225.9 million for acquisitions, $221.5 million for repayments of
long-term debt, $122.1 million for capital expenditures, $48.8 million for cash
dividends and $43.9 million for purchases of treasury stock.
Compared to 1998, cash dividends per share increased 40.2% over the
three-year period ended September 30, 2001. Cash dividends paid on Class A and
Class B common stock were $.3225 per share in 2001, $.290 per share in 2000 and
$.255 per share in 1999.
We anticipate that cash flows from operations and available credit will be
sufficient to fund operating requirements in future years. During fiscal year
2002, we expect that cash will continue to be used for acquisitions, capital
expenditures, new product development, market expansion and dividend payments.
We may also purchase shares of our common stock depending on market conditions.
During fiscal years 1998 and 1999, our Board of Directors authorized the
purchase of up to 9.0 million
20
shares of our Class A common stock. As of September 30, 2001, 1.7 million Class
A shares remained available for purchase under the authorizations. No Class A
shares have been purchased under this program since October 1999.
Inflation
We were not significantly affected by inflation during the period from
October 1, 1998 through March 31, 2002. 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 we operate.
Market Risk
As a multinational corporation that manufactures and markets products in
countries throughout the world, we are subject to certain market risks
including foreign currency, interest rates and government actions. We consider
a variety of practices to manage these market risks, including, when deemed
appropriate, the occasional use of derivative financial instruments. We use
derivative financial instruments only for risk management and do not use them
for trading or speculative purposes. As of September 30, 2001, we had no
material derivative financial instruments outstanding.
We are exposed to potential gains or losses from foreign currency
fluctuations affecting net investments and earnings denominated in foreign
currencies. Our primary exposures are to changes in exchange rates for the
United States dollar versus the Swedish krona, the British pound sterling, the
Canadian dollar, the Euro, the Australian dollar, the Mexican peso and the
Argentine peso.
Our various currency exposures often offset each other, providing a natural
hedge against currency risk. Periodically, specific foreign currency
transactions such as inventory purchases and intercompany transactions 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, 2001, we had no material
outstanding foreign currency contracts.
We consider combinations of fixed rate and variable rate debt, along with
varying maturities, in our management of interest rate risk. At September 30,
2001, we had no variable rate long-term debt outstanding.
We have periodically used interest rate swaps to manage interest rate risk
on debt securities. These instruments allow us 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, 2001, we had no interest rate swaps outstanding.
Our quantitative information on market risk as of September 30, 2001 is as
follows (in millions):
Debt
---------------------------
Short-Term Long-Term
Expected Maturities Fixed Rate Fixed Rate Total
------------------- ---------- ---------- -----
2002 (3.3% average rate)...... $2.9 -- 2.9
2003 (8.9% average rate)...... -- 1.1 1.1
2004 (7.8% average rate)...... -- 0.1 0.1
2006 (8.3% average rate)...... -- 200.0 200.0
Thereafter (6.4% average rate) -- 120.0 120.0
---- ----- -----
Total......................... $2.9 321.2 324.1
==== ===== =====
Fair Value.................... $2.9 336.1 339.0
==== ===== =====
21
We are 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 our
policy of investing in securities with high credit ratings.
We provide credit to customers in the ordinary course of business and
perform ongoing credit evaluations. Concentrations of credit risk with respect
to trade receivables are limited due to the number of customers comprising our
customer base. We believe our allowance for doubtful accounts is sufficient to
cover customer credit risks.
There have been no material changes in our market risk during the six
months ended March 31, 2002.
On May 1, 2002, we entered into an interest rate swap agreement with a
notional amount of $100 million in order to convert a portion of our fixed rate
8.25% senior notes into a variable rate obligation. The swap agreement, which
matures on November 1, 2005, is designated as a fair value hedge. Under the
interest rate swap agreement, we will receive semi-annual interest payments at
a fixed rate of 8.25% and are required to make semi-annual interest payments at
a variable rate based on a fixed spread over the six-month London Interbank
Offered Rate. The differential to be paid or received on the interest rate swap
will be recorded as an adjustment to interest expense over each semi-annual
period. On a pro-forma basis taking into account the interest rate swap,
approximately 69% of our $321.1 million of long-term debt at March 31, 2002 is
based on a fixed interest rate with the remaining 31% based on a variable
interest rate.
New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS Nos. 137
and 138, requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. The accounting treatment of
gains or losses resulting from changes in the values of those derivatives is
dependent on the use of the derivative and whether it qualifies for hedge
accounting. We were required to comply with SFAS No. 133, as amended, in the
first quarter of fiscal year 2001 and its adoption did not have a material
effect on the consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB No. 101 provides
guidance in applying generally accepted accounting principles to revenue
recognition. We implemented SAB No. 101 in the first quarter of fiscal year
2001 and its adoption did not have a material effect on the consolidated
financial statements.
In September 2000, FASB's EITF reached a consensus on Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs." EITF Issue No. 00-10
addresses the income statement classification of shipping and handling fees and
costs. We implemented EITF Issue No. 00-10 in the first quarter of fiscal year
2001 and its adoption did not have a material effect on the consolidated
financial statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
140 replaces SFAS No. 125 and revises the standards for accounting for
securitizations and other transfers of financial assets and collateral. We
implemented SFAS No. 140 in the third quarter of fiscal year 2001 and its
adoption did not have a material effect on the consolidated financial
statements.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses
financial accounting and reporting
22
for business combinations. SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets, requires companies
to discontinue the amortization of goodwill and certain other intangible assets
and requires an impairment test of existing goodwill and certain other
intangible assets based on a fair value method. We adopted SFAS No. 141 in the
fourth quarter of fiscal year 2001. We also adopted SFAS No. 142 in the fourth
quarter of fiscal year 2001 for new acquisitions and in the first quarter of
fiscal year 2002 for previously acquired intangibles. In accordance with SFAS
No. 142, we determined that our trade names have indefinite lives and,
therefore, the amortization of trade names was discontinued effective October
1, 2001. Based on the results of our transitional impairment testing, no
impairment of indefinite-lived trade names existed at October 1, 2001. In
addition, as required by SFAS No. 142, we ceased the amortization of goodwill
effective October 1, 2001. In accordance with the adoption provisions of SFAS
No. 142, we have completed the required transitional goodwill impairment tests
and have determined that goodwill was not impaired as of October 1, 2001, the
date of adoption. Prospectively, goodwill will be reviewed for impairment at
least annually, with its ongoing recoverability monitored based on applicable
reporting unit performance and consideration of significant events or changes
in the overall business environment.
In accordance with SFAS No. 142, results for fiscal years prior to 2002 in
the consolidated statement of earnings have not been restated for the effects
of ceasing goodwill and trade name amortization. Had goodwill and trade name
amortization been discontinued effective October 1, 2000, net earnings and
earnings per share for the three and six months ended March 31, 2002 and 2001
would have been as follows (in thousands, except per share data):
Three Months Six Months Ended
Ended March 31, March 31,
-------------- ----------------
2002 2001 2002 2001
------- ------ ------ ------
Reported net earnings....................... $32,650 25,892 61,944 49,518
Elimination of goodwill and trade name
amortization, net of income taxes......... -- 2,221 -- 4,232
------- ------ ------ ------
Pro forma net earnings...................... $32,650 28,113 61,944 53,750
======= ====== ====== ======
Reported basic net earnings per share....... $ 0.57 0.46 1.09 0.88
Elimination of goodwill and trade name
amortization, net of income taxes......... -- 0.04 -- 0.08
------- ------ ------ ------
Pro forma basic net earnings per share...... $ 0.57 0.50 1.09 0.96
======= ====== ====== ======
Reported diluted net earnings per share..... $ 0.55 0.45 1.05 0.86
Elimination of goodwill and trade name
amortization, net of income taxes......... -- 0.03 -- 0.07
------- ------ ------ ------
Pro forma diluted net earnings per share.... $ 0.55 0.48 1.05 0.93
======= ====== ====== ======
The change in the carrying amount of goodwill by operating segment for the
six months ended March 31, 2002 is as follows (in thousands):
Consumer Products Specialty
-------------------------- Distribution
North America International Sally Total
------------- ------------- ------------ -------
Goodwill, net:
Balance as of
September 30, 2001....... $69,379 79,648 115,312 264,339
Additions.................. 151 -- 83,587 83,738
Foreign currency
translation effect....... -- (13,675) (145) (13,820)
------- ------- ------- -------
Balance as of
March 31, 2002........... $69,530 65,973 198,754 334,257
======= ======= ======= =======
23
Indefinite-lived trade names by operating segment at March 31, 2002 and
September 30, 2001 are as follows (in thousands):
March 31, September 30,
2002 2001
--------- -------------
Trade names, net:
-----------------
Consumer products:
Alberto-Culver North America.... $45,412 45,414
Alberto-Culver International.... 28,733 33,857
------- ------
Total consumer products..... 74,145 79,271
Specialty Distribution--Sally...... 223 261
------- ------
$74,368 79,532
======= ======
In May 2000, the FASB's EITF reached a consensus on Issue No. 00-14,
"Accounting for Certain Sales Incentives." EITF Issue No. 00-14 addresses the
recognition, measurement and income statement classification for various types
of sales incentives including coupons, rebates and free products. In April
2001, the EITF reached a consensus on Issue No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products."
EITF Issue No. 00-25 addresses the income statement classification for various
types of consideration paid by a vendor to a retailer. We adopted the
provisions of EITF Issue Nos. 00-14 and 00-25 in the first quarter of fiscal
year 2002. In connection with the adoption of EITF Issue Nos. 00-14 and 00-25,
we reclassified certain amounts for the second quarter and first half of fiscal
year 2001 to conform to the current year presentation resulting in a $29.6
million reduction in net sales, a $3.7 million increase in cost of products
sold and a $33.3 million decrease in promotion expense for the three months
ended March 31, 2001, and a $59.3 million reduction in net sales, a $5.8
million increase in cost of products sold and a $65.1 million decrease in
promotion expenses for the six months ended March 31, 2001. Consolidated net
earnings were not affected by these reclassifications.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets,
including the presentation of discontinued operations in the statement of
earnings. We are required to adopt the provisions of SFAS No. 144 no later than
the first quarter of fiscal year 2003 and do not expect our implementation to
have a material effect on the consolidated financial statements.
24
BUSINESS
Alberto-Culver Company and its consolidated subsidiaries have three
principal business segments. Our consumer products business includes two
segments, Alberto-Culver North America and Alberto-Culver International, which
develop, manufacture, distribute and market branded consumer products
worldwide. These branded consumer products primarily consist of beauty and
health care products and food and household products. Alberto-Culver North
America includes our consumer products operations in the United States and
Canada, while Alberto-Culver International sells our consumer products in more
than 120 other countries.
Beauty and health care products accounted for approximately 37%, 39% and
39% of our consolidated net sales for the years ended September 30, 2001, 2000
and 1999, respectively. Food and household products accounted for approximately
5%, 5% and 6% of our consolidated net sales for the years ended September 30,
2001, 2000 and 1999, respectively.
Our third segment, Specialty Distribution--Sally, consists of two
operations: (1) Sally Beauty Supply, a domestic and international chain of
cash-and-carry outlets offering professional beauty supplies to both
professionals and retail consumers and (2) Beauty Systems Group, a full-service
beauty products distributor offering professional brands directly to salons and
through professional-only outlets in exclusive geographic territories. This
segment accounted for approximately 58%, 56% and 55% of the company's
consolidated net sales for the years ended September 30, 2001, 2000 and 1999,
respectively.
Our Core Strengths
Alberto-Culver's steady growth and leadership position in global beauty
products is due to several core strengths.
. Global Consumer Beauty Brands--Our global consumer products business has
a long history with established brand names and generated approximately
$1 billion in sales from over 120 countries in fiscal year 2001. Our
three leading beauty brands are Alberto VO5/Alberto, St. Ives Swiss
Formula and TRESemme. The Alberto VO5 and Alberto global hair care brands
had over $300 million in sales in fiscal year 2001, with approximately
95% aided brand awareness in the domestic hair care segment and the
number three unit market share in the domestic shampoo/conditioner
category (all unqualified market share comparisons for consumer products
included in "--Our Core Strengths" are based upon Information Resources
Incorporated data). St. Ives Swiss Formula is a global skin care and hair
care brand with over $160 million in sales in fiscal year 2001 and whose
apricot scrub has the leading domestic stock keeping unit in the facial
moisturizers and cleansers category. With a long professional heritage,
the TRESemme hair care brand had over $100 million in sales in fiscal
year 2001 and was one of the fastest growing brands in the retail
shampoo/conditioner category, with sales growth of 41% and 56% in units
and dollars, respectively, for the 52 weeks ended April 7, 2002.
. Number One Chain of Cash-and-Carry Beauty Supply Stores in the United
States--We hold the number one domestic position in cash-and-carry
professional beauty distribution through our branded network of nearly
2,000 Sally Beauty Supply stores in the United States. We have
successfully become a partner to salon professionals by providing an
extensive selection of professional products, the majority of which we
believe are not available through food, drug or mass outlets. We believe
the Sally business model is unique among retailers as it experiences very
little seasonality, is supported by minimal advertising and requires low
capital investment for expansion. We are the only national retail chain
offering a full line of professional beauty supplies to both salon
professionals and retail consumers.
25
. Leading Supplier Within the Fragmented Direct-to-Salon Segment--Sally's
Beauty Systems Group operates under exclusive territory licenses, selling
professional-only brands such as Matrix, Paul Mitchell, Graham Webb,
Redken, TIGI, Sebastian and others directly to salons through
approximately 900 professional sales consultants and 480 stores. As a
result of numerous acquisitions over the past several years, including
the purchase of Armstrong-McCall in December 2001, we believe we have
positioned Beauty Systems Group as the market consolidator in the United
States. We also believe we have successfully leveraged our ability to
acquire, integrate and grow businesses to become the distributor of
choice within this segment.
. Number Two Position in the Profitable Ethnic Hair Care Category--With the
acquisition of Pro-Line International in March 2000, added to our other
ethnic hair care brands, we believe that we hold the number two position
by revenue in the high margin domestic ethnic hair care category. Our
strong brands include Motions, TCB, Soft & Beautiful and Just For Me. We
believe the company has the number one professional brand, the number one
children's brand and the number two relaxer position in the domestic
ethnic hair care category.
. Consistent Outperformance of Hair Care and Skin Care
Brands--Alberto-Culver's shampoos, conditioners, conditioning treatments
and styling aid products have exceeded the growth of the daily hair care
and styling category in 24 of the 27 rolling 12-week periods ending April
7, 2002 in dollar sales. The dollar sales growth of our skin care
products (including facials, body wash, scrubs and lotions) has also
exceeded other brands in the category in 21 of the 27 rolling 12-week
periods ending April 7, 2002.
. Ten Consecutive Years of Record Sales and Record Earnings--During the
last ten years, our sales have almost tripled growing from $874 million
in fiscal year 1991 to $2.49 billion in fiscal year 2001 and our net
earnings have almost quadrupled with our net earnings reaching $110
million in fiscal year 2001 versus $30 million in fiscal year 1991. Our
disciplined focus on our hair and skin care consumer products businesses
and Sally Beauty Company has resulted in consistent revenue and earnings
per share growth compounded annually at rates of 11% and 14%,
respectively, over the last ten years. Moreover, we have increased our
annual cash dividend for 18 consecutive years.
. Strong Cash Flow and Balance Sheet--Alberto-Culver's history of strong
cash flow and earnings growth has enabled us to maintain a conservative
capital structure and a low level of debt while steadily increasing the
scale of our operations. We believe that we have maintained the financial
flexibility to continue to grow our businesses, both organically and
through selected acquisitions.
. Experienced Management Team--Alberto-Culver's entrepreneurial,
experienced management team continues to lead it toward continued
financial and operational success. The business has been managed by the
founding family since it was acquired in 1955, and a second generation of
the family, along with a management team with substantial experience and
expertise, leads the business with a continued vision of building and
growing a premier consumer products and specialty beauty products
distribution company.
Our Strategy
Alberto-Culver maintains a consistent operating strategy that provides
significant opportunities for growth across its global beauty brands, Sally
Beauty Supply stores and Beauty Systems Group. Our strategy includes the
following:
. Consolidate and Streamline the Fragmented Direct-to-Salon Segment. Beauty
Systems Group currently operates in approximately 60% of the continental
United States, allowing for significant additional acquisition
opportunities in the highly fragmented full-service beauty supply
distribution industry. Moreover, we often find that the limited
sophistication and scale of
26
the participants in this sector affords Beauty Systems Group the
opportunity to use its infrastructure and experience to significantly
improve the operating performance and margins of the acquired companies'
store operations, sales force channel effectiveness and logistic
functions.
. Continue Product Innovation. We believe that there are numerous
opportunities for new innovations and product extensions within our
existing strong brands. Successful extensions in the past two fiscal
years include the Alberto VO5 Herbals and TRESemme Hydrology lines of
shampoos and conditioners. We believe that we will continue to be able to
leverage our existing brands by introducing additional products, with
some at higher price points, as well as creating new sublines within our
primary businesses. We recently opened a new $10 million research and
development center at our corporate headquarters to continue to drive new
product innovation and brand extensions.
. Increase Consumer Products Profit Margins Through Product Optimization
and Further Maximization of Our Global Infrastructure. Capacity for
margin expansion exists in all of our businesses through ongoing product
innovation, improved pricing, achievement of cost efficiencies and
prioritization of initiatives focused on fewer, larger geographies and
brands. By pursuing this strategy, we have been able to grow our pre-tax
margins for Alberto-Culver North America consumer beauty care brands from
4% in fiscal year 1994 to 9% in fiscal year 2001, while almost doubling
our sales to $617 million in fiscal year 2001 from $333 million in fiscal
year 1994. In addition, we continue to pursue ways to maximize the impact
and benefits of our global infrastructure. By taking a more uniform and
coordinated approach across the globe, we believe we will be able to take
advantage of global economies in procurement, marketing, manufacturing
and distribution that should lead to continued margin improvement.
. Continue Roll-Out of Sally Beauty Supply Stores. We believe that there
are significant growth opportunities from the continued roll-out of Sally
Beauty Supply stores both domestically and abroad. With nearly 2,000
domestic outlets to date, we believe there is significant potential for
increased market penetration to over 3,000 stores in the United States
alone. We plan to open approximately 40 to 50 new stores per year, net of
store closings. Sally Beauty Company has only begun to establish its
retail presence internationally with approximately 180 stores, focusing
to date on the United Kingdom, Germany and Japan and recently entering
Mexico. With only limited international presence, the company believes
overseas markets represent a significant avenue for growth.
. Acquire and Grow Consumer Beauty Brands and Businesses. Over the past
decade, a series of select consumer beauty products acquisitions,
including Cederroth, Molnlycke Toiletries, St. Ives and Pro-Line
International, has broadened our product portfolio, global footprint and
infrastructure. We have cultivated the technology, expertise and
infrastructure to continue to develop and leverage global, leading
brands. As many consumer products and healthcare companies continue to
divest non-core brands and individual businesses, we remain well
positioned to benefit from these opportunities.
Alberto-Culver North America
Our major beauty and health care products marketed 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 and FDS feminine
deodorant sprays. In fiscal year 2000, we acquired Pro-Line International, a
maker of ethnic hair care products, including the Soft & Beautiful, Just For Me
and Comb-Thru brands. We believe that this acquisition makes us the second
largest domestic manufacturer and marketer of ethnic hair care products when
combined with our Motions and TCB brands. Food and household products sold in
the United States include Mrs. Dash salt-free seasoning blends, Molly McButter
butter flavor sprinkles, SugarTwin sugar substitute and Static Guard
anti-static spray.
27
In Canada, we sell most of the products marketed in the United States along
with the Alberto European and Alberto Balsam lines of hair care products.
The Alberto-Culver North America segment also includes the manufacturing of
custom label personal care products in the United States for other companies.
Alberto-Culver International
In the United Kingdom, we manufacture and market products such as the
Alberto VO5, Advanced Alberto VO5, Alberto Balsam and TRESemme lines of hair
care products and the St. Ives Swiss Formula line of hair and skin care
products. We market Indola professional hair colors, shampoos, conditioners and
styling products throughout Europe and other international markets.
In Latin America, the significant products sold by the company include the
Alberto VO5, Alberto Get Set and Antiall lines of hair care products, the St.
Ives Swiss Formula line of hair and skin care products, Veritas soap and
deodorant body powder products and Farmaco soap products.
We manufacture, market and distribute beauty and health care products
throughout Scandinavia and Europe through our Cederroth International
subsidiary headquartered in Sweden. Such products include Salve adhesive
bandages, Alberto VO5 hair care products, Samarin antacids, Seltin salt
substitute, Jordan toothbrushes, Topz cotton buds, Savette wet wipes, Bliw
liquid soaps, Date anti-perspirants and cologne for women, Alberto Family Fresh
shampoo and shower products, Suketter artificial sweetener, the St. Ives Swiss
Formula line of hair and skin care products, HTH and L300 skin care products,
Grumme Tvattsapa detergents and Pharbio natural pharmaceuticals. In fiscal year
2000, Cederroth International purchased Soraya, a skin care company in Poland.
Our other international markets include Australia, Italy and New Zealand.
Specialty Distribution--Sally
Sally Beauty Company operates a network of cash-and-carry professional
beauty supply stores under the name Sally Beauty Supply and also sells
professional beauty products to hairdressers, beauticians and cosmetologists
through its Beauty Systems Group full-service distribution business.
As of March 31, 2002, Sally Beauty Company, including its Beauty Systems
Group, had over 2,500 stores in the United States, Puerto Rico, the United
Kingdom, Canada, Japan, Germany and Mexico. Through targeted acquisitions,
organic growth and distribution and merchandising efficiencies, Beauty Systems
Group achieved over $400 million in sales in fiscal year 2001, making it our
fastest growing business unit.
Sally Beauty Supply stores provide salon owners, hairdressers and consumers
with an extensive selection of hair care products, cosmetics, styling
appliances and other beauty items, including brands such as Wella, Clairol,
Revlon and L'Oreal. Sally Beauty Supply stores' professional customers purchase
salon supplies at a discount, while its retail customers purchase professional
products at a higher price.
Sally's Beauty Systems Group distributes professional beauty products to
salons in exclusive, licensed territories in the Northeast, Midwest, Midsouth,
Southwest, East and Southeast United States and portions of Canada and Mexico.
Beauty Systems Group operates over 400 stores that are open exclusively to the
salon professional and maintains a sales force that consists of approximately
900 professional distributor sales consultants who call on the salons directly.
In addition to selling professional beauty products, these sales consultants
train salon operators and owners in new styles,
28
techniques and business practices. The brands sold in the Beauty Systems Group
stores and through sales consultants, such as Matrix, Paul Mitchell, Graham
Webb, Redken, TIGI and Sebastian, are sold to consumers exclusively through
salons and are not available at Sally Beauty Supply stores.
Product Development and Marketing
Many of our consumer products are developed in the company's laboratories.
We recently invested approximately $10 million to establish a new research and
development facility at our corporate headquarters. In fiscal year 2000, we
established global structures for operations and research and development,
which are designed to enable us to implement cost-savings initiatives more
quickly on a broad scale and to shorten the time that it takes to develop an
idea into a market-ready product. 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 and marketing activities.
In fiscal year 2001, with the introduction of the Herbals line, we
increased the Alberto VO5 brand's share throughout the year to approximately
10% in units in the United States shampoo and conditioner category.
Internationally, we introduced the Advanced Alberto VO5 line of shampoos,
patented conditioners and treatments, a premium-priced line which features
moisturizing formulas enhanced with time-released vitamins.
Through our St. Ives Swiss Formula brand, we built our position in the body
wash category last year, leveraging the skin care and botanical experience that
is the foundation of our St. Ives Swiss Formula line. In addition, we
introduced to international markets a number of other St. Ives Swiss Formula
skin care products that are successful in the United States, with encouraging
results.
Under the TRESemme brand, we introduced a successful line of shampoos and
conditioners called TRESemme Hydrology at a premium price point to the
traditional TRESemme line. We also relaunched the traditional TRESemme line at
a higher price point.
We allocate a large portion of our revenues to the advertising and
marketing of consumer beauty products. Net earnings are materially affected by
these expenditures, which are charged against income in the period incurred.
We regard television as the best medium for our advertising and use it to
conduct extensive network, spot and cable television advertising campaigns. We
also advertise through other media such as newspapers, magazines and radio, as
well as through Sally Beauty Company's direct mailings to customers.
Extensive advertising and marketing are required to build and protect a
product's market position. We believe there is significant consumer awareness
of our major brands and that such awareness is an important factor in our
operating results.
See "Risk Factors--Risks Related to our Business--We face competition in
the beauty and health care products and beauty supply industries."
Competition
The domestic and international markets for our branded consumer products
are highly competitive and sensitive to changes in consumer preferences and
demands. Our competitors range in size from large, highly diversified companies
(some of which have substantially greater financial resources than we do) to
small, specialized producers. We compete primarily on the basis of innovation,
product quality and price and believe that brand loyalty and consumer
acceptance are also important factors to our success.
29
Sally Beauty Company experiences domestic and international competition
from a wide range of retail outlets, including mass merchandisers, drug stores
and supermarkets, carrying a full line of beauty and health care products. In
addition, Sally Beauty Company competes with local and regional beauty supply
stores and full-service dealers selling directly to salons through both
professional distributor sales consultants and cash-and-carry outlets open only
to salon professionals. Sally also faces competition from certain manufacturers
which use their own sales forces to distribute their professional beauty
products directly to salons.
See "Risk Factors--Risks Related to our Business--We face competition in
the beauty and health care products and beauty supply industries."
Distribution
Our sales force and independent brokers sell our retail beauty and health
care products and food and household products by calling upon retail outlets
such as mass merchandisers, supermarkets, drug stores, dollar stores,
wholesalers and variety stores.
Our sales representatives and brokers sell our professional hair care
products primarily for the ethnic market in the United States to beauty supply
outlets and to beauty distributors, who in turn sell to beauty salons, barber
shops and beauty schools.
Our products are sold internationally in more than 120 countries, primarily
through direct sales by our subsidiaries, independent distributors and
licensees.
Sally Beauty Company, including its Beauty Systems Group, sells
professional beauty supplies through over 2,500 stores located in 47 states,
Puerto Rico, the United Kingdom, Canada, Japan, Germany and Mexico. Sally
Beauty Supply stores are self-service, cash-and-carry and are primarily located
in strip shopping centers. Sally operates the largest domestic chain of
cash-and-carry beauty supply stores and as such is a major customer of some of
the company's competitors in the personal care products industry. In addition,
Sally's Beauty Systems Group distributes products in exclusive, licensed
territories in the Northeast, Midwest, Midsouth, East, Southeast and Southwest
United States and portions of Canada and Mexico and sells only to the
professional market through its stores and approximately 900 professional
distributor sales consultants. Sally sells Alberto-Culver North America's
professional hair care products, but these products represent only a small
portion of Sally's selection of salon brands.
See "Risk Factors--Risks Related to our Business--Our business is exposed
to domestic and foreign currency fluctuations," "--Our ability to conduct
business in or import products from international markets may be affected by
legal, regulatory, political and economic risks," and "--Distribution delays or
interruptions could decrease our sales and profitability."
30
MANAGEMENT
Executive Officers and Directors
The following sets forth information with respect to our directors and
executive officers as of May 31, 2002.
Leonard H. Lavin, 82, the founder of Alberto-Culver, has served as a
director and Chairman of Alberto-Culver since 1955. Mr. Lavin is the husband of
Bernice E. Lavin, the father of Carol L. Bernick and the father-in-law of
Howard B. Bernick.
Howard B. Bernick, 50, has served as a director of Alberto-Culver since
1986, as President of Alberto-Culver since 1988 and as Chief Executive Officer
of Alberto-Culver since 1994. Mr. Bernick is also a director of AAR Corp. and
the Wm. Wrigley Jr. Company. Mr. Bernick is the husband of Carol L. Bernick and
the son-in-law of Leonard H. Lavin and Bernice E. Lavin.
Bernice E. Lavin, 76, has served as a director and Secretary and Treasurer
of Alberto-Culver since 1955 and as Vice Chairman since 1994. Mrs. Lavin is the
wife of Leonard H. Lavin, the mother of Carol L. Bernick and the mother-in-law
of Howard B. Bernick.
Carol L. Bernick, 50, has served as a director of Alberto-Culver since
1984, as Assistant Secretary of Alberto-Culver since 1990, as Vice Chairman of
Alberto-Culver and President of Alberto-Culver Consumer Products Worldwide, a
division of Alberto-Culver, since June 2002 and as President of Alberto-Culver
USA, Inc., a wholly-owned subsidiary of Alberto-Culver, from 1994 to April 1998
and since January 1999. From April 1998 to June 2002, Mrs. Bernick was
President of Alberto-Culver North America, a division of Alberto-Culver. From
1990 to April 1998, she served as Executive Vice President of Alberto-Culver.
Mrs. Bernick is the wife of Howard B. Bernick and the daughter of Leonard H.
Lavin and Bernice E. Lavin.
A. Robert Abboud, 73, has served as a director of Alberto-Culver since 1994
and as President of A. Robert Abboud and Company, a private investment firm,
for more than five years. Mr. Abboud is also a director of AAR Corp.
A. G. Atwater, Jr., 58, has served as a director of Alberto-Culver since
1995 and as President and Chief Executive Officer of Amurol Confections
Company, a specialty confections manufacturer and a wholly-owned associated
company of the Wm. Wrigley, Jr. Company, for more than five years.
Allan B. Muchin, 66, has served as a director of Alberto-Culver since 1995
and as Chairman of Katten Muchin Zavis Rosenman, a Chicago-based law firm,
since 1995. For more than five years prior to 1995, Mr. Muchin served as
Co-Managing Partner and a member of the Board of Directors and Executive
Committee of Katten Muchin Zavis Rosenman.
Robert H. Rock, D.B.A., 52, has served as a director of Alberto-Culver
since 1995 and as the President of MLR Holdings, LLC, an investment company
with holdings in publishing and information businesses, for more than five
years. Mr. Rock has also served as Chairman of Metroweek Corporation, a
publisher of weekly newspapers and specialty publications, for more than five
years. Mr. Rock is also a director of Hunt Corporation, Quaker Chemical
Corporation, Advanta Corporation and Penn Mutual Life Insurance Company.
Sam J. Susser, 62, has served as a director of Alberto-Culver since January
2001 and as Chairman of the Board of SSP Partners, an operator of convenience
stores under the brand name "Circle K," since 1995. From 1988 to 1995, Mr.
Susser served as Chairman of the Board of Southguard Corporation. SSP Partners
is the successor of Southguard Corporation.
Harold M. Visotsky, M.D., 78, has served as a director of Alberto-Culver
since 1989, as the Owen L. Coon Professor of Psychiatry and Behavioral Sciences
Emeritus at Northwestern University
31
Medical School for more than five years, and as a consultant for more than five
years in the areas of health planning and benefits management.
William W. Wirtz, 72, has served as a director of Alberto-Culver since 1978
and as President of Wirtz Corporation, a diversified operations and investment
company, for more than five years.
John R. Berschied, Jr., 58, has been Group Vice President, Worldwide
Research and Development of Alberto-Culver since May 2000. From January 2000 to
May 2000, Mr. Berschied was the Director of Technology and Innovation
Management at Arthur D. Little, Inc. Mr. Berschied was the Senior Vice
President, Global Research, Development and Engineering, at S.C. Johnson and
Son, Inc. from February 1993 to December 1999.
William J. Cernugel, 59, has been Senior Vice President and Chief Financial
Officer of Alberto-Culver since May 2000. Previously, Mr. Cernugel was the
Senior Vice President, Finance for more than five years.
Michael H. Renzulli, 61, has been President of the Sally Beauty Company,
Inc., a subsidiary of Alberto-Culver, for more than five years.
Gary P. Schmidt, 51, has been Vice President, General Counsel and Assistant
Secretary of Alberto-Culver since June 1997. From April 1990 to June 1997, Mr.
Schmidt served as Vice-President, General Counsel and Secretary at Fujisawa
USA, Inc.
32
SELLING STOCKHOLDERS
The following table sets forth certain information for the selling
stockholders identified below with respect to (1) the beneficial ownership of
Class A common stock and Class B common stock prior to the offering and the
percentage of total voting power represented by those shares for each selling
stockholder and (2) the number of shares of Class A common stock and Class B
common stock to be beneficially owned by the selling stockholder after the
offering and the percentage of total voting power represented thereby, based on
common stock outstanding as of June 12, 2002 and assuming no exercise of the
underwriters' over-allotment option. As described in the notes to the table,
certain selling stockholders share voting and investment power with respect to
certain shares of common stock with one or more of the other selling
stockholders. Such shares are shown as beneficially owned in the table below by
only one of such selling stockholders. For a discussion of the relationship of
certain of the selling stockholders to Alberto-Culver and to each other, please
refer to "Management" in this prospectus.
Common Stock Common Stock
Beneficially Owned Beneficially Owned
Before the Offering After the Offering
----------------------------- ------------------------------
Shares of
Class B
Percentage Common Stock Percentage of
Name of Selling Class A Class B of Total to be Sold in Class A Class B Total Voting
Stockholder (1)(2) (1)(2) Voting Power the Offering (1)(2) (1)(2) Power
----------- ------- --------- ------------ ------------- ------- --------- -------------
Carol L. Bernick (3).... 519,368 4,394,126 12.7% 2,871,554 519,368 1,522,572 4.5%
CLB Investment Trust (4) 5,100 47,910 * 47,910 5,100 0 *
Bernice E. Lavin (5).... 407,912 4,104,714 11.9 694,536 407,912 3,410,178 9.9
Leonard H. Lavin (6).... 401,082 4,755,304 13.7 640,000 401,082 4,115,304 11.9
Wirtz Corporation (7)... 582,000 1,746,000 5.2 1,746,000 582,000 0 *
---------
6,000,000
=========
--------
* Represents less than 1%.
(1)All, but not less than all, of the shares of Class A common stock may at any
time be converted into shares of Class B common stock on a share-for-share
basis at the option of Alberto-Culver. Each share of Class B common stock is
convertible at the option of the holder into one share of Class A common
stock.
(2)Each selling stockholder disclaims beneficial ownership of any shares
indicated as owned as trustee or co-trustee of a trust of which such selling
stockholder is not a beneficiary or as an officer and/or director of a
foundation or corporation.
(3)Under the Securities Exchange Act, Mrs. Bernick beneficially owns or is
deemed to beneficially own: 1,928,817 shares of Class B common stock held as
trustee of a trust for the benefit of Mrs. Bernick's sister, for which Mrs.
Bernick has sole voting and investment power; 222,527 shares of Class B
common stock held as trustee of a trust for the benefit of Mrs. Bernick's
nephew, for which Mrs. Bernick has sole voting and investment power; 80,088
shares of Class A common stock and 87,528 shares of Class B common stock
held as trustee of trusts for the benefit of certain of Mr. and Mrs.
Bernick's family members, for which Mrs. Bernick has sole voting and
investment power; 439,280 shares of Class A common stock and 2,046,880
shares of Class B common stock held as trustee of trusts for the benefit of
Mrs. Bernick, for which Mrs. Bernick has sole voting and investment power;
100,000 shares of Class B common stock held as trustee of an insurance trust
for the benefit of Mr. and Mrs. Lavin's children and grandchildren, for
which Mrs. Bernick has sole voting and investment power; and 8,374 shares of
Class B common stock held as a participant in the Alberto-Culver Company
Employees' Profit Sharing Plan. Shares reported as beneficially owned by
Mrs. Bernick in the table above do not include 536,346 shares of Class A
common stock and 4,737,078 shares of Class B common stock, as to which Mrs.
Bernick shares voting and investment power with Howard B. Bernick, Mrs.
Lavin and/or Mr. Lavin and are reported as beneficially owned by either Mr.
Bernick, Mrs. Lavin or Mr. Lavin.
(4)CLB Investment Trust is a trust for the benefit of certain of Mr. and Mrs.
Bernick's family members, for which Howard B. Bernick serves as a co-trustee
and with respect to which he shares voting and investment power. Under the
Securities Exchange Act, Mr. Bernick is deemed to beneficially own the
shares of common stock
33
held by the trust. Mr. Bernick also beneficially owns or is deemed to
beneficially own 874,100 shares of Class A common stock and 171,669 shares
of Class B common stock.
(5)Under the Securities Exchange Act, Mrs. Lavin beneficially owns or is deemed
to beneficially own: 294 shares of Class B common stock directly and with
respect to which she has sole voting and investment power; 307,648 shares of
Class A common stock and 393,936 shares of Class B common stock held as
trustee of trusts for the benefit of Mr. and Mrs. Lavin's children and
grandchildren, for which Mrs. Lavin has sole voting and investment power;
100,200 shares of Class A common stock and 300,600 shares of Class B common
stock held as co-trustee of a trust for the benefit of Mrs. Bernick, for
which Mrs. Lavin shares voting and investment power with Mrs. Bernick;
1,638,335 shares of Class B common stock held as co-trustee of a trust for
the benefit of Mrs. Lavin, for which Mrs. Lavin shares voting and investment
power with Mr. Lavin; and 64 shares of Class A common stock and 1,771,549
shares of Class B common stock held as co-trustee of a trust for the benefit
of Mrs. Lavin, for which Mrs. Lavin shares voting and investment power with
Mr. Lavin and Mrs. Bernick. Shares reported as beneficially owned by Mrs.
Lavin in the table above do not include 401,082 shares of Class A common
stock and 4,754,382 shares of Class B common stock, as to which Mrs. Lavin
shares voting and investment power with Mrs. Bernick and/or Mr. Lavin and
are reported as beneficially owned by Mr. Lavin. See footnote (6).
(6)Under the Securities Exchange Act, Mr. Lavin beneficially owns or is deemed
to beneficially own: 922 shares of Class B common stock directly and with
respect to which he has sole voting and investment power; 395,378 shares of
Class A common stock and 520,000 shares of Class B common stock owned by the
Lavin Family Foundation, of which Mr. Lavin is a director and the President
and shares voting and investment power with Mrs. Lavin and Mrs. Bernick,
each of whom serves as a director and an officer; 5,704 shares of Class A
common stock and 2,073,529 shares of Class B common stock held as co-trustee
of a trust for the benefit of Mr. Lavin, for which Mr. Lavin shares voting
and investment power with Mrs. Lavin and Mrs. Bernick; and 2,160,853 shares
of Class B common stock held as co-trustee of a trust for the benefit of Mr.
Lavin, for which Mr. Lavin shares voting and investment power with Mrs.
Lavin. Shares reported as beneficially owned by Mr. Lavin in the table above
do not include 64 shares of Class A common stock and 3,409,884 shares of
Class B common stock, as to which Mr. Lavin shares voting and investment
power with Mrs. Bernick and/or Mrs. Lavin and are reported as beneficially
owned by Mrs. Lavin. See footnote (5).
(7)Wirtz Corporation owns 582,000 shares of Class A common stock and 1,746,000
shares of Class B common stock. William W. Wirtz is President and a director
of Wirtz Corporation. Under the Securities Exchange Act, Mr. Wirtz is deemed
to beneficially own the shares of common stock held by Wirtz Corporation and
also beneficially owns 15,000 shares of Class A common stock subject to
stock options exercisable currently or within 60 days.
If the underwriters exercise their over-allotment option, the shares sold
will be from certain trusts over which Carol L. Bernick has voting and
investment power and among those which she is deemed to beneficially own under
the Securities Exchange Act, and, if such option is exercised in full, she will
be deemed to beneficially own 519,368 shares of Class A common stock and
622,572 shares of Class B common stock representing 1.9% of the voting power of
our common stock after the offering.
34
DESCRIPTION OF CAPITAL STOCK
The capital stock authorized in our restated certificate of incorporation,
as amended, consists of 150,000,000 shares of common stock, $0.22 par value per
share, of which 75,000,000 shares are Class A common stock and 75,000,000
shares are Class B common stock. Except as described below under "Voting,"
"Dividends and Distributions," and "Conversion and Other," the Class A common
stock and the Class B common stock are identical to each other.
Voting. Each share of Class B common stock entitles its holder to one vote
per share on all matters on which stockholders are entitled to vote (including
the election of directors). Each share of Class A common stock entitles its
holder to one-tenth of one vote per share on all such matters. All actions
submitted to a vote of stockholders will be voted on by holders of Class A and
Class B common stock voting together as a single class, except on matters where
a separate class vote is required by Delaware law. Matters requiring a separate
class vote include amendments to a company's certificate of incorporation to
change the number of authorized shares of that class, to change the par value
of the shares of that class, or to alter or change the powers, preferences or
special rights of the shares of that class so as to affect them adversely.
There is no provision in our restated certificate of incorporation
permitting cumulative voting in the election of directors.
Dividends and Distributions. Dividends are payable only as and when
declared by our Board of Directors. Subject to the next paragraph, the Class A
common stock and Class B common stock have identical dividend rights, except
that no dividend may be paid on the Class B common stock unless an equal or
greater dividend is paid on the Class A common stock. Dividends may be paid on
the Class A common stock in excess of dividends paid, or without paying
dividends, on the Class B common stock.
Distributions consisting of shares of Class A common stock may be paid to
holders of Class A common stock and Class B common stock on an equal per share
basis. Distributions consisting of shares of Class A common stock may be paid
to holders of Class A common stock, but only if distributions consisting of
shares of Class B common stock are paid on an equal per share basis to holders
of Class B common stock. Likewise, distributions consisting of shares of Class
B common stock may be paid to holders of Class B common stock, but only if
distributions consisting of shares of Class A common stock are paid on an equal
per share basis to holders of Class A common stock. In addition, distributions
consisting of any other class of our securities other than our common stock,
may be paid to the holders of those securities only, or to the holders of those
securities and to the holders of Class A common stock and Class B common stock,
on an equal per share basis as to the holders of the Class A common stock and
the Class B common stock.
The shares of one class of common stock may not be reclassified, subdivided
or combined without reclassifying, subdividing or combining the other class of
common stock, on an equal per share basis.
Conversion and Other. All, but not less than all, of the Class A common
stock may at any time be converted into Class B common stock on a
share-for-share basis at our option. Unless we have converted all the issued
Class A common stock into Class B common stock as provided in the preceding
sentence, the Class B common stock is convertible into Class A common stock on
a share-for-share basis at the option of each holder of Class B common stock.
Shares of Class A common stock or Class B common stock which are converted
become authorized and unissued shares which may be issued by our Board of
Directors without further action by stockholders, except as required by law.
See "Risk Factors--Risks Related to our Common Stock and the Offering--We may
decide in the future to declassify our common stock and revert to a single
class capital structure."
Neither the Class A common stock nor the Class B common stock has any
preemptive rights enabling a holder to subscribe for or receive shares of any
class of our common stock.
Shares of Class A common stock and Class B common stock currently
outstanding, including the shares being sold in this offering, are fully paid
and non-assessable.
35
Liquidation and Mergers. The holders of the Class A and Class B common
stock will have equal rights, on a share-for-share basis, in the event of
liquidation of Alberto-Culver or any merger or consolidation of Alberto-Culver
in which shares of common stock are converted into cash, securities or other
property.
Our restated certificate of incorporation contains provisions which could
deter or delay a change in control of Alberto-Culver, in addition to the
provisions authorizing classes of common stock with different voting rights.
Such provisions include the following: a requirement that the number of
directors, as fixed by our bylaws, may not be changed except by a 75% vote of
stockholders or by a two-thirds vote of directors then in office; a provision
for classification of the Board of Directors into three classes; a requirement
contained in Section 12 of our restated certificate of incorporation that the
affirmative vote of 75% of the outstanding voting stock is necessary for a
merger or consolidation of Alberto-Culver or any of its subsidiaries with, or
sales of assets to, or issuance or delivery of its shares to, any other
corporation, person or entity which owns or controls 5% or more of our
outstanding voting shares, unless the transaction has been approved by our
Board of Directors prior to the acquisition of such ownership or control; and a
prohibition of the written consent procedure otherwise available under the
Delaware corporation statute for an action of stockholders. We may in the
future propose for shareholder approval the elimination of Section 12 of our
restated certificate of incorporation. Although this provision provides some
anti-takeover protection, we believe that it is no longer necessary in light of
the subsequent adoption of Section 203 of the Delaware General Corporation Law
("Section 203") and the other protections included in our restated certificate
of incorporation. In addition, we believe that the 75% vote requirement in
Section 12 might preclude otherwise appropriate corporate actions. Our bylaws
contain requirements that stockholders wishing to nominate persons for election
as directors or to bring other business before an annual meeting of
stockholders give notice thereof in the specified form and within specified
time periods to the Secretary of Alberto-Culver.
Alberto-Culver is subject to Section 203. Under Section 203, certain
"business combinations" between a Delaware corporation, whose stock generally
is publicly traded or held of record by more than 2,000 stockholders, and an
"interested stockholder" (defined generally as those stockholders who become
beneficial owners of 15% or more of a Delaware corporation's voting stock) are
prohibited for a three-year period following the date that stockholder became
an interested stockholder, unless (i) the corporation has elected in its
certificate of incorporation not to be governed by Section 203 (Alberto-Culver
has not made such an election), (ii) the business combination was approved by
the board of directors of the corporation before the other party to the
business combination became an interested stockholder, (iii) upon consummation
of the transaction that made it an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock
owned by directors who are also officers or held in employee benefit plans in
which the employees do not have a confidential right to tender or vote stock
held by the plan) or (iv) the business combination is approved by the board of
directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder does not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an interested
stockholder, transactions with an interested stockholder involving the assets
or stock of the corporation or its majority-owned subsidiaries, and
transactions which increase an interested stockholder's percentage ownership of
stock.
The foregoing summary is qualified in its entirety by reference to the
provisions of our restated certificate of incorporation, as amended, our
amended and restated bylaws and the Delaware General Corporation Law.
36
SHARES ELIGIBLE FOR FUTURE SALE
We are not able to predict the effect, if any, that sales of shares or the
availability of shares for sale will have on the market price of our Class B
common stock prevailing from time to time. Nevertheless, sales of a significant
amount of our Class A common stock or Class B common stock in the public
market, or the perception that these sales could occur, may adversely affect
prevailing market prices. See "Risk Factors--Risks Related to Our Common Stock
and this Offering--Shares eligible for future sale may have a potential adverse
effect on our stock price."
All of the shares of Class B common stock sold in this offering will be
freely tradeable without restriction under the Securities Act, except for any
shares purchased by our affiliates as defined in Rule 144 under the Securities
Act. Subject to any contractual restrictions, while any stockholder remains one
of our affiliates, any shares of common stock held by the stockholder will only
be available for public sale if the shares are registered under the Securities
Act or sold in compliance with the limitations of Rule 144.
Lock-Up Agreements. Alberto-Culver, its directors, including Mr. and Mrs.
Lavin, Mr. and Mrs. Bernick and Mr. Wirtz, Michael H. Renzulli, the selling
stockholders and certain trusts and other entities over which the Lavins,
Bernicks and Mr. Wirtz have voting and investment power, have agreed not to
offer, sell, contract to sell, distribute, dispose of or hedge any shares of
Class A common stock or Class B common stock or securities convertible into or
exchangeable or exercisable for shares of Class A common stock or Class B
common stock (other than under existing employee benefit plans, and in the case
of the selling stockholders, as part of this offering, and in our case, the
issuance of shares representing less than 1% of our combined outstanding shares
in connection with potential acquisitions, provided that the recipients of the
shares agree to the selling restrictions described in this paragraph) for a
period of 90 days from the date of this prospectus, except with the prior
written consent of Goldman, Sachs & Co.
Rule 144. Affiliates who wish to sell shares on the market other than in a
registered offering would rely on Rule 144, provided that they are not subject
to a contractual lock-up. In general, under Rule 144 as currently in effect, an
affiliate of ours, or a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for a period of at least one year,
would be entitled to sell, within any three-month period:
. in the case of Class A common stock, a number of shares that does not
exceed the greater of (i) 1% of the number of shares of Class A common
stock then outstanding, or approximately 257,081 shares and (ii) the
average weekly trading volume in the Class A common stock during the four
calendar weeks immediately preceding the date on which the notice of such
sale on Form 144 is filed with the Securities and Exchange Commission, and
. in the case of Class B common stock, a number of shares that does not
exceed the greater of (i) 1% of the number of shares of Class B common
stock then outstanding, or approximately 323,316 shares and (ii) the
average weekly trading volume in the Class B common stock during the four
calendar weeks immediately preceding the date on which the notice of such
sale on Form 144 is filed with the Securities and Exchange Commission.
Sales under Rule 144 are generally also subject to restrictions relating to
manner of sale, notice filing requirements and the availability of current
public information about us.
Under Rule 144(k), a person (or persons whose shares are aggregated) who
has not been an affiliate of ours at any time during the three months
immediately preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice filing provisions of Rule 144.
37
UNDERWRITING
Alberto-Culver, the selling stockholders and the underwriters for the
offering named below have entered into an underwriting agreement with respect
to the shares being offered. Subject to certain conditions, each underwriter
has severally agreed to purchase the number of shares indicated in the
following table. Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Banc of America Securities LLC and Salomon Smith Barney Inc. are
the representatives of the underwriters.
Underwriters Number of Shares
------------ ----------------
Goldman, Sachs & Co..................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................
Banc of America Securities LLC.......
Salomon Smith Barney Inc.............
--------
Total.......................
========
The underwriters are committed to take and pay for all of the shares being
offered, if any are taken, other than the shares covered by the option
described below unless and until this option is exercised.
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 900,000
shares of Class B common stock from certain trusts over which Carol L. Bernick
has voting and investment power to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above. See "Selling Stockholders."
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by the selling stockholders.
Such amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares.
Paid by the Selling Stockholders No Exercise Full Exercise
-------------------------------- ----------- -------------
Per Share............ $ $
Total................ $ $
Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from
the initial price to public. If all the shares are not sold at the initial
price to public, the representatives may change the offering price and the
other selling terms.
Alberto-Culver, its directors, including Mr. and Mrs. Lavin, Mr. and Mrs.
Bernick and Mr. Wirtz, Michael H. Renzulli, the selling stockholders and
certain trusts and other entities over which the Lavins, Bernicks and Mr. Wirtz
have voting and investment power, have agreed with the underwriters not to
offer, sell, contract to sell, distribute, dispose of or hedge any of our Class
A common stock or Class B common stock or securities convertible into or
exchangeable or exercisable for shares of Class A common stock or Class B
common stock (other than under existing employee benefit plans, and in the case
of the selling stockholders, as part of this offering, and in our case, the
issuance of shares representing less than 1% of our combined outstanding shares
in connection with potential acquisitions, provided that the recipients of the
shares agree to the selling restrictions described in this paragraph) during
the period from the date of this prospectus continuing through the date 90 days
after the date of this prospectus, except with the prior written consent of
Goldman, Sachs & Co. See "Shares Available for Future Sale" for a discussion of
certain transfer restrictions.
38
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. "Covered"
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from the selling stockholders in this
offering. The underwriters may close out any covered short position by either
exercising their option to purchase additional shares or purchasing shares in
the open market. In determining the source of shares to close out the covered
short position, the underwriters will consider, among other things, the price
of shares available for purchase in the open market as compared to the price at
which they may purchase shares through the over-allotment option. "Naked" short
sales are any sales in excess of such option. The underwriters must close out
any naked short position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock in the open
market after pricing that could adversely affect investors who purchase in the
offering. Stabilizing transactions consist of various bids for or purchases of
common stock made by the underwriters in the open market prior to the
completion of the offering.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of the
company's common stock, and together with the imposition of the penalty bid,
may stabilize, maintain or otherwise affect the market price of the common
stock. As a result, the price of the Class B common stock may be higher than
the price that otherwise might exist in the open market. If these activities
are commenced, they may be discontinued at any time. These transactions may be
effected on the NYSE, in the over-the-counter market or otherwise.
Each underwriter has represented, warranted and agreed that: (i) it has not
offered or sold and, prior to the expiry of a period of six months from the
closing of this offering, will not offer or sell any shares to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995;
(ii) it has only communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or inducement to engage
in investment activity (within the meaning of section 21 of the Financial
Services and Markets Act of 2000 (FSMA)) received by it in connection with the
issue or sale of any shares in circumstances in which section 21(1) of the FSMA
does not apply to Alberto-Culver; and (iii) it has complied and will comply
with all applicable provisions of the FSMA with respect to anything done by it
in relation to the shares in, from or otherwise involving the United Kingdom.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the representatives of this offering and may also
be made available on web sites maintained by other underwriters. The
underwriters may agree to allocate a number of shares to underwriters for sale
to their online brokerage account holders. Internet distributions will be
allocated by the representatives to underwriters that may make Internet
distributions on the same basis as other allocations.
The selling stockholders are responsible for underwriting discounts and
commissions and will reimburse Alberto-Culver for up to $500,000 of expenses
incurred by the company in connection with this offering. Alberto-Culver
estimates that the expenses of the offering to be incurred by the company
39
will be approximately $450,000. To the extent that Alberto-Culver incurs
expenses in excess of $500,000, such expenses shall be payable by
Alberto-Culver.
Alberto-Culver and the selling stockholders have agreed to indemnify the
several underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
In the ordinary course of their businesses, the underwriters and certain of
their affiliates have engaged, and may in the future engage, in investment
banking and commercial banking transactions with Alberto-Culver and affiliates
of Alberto-Culver. Bank of America N.A., an affiliate of Banc of America
Securities LLC, acts as the agent under Alberto-Culver's $250 million revolving
credit facility.
LEGAL MATTERS
Certain legal matters relating to the offering will be passed upon for
Alberto-Culver by Sidley Austin Brown & Wood, Chicago, Illinois and by Gary P.
Schmidt, General Counsel to Alberto-Culver. Certain legal matters relating to
the offering will be passed upon for the underwriters by Mayer, Brown, Rowe &
Maw, Chicago, Illinois. As of June 12, 2002, Mr. Schmidt held options to
purchase 50,250 shares of Class A common stock and owned 7,657 shares of Class
A common stock and 7,487 shares of Class B common stock. Mayer, Brown, Rowe &
Maw provides legal services to Alberto-Culver from time to time.
EXPERTS
The consolidated financial statements of the company as of September 30,
2001 and 2000, and for each of the years in the three-year period ended
September 30, 2001, have been included herein, and the financial statement
schedule for the three-year period ended September 30, 2001 has been
incorporated by reference herein, in reliance upon the reports of KPMG LLP,
independent accountants, included herein for the consolidated financial
statements and incorporated by reference for the financial statement schedule,
and upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. Our SEC filings are also
available at the office of the New York Stock Exchange. For further information
on obtaining copies of our public filings at the New York Stock Exchange, you
should call (212) 656-5060.
INCORPORATION BY REFERENCE
We "incorporate by reference" into this prospectus certain information we
file with the SEC, which means that we can disclose important information to
you by referring you to those documents. The information incorporated by
reference is an important part of this prospectus and certain information that
we file subsequently with the SEC will automatically update this prospectus. We
incorporate by reference the documents listed below and any filings we make
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 after the initial filing of the registration statement
that contains this prospectus and prior to the termination of this offering:
. our Annual Report on Form 10-K for the year ended September 30, 2001,
. our Quarterly Report on Form 10-Q for the quarter ended December 31, 2001,
40
. our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002,
and
. the description of our Class A common stock and Class B common stock,
which is contained in Alberto-Culver's registration statements filed
pursuant to the Securities Exchange Act, and any amendment or report
filed for the purpose of updating such description.
Any statement contained in a document incorporated by reference into this
prospectus shall be modified or superseded for purposes of this prospectus to
the extent that a statement contained in this prospectus or in any other
subsequently filed document which also is incorporated by reference into this
prospectus modifies or supersedes that statement. Any statement so modified or
superseded shall not, except as so modified or superseded, constitute a part of
this prospectus.
You may request, and we will provide, a copy of these incorporated filings
(other than an exhibit to a filing unless that exhibit is specifically
incorporated by reference into that filing) at no cost, by writing to or
telephoning us at the following address:
Secretary
Alberto-Culver Company
2525 Armitage Avenue
Melrose Park, Illinois 60160-1163
(708) 450-3000
41
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
FINANCIAL STATEMENTS
Independent Auditors' Report.......................................................... F-2
Consolidated Statements of Earnings for the fiscal years ended September 30, 2001,
2000 and 1999....................................................................... F-3
Consolidated Balance Sheets as of September 30, 2001 and 2000......................... F-4
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2001,
2000 and 1999....................................................................... F-5
Consolidated Statements of Stockholders' Equity for the fiscal years ended
September 30, 2001, 2000 and 1999................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
Consolidated Statements of Earnings for the three months ended March 31, 2002 and 2001
(unaudited)......................................................................... F-18
Consolidated Statements of Earnings for the six months ended March 31, 2002
and 2001(unaudited)................................................................. F-19
Consolidated Balance Sheets as of March 31, 2002 (unaudited) and September 30, 2001... F-20
Consolidated Statements of Cash Flows for the six months ended March 31, 2002
and 2001 (unaudited)................................................................ F-21
Notes to Consolidated Financial Statements (unaudited)................................ F-22
F-1
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
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, 2001 and 2000 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, 2001.
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 auditing standards generally
accepted in the United States of America. 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, 2001 and 2000 and
the results of their operations and their cash flows for each of the years in
the three-year period ended September 30, 2001, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Chicago, Illinois
October 23, 2001
F-2
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended September 30,
-------------------------------
2001 2000 1999
---------- --------- ---------
(In thousands, except per share data)
Net sales.................................................. $2,494,180 2,247,163 1,975,928
Cost of products sold...................................... 1,217,429 1,105,750 973,702
---------- --------- ---------
Gross profit............................................ 1,276,751 1,141,413 1,002,226
Advertising, promotion, selling and administrative......... 1,087,685 977,180 855,724
Non-recurring gain (note 9)................................ -- (9,257) --
---------- --------- ---------
Operating earnings...................................... 189,066 173,490 146,502
Interest expense, net of interest income of $5,479 in 2001,
$4,538 in 2000 and $2,130 in 1999....................... 21,830 19,209 12,719
---------- --------- ---------
Earnings before provision for income taxes.............. 167,236 154,281 133,783
Provision for income taxes................................. 56,860 51,097 47,493
---------- --------- ---------
Net earnings............................................... $ 110,376 103,184 86,290
========== ========= =========
Net earnings per share:
Basic................................................... $ 1.96 1.85 1.53
========== ========= =========
Diluted................................................. $ 1.91 1.83 1.51
========== ========= =========
See accompanying notes to consolidated financial statements.
F-3
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
---------------------
2001 2000
---------- ---------
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents................................................. $ 201,970 114,637
Short-term investments.................................................... 869 314
Receivables, less allowance for doubtful accounts of $11,387 in 2001
and $10,135 in 2000..................................................... 169,657 154,207
Inventories:
Raw materials......................................................... 41,521 45,197
Work-in-process....................................................... 4,782 4,819
Finished goods........................................................ 432,008 395,241
---------- ---------
Total inventories.................................................. 478,311 445,257
Other current assets...................................................... 26,142 26,122
---------- ---------
Total current assets............................................... 876,949 740,537
Property, plant and equipment:
Land...................................................................... 13,593 13,640
Buildings and leasehold improvements...................................... 151,306 148,911
Machinery and equipment................................................... 306,958 288,877
---------- ---------
Total property, plant and equipment................................ 471,857 451,428
Accumulated depreciation.................................................. 236,035 211,337
---------- ---------
Property, plant and equipment, net................................. 235,822 240,091
Goodwill, net................................................................ 264,339 263,847
Trade names, net............................................................. 79,532 83,788
Other assets................................................................. 59,859 57,335
---------- ---------
$1,516,501 1,385,598
========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings..................................................... $ 2,482 3,401
Current maturities of long-term debt...................................... 404 587
Accounts payable.......................................................... 191,410 183,770
Accrued expenses.......................................................... 165,525 135,115
Income taxes.............................................................. 30,482 17,916
---------- ---------
Total current liabilities.......................................... 390,303 340,789
Long-term debt............................................................... 321,183 340,948
Deferred income taxes........................................................ 39,086 38,349
Other liabilities............................................................ 29,920 33,252
Stockholders' equity:
Common stock, par value $.22 per share:
Class A authorized 75,000,000 shares; 30,612,798 shares issued at
September 30, 2001 and 2000......................................... 6,735 6,735
Class B authorized 75,000,000 shares; 37,710,655 shares issued at
September 30, 2001 and 2000......................................... 8,296 8,296
Additional paid-in capital................................................ 190,368 190,137
Retained earnings......................................................... 779,792 687,631
Deferred compensation..................................................... (4,826) (4,221)
Accumulated other comprehensive income--foreign currency
translation............................................................. (61,284) (54,400)
---------- ---------
919,081 834,178
Less treasury stock, at cost (Class A common stock: 2001--6,741,946
shares and 2000--7,630,930 shares; Class B common stock: 2001
and 2000--4,753,184 shares)............................................. (183,072) (201,918)
---------- ---------
Total stockholders' equity......................................... 736,009 632,260
---------- ---------
$1,516,501 1,385,598
========== =========
See accompanying notes to consolidated financial statements.
F-4
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
----------------------------
2001 2000 1999
-------- -------- --------
(In thousands)
Cash Flows from Operating Activities:
Net earnings...................................................... $110,376 103,184 86,290
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation................................................... 37,315 36,575 32,336
Amortization of goodwill, trade names and other assets......... 14,090 13,063 9,838
Non-recurring gain............................................. -- (9,257) --
Deferred income taxes.......................................... 738 73 2,082
Cash effects of changes in (exclusive of acquisitions):
Receivables, net........................................... (14,582) (9,612) (15,868)
Inventories................................................ (28,246) (5,056) (42,656)
Other current assets....................................... 43 (3,236) (1,034)
Accounts payable and accrued expenses...................... 37,771 (3,085) 18,031
Income taxes............................................... 14,541 1,655 305
Other assets............................................... (6,713) (4,644) (5,383)
Other liabilities.......................................... (128) (530) (382)
-------- -------- --------
Net cash provided by operating activities............... 165,205 119,130 83,559
-------- -------- --------
Cash Flows from Investing Activities:
Short-term investments............................................ (538) 1,538 (398)
Capital expenditures.............................................. (36,752) (37,527) (47,822)
Payments for purchased businesses, net of acquired
companies' cash................................................. (18,791) (144,832) (62,304)
Proceeds from sale of trademark................................... -- 10,000 --
Proceeds from disposals of assets................................. 1,340 3,172 2,891
-------- -------- --------
Net cash used by investing activities................... (54,741) (167,649) (107,633)
-------- -------- --------
Cash Flows from Financing Activities:
Short-term borrowings............................................. (1,073) 464 1,156
Proceeds from issuance of long-term debt.......................... 42 308,508 65,276
Debt issuance costs............................................... -- (1,544) --
Repayments of long-term debt...................................... (20,512) (189,028) (11,988)
Proceeds from sale of receivables................................. -- 5,000 5,000
Proceeds from exercise of stock options........................... 15,490 2,712 3,264
Cash dividends paid............................................... (18,215) (16,182) (14,394)
Stock purchased for treasury...................................... (1,348) (3,460) (39,049)
-------- -------- --------
Net cash provided (used) by financing activities........ (25,616) 106,470 9,265
-------- -------- --------
Effect of foreign exchange rate changes on cash................... 2,485 755 (1,655)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.............. 87,333 58,706 (16,464)
Cash and cash equivalents at beginning of year.................... 114,637 55,931 72,395
-------- -------- --------
Cash and cash equivalents at end of year $201,970 114,637 55,931
======== ======== ========
Supplemental Cash Flow Information:
Cash paid for:
Interest....................................................... $ 27,673 16,687 13,870
======== ======== ========
Income taxes................................................... $ 40,659 48,711 45,755
======== ======== ========
Non-cash investing and financing activities:
Issuance of Class A common shares for acquisition.............. $ -- 1,959 --
======== ======== ========
See accompanying notes to consolidated financial statements.
F-5
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Number of Shares Dollars
------------------------------ ------------------------------------
Common Stock Common Stock
Issued Treasury Stock Issued Additional
--------------- -------------- --------------- Paid-in Retained
Class A Class B Class A Class B Class A Class B Capital Earnings
------- ------- ------- ------- ------- ------- ---------- --------
(In thousands)
Balance at September 30, 1998.................... 30,613 37,711 (6,550) (4,563) $6,735 $8,296 $192,610 $528,733
------ ------ ------ ------ ------ ------ -------- --------
Comprehensive income (loss):
Net earnings.................................... 86,290
Foreign currency translation....................
------ ------ ------ ------ ------ ------ -------- --------
Total comprehensive income (loss)............. 86,290
Cash dividends................................... (14,394)
Stock options exercised.......................... 244 (1,560)
Stock issued pursuant to employee incentive
plans........................................... 21 9
Restricted stock issued, net..................... 37 4
Restricted stock amortization....................
Stock purchased for treasury..................... (1,597) (190)
------ ------ ------ ------ ------ ------ -------- --------
Balance at September 30, 1999.................... 30,613 37,711 (7,845) (4,753) 6,735 8,296 191,063 600,629
------ ------ ------ ------ ------ ------ -------- --------
Comprehensive income (loss):
Net earnings.................................... 103,184
Foreign currency translation....................
------ ------ ------ ------ ------ ------ -------- --------
Total comprehensive income (loss)............. 103,184
Cash dividends................................... (16,182)
Stock options exercised.......................... 193 (1,048)
Stock issued pursuant to employee incentive
plans........................................... 15 (19)
Stock issued for acquisition..................... 75 343
Restricted stock issued, net..................... 101 (202)
Restricted stock amortization....................
Stock purchased for treasury..................... (170)
------ ------ ------ ------ ------ ------ -------- --------
Balance at September 30, 2000.................... 30,613 37,711 (7,631) (4,753) 6,735 8,296 190,137 687,631
------ ------ ------ ------ ------ ------ -------- --------
Comprehensive income (loss):
Net earnings.................................... 110,376
Foreign currency transaction....................
------ ------ ------ ------ ------ ------ -------- --------
Total comprehensive income (loss)............. 110,376
Cash dividends................................... (18,215)
Stock options exercised.......................... 850 (117)
Stock issued pursuant to employee incentive plans 17 65
Restricted stock issued, net..................... 67 283
Restricted stock amortization....................
Stock purchased for treasury..................... (45)
------ ------ ------ ------ ------ ------ -------- --------
Balance at September 30, 2001.................... 30,613 37,711 (6,742) (4,753) $6,735 $8,296 $190,368 $779,792
====== ====== ====== ====== ====== ====== ======== ========
Dollars
---------------------------------------------------
Accumulated
Other Total
Deferred Comprehensive Treasury Stockholders'
Compensation Income (Loss) Stock Equity
------------ ------------- --------- -------------
(In thousands)
Balance at September 30, 1998.................... $(2,841) $(28,131) $(174,252) $531,150
------- -------- --------- --------
Comprehensive income (loss):
Net earnings.................................... 86,290
Foreign currency translation.................... (3,029) (3,029)
------- -------- --------- --------
Total comprehensive income (loss)............. (3,029) 83,261
Cash dividends................................... (14,394)
Stock options exercised.......................... 5,296 3,736
Stock issued pursuant to employee incentive
plans........................................... 454 463
Restricted stock issued, net..................... (875) 808 (63)
Restricted stock amortization.................... 676 676
Stock purchased for treasury..................... (39,049) (39,049)
------- -------- --------- --------
Balance at September 30, 1999.................... (3,040) (31,160) (206,743) 565,780
------- -------- --------- --------
Comprehensive income (loss):
Net earnings.................................... 103,184
Foreign currency translation.................... (23,240) (23,240)
------- -------- --------- --------
Total comprehensive income (loss)............. (23,240) 79,944
Cash dividends................................... (16,182)
Stock options exercised.......................... 4,169 3,121
Stock issued pursuant to employee incentive
plans........................................... 317 298
Stock issued for acquisition..................... 1,616 1,959
Restricted stock issued, net..................... (2,104) 2,183 (123)
Restricted stock amortization.................... 923 923
Stock purchased for treasury..................... (3,460) (3,460)
------- -------- --------- --------
Balance at September 30, 2000.................... (4,221) (54,400) (201,918) 632,260
------- -------- --------- --------
Comprehensive income (loss):
Net earnings.................................... 110,376
Foreign currency transaction.................... (6,884) (6,884)
------- -------- --------- --------
Total comprehensive income (loss)............. (6,884) 103,492
Cash dividends................................... (18,215)
Stock options exercised.......................... 18,382 18,265
Stock issued pursuant to employee incentive plans (1,819) 371 436
Restricted stock issued, net..................... 1,441 (95)
Restricted stock amortization.................... 1,214 1,214
Stock purchased for treasury..................... (1,348) (1,348)
------- -------- --------- --------
Balance at September 30, 2001.................... $(4,826) $(61,284) $(183,072) $736,009
======= ======== ========= ========
See accompanying notes to consolidated financial statements.
F-6
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Policies
Principles of Consolidation
The consolidated financial statements include the 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 accounting
principles generally accepted in the United States of America 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 approximates market value
at September 30, 2001 and 2000.
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 was approximately $336.1 million at
September 30, 2001. Fair value estimates are calculated using the present value
of the projected debt cash flows based on the current market interest rates of
comparable debt instruments.
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 recorded
primarily on the straight-line method over the estimated useful lives of the
respective classes of assets. Buildings and building improvements are
depreciated over periods of 20-40 years. Leasehold improvements are depreciated
over the lives of the related leases. The depreciation of machinery and
equipment is over periods of 5-15 years. 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.
When these factors indicate that a specific intangible asset should be
evaluated for impairment, the company compares the estimated future cash flows
associated with the asset to the carrying value of the asset to determine if
any impairment exists. Accumulated amortization at September 30, 2001 and 2000
was $57.8 million and $46.9 million, respectively.
F-7
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Revenue Recognition
The company's consumer products segments and specialty distribution segment
recognize revenue when title passes, which is at the time products are shipped
to customers. The company's specialty distribution segment also recognizes
revenue when a customer consummates a point-of-sale transaction in a store.
Appropriate provisions for sales returns, cash discounts and bad debt are made
at the time sales are recorded.
Shipping and Handling
Amounts invoiced to customers for shipping and handling are included in net
sales with the related expense reported on the advertising, promotion, selling
and administrative line of the consolidated statement of earnings.
Costs of Products Sold
The company's consumer products segments include direct material costs and
direct and indirect expenses incurred to manufacture products in cost of
products sold. The company's specialty distribution segment includes the direct
cost of merchandise in the cost of products sold.
Advertising, Promotion and Market Research
Advertising, promotion and market research costs are expensed as incurred
and amounted to $305.1 million, $286.4 million and $259.7 million in 2001, 2000
and 1999, respectively.
Research and Development
Research and development costs are expensed as incurred and amounted to
$9.1 million in 2001, $8.3 million in 2000 and $8.7 million in 1999.
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.
Weighted Average Shares Outstanding
The following table provides information about basic and diluted weighted
average shares outstanding:
2001 2000 1999
------ ------ ------
(In thousands)
Basic weighted average shares outstanding....... 56,176 55,790 56,378
Assumed exercise of stock options............... 1,299 564 709
Assumed vesting of restricted stock............. 363 -- --
Other........................................... -- 56 75
------ ------ ------
Diluted weighted average shares outstanding..... 57,838 56,410 57,162
====== ====== ======
F-8
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock options for 722,200 and 781,200 shares were excluded from the
computation of diluted earnings per share in 2000 and 1999, respectively, as
the options' exercise prices were greater than the average market price and,
therefore, were anti-dilutive. No stock options were anti-dilutive in 2001.
Stock-Based Compensation
The company uses the intrinsic method of accounting for its stock-based
compensation arrangements.
New Accounting Standards
In May, 2000, the Financial Accounting Standards Board's (FASB) Emerging
Issues Task Force (EITF) reached a consensus on Issue No. 00-14, "Accounting
for Certain Sales Incentives." EITF Issue No. 00-14 addresses the recognition,
measurement and income statement classification for various types of sales
incentives including coupons, rebates and free products. The company is
required to comply with EITF Issue No. 00-14 in the second quarter of fiscal
year 2002. In April, 2001, the EITF reached a consensus on Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller
of the Vendor's Products." EITF Issue No. 00-25 addresses the income statement
classification for various types of consideration paid by a vendor to a
retailer. The company is required to comply with EITF Issue No. 00-25 in the
second quarter of fiscal year 2002. The company expects to implement EITF Issue
Nos. 00-14 and 00-25 in the first quarter of fiscal year 2002 and estimates the
effect will be a reduction of consolidated net sales of approximately 4%-5%,
but will not change consolidated net earnings.
In June, 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 addresses financial accounting and reporting
for business combinations. SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets, requires companies
to discontinue the amortization of goodwill and certain other intangible assets
and requires an impairment test of existing goodwill and certain other
intangible assets based on a fair value method. The company adopted SFAS No.
141 in the fourth quarter of fiscal year 2001. The company also adopted SFAS
No. 142 in the fourth quarter of fiscal year 2001 for new acquisitions and is
required to comply no later than the first quarter of fiscal year 2003 as to
previously acquired intangibles. The company expects to implement the
requirements of SFAS No. 142 for previously acquired intangibles in the first
quarter of fiscal year 2002. The company estimates discontinuation of the
amortization of goodwill and certain other intangibles in accordance with SFAS
No. 142 will result in an increase in consolidated net earnings of
approximately 7%-8% and does not expect any impairment of goodwill or other
intangible assets upon implementation.
(2) Accrued Expenses
Accrued expenses consist of the following:
2001 2000
-------- -------
(In thousands)
Compensation and benefits............................... $ 83,403 60,723
Advertising and promotions.............................. 35,125 35,750
Other................................................... 46,997 38,642
-------- -------
$165,525 135,115
======== =======
F-9
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) Long-Term Debt and Other Financing Arrangements
Long-term debt, exclusive of current maturities, consists of the following:
2001 2000
-------- -------
(In thousands)
8.25% notes due November, 2005................................ $200,000 200,000
6.375% debentures due June, 2028.............................. 120,000 120,000
Variable rate revolving Swedish krona credit agreement
due April, 2003............................................. -- 19,053
Other......................................................... 1,183 1,895
-------- -------
$321,183 340,948
======== =======
Maturities of long-term debt for the next five fiscal years are as follows
(in thousands): 2002--$404; 2003--$1,129; 2004--$44; 2005--$10; 2006--$200,000;
2007 and later--$120,000.
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 April, 2000, the company issued $200 million of 8.25% senior notes due
November 1, 2005. The company has the option to redeem the notes 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.
The company has a $250 million revolving credit facility which expires in
September, 2002. The facility, which had no borrowings outstanding at September
30, 2001 or 2000, may be drawn in U.S. dollars or certain foreign currencies.
The interest rate for the revolving credit facility is based on a fixed spread
over LIBOR.
The $250 million revolving credit facility imposes restrictions on such
items as total debt, liens and interest expense. At September 30, 2001, the
company was in compliance with these arrangements.
The company has an agreement to sell, without recourse, up to $40 million
of designated trade receivables on an ongoing basis. The agreement involves the
sale of accounts receivable to a wholly-owned special purpose entity (SPE),
which in turn sells an undivided interest in a revolving pool of eligible
receivables to a financial institution. The SPE is a separate corporate entity
with its own creditors that are entitled to be satisfied out of the SPE's
assets prior to those assets becoming available to its parent. The agreement
expires in one year and is renewable annually upon the mutual consent of all
parties. At September 30, 2001 and 2000, the facility was fully utilized. Costs
related to this arrangement are included in administrative expenses.
(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.
F-10
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash dividends for Class B common stock in 2001, 2000 and 1999 were $10.6
million or $.3225 per share, $9.6 million or $.29 per share and $8.4 million or
$.255 per share, respectively. Cash dividends for Class A common stock in 2001,
2000 and 1999 were $7.6 million or $.3225 per share, $6.6 million or $.29 per
share and $6.0 million or $.255 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.
During fiscal year 1998, the Board of Directors authorized the company to
purchase up to 6.0 million shares of its Class A common stock. This
authorization was increased to 9.0 million shares in fiscal year 1999. As of
September 30, 2001, the company had purchased 7.3 million Class A common shares
under this program at a total cost of $162.9 million. In addition, the Board of
Directors in fiscal year 1999 authorized the purchase of 190,000 Class B common
shares from a related party at a total cost of $5.0 million, which was equal to
the fair market value of the shares on the date of purchase. The related party
was a trust of which a Vice Chairmen of the company was a trustee with sole
voting power and whose assets are held for the benefit of a family member of
the company's Chairman and Vice Chairmen.
(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 the date of grant. Options
under the plans expire ten years from the 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 15.6 million shares have been authorized to be
issued under the plans.
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 the continuance of the intrinsic value method with 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" 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
vesting period consistent with SFAS No. 123, the company's pro-forma net
earnings and earnings per share for the years ended September 30, 2001, 2000
and 1999 would have been as follows (in thousands, except per share amounts):
2001 2000 1999
-------- ------- ------
Net earnings:
As reported................................................... $110,376 103,184 86,290
Pro-forma..................................................... $104,591 98,633 82,779
Basic earnings per share:
As reported................................................... $ 1.96 1.85 1.53
Pro-forma..................................................... $ 1.86 1.77 1.47
Diluted earnings per share:
As reported................................................... $ 1.91 1.83 1.51
Pro-forma..................................................... $ 1.81 1.75 1.45
F-11
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average fair value of options at the date of grant in 2001,
2000 and 1999 was $7.49, $5.77 and $4.96 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:
2001 2000 1999
--------- --------- ---------
Expected life......................... 5 years 5 years 5 years
Volatility............................ 25.4% 24.8% 20.5%
Risk-free interest rate............... 4.6%-5.9% 5.8%-6.5% 4.2%-5.2%
Dividend yield........................ 1.0%-1.2% 1.1%-1.4% 1.0%-1.2%
Summarized information on the company's outstanding stock options at
September 30, 2001 is as follows (options in thousands):
Options Outstanding Options Exercisable
---------------------------- -------------------
Average Weighted Weighted
Number Remaining Average Number Average
of Contractual Option of Option
Range of Exercise Prices Options Life Price Options Price
------------------------ ------- ----------- -------- ------- --------
$ 9.75-$13.38...... 791 3.2 years $12.21 791 $12.21
$16.34-$23.19...... 2,542 7.2 years $20.40 1,576 $20.43
$24.94-$32.15...... 2,197 8.2 years $25.33 990 $25.69
Stock option activity under the plans is summarized as follows (options in
thousands):
Weighted
Number Average
of Option
Options Price
------- --------
Outstanding At September 30, 1998............ 3,055 $17.92
Granted................................... 1,187 $21.41
Exercised................................. (244) $13.37
Canceled.................................. (288) $22.16
-----
Outstanding at September 30, 1999............ 3,710 $19.01
-----
Granted................................... 1,590 $19.93
Exercised................................. (193) $14.05
Canceled.................................. (153) $21.42
-----
Outstanding at September 30, 2000............ 4,954 $19.42
-----
Granted................................... 1,716 $24.98
Exercised................................. (851) $18.22
Canceled.................................. (289) $22.29
-----
Outstanding at September 30, 2001............ 5,530 $21.18
=====
Exercisable at September 30:
1999...................................... 1,985 $16.99
2000...................................... 2,912 $18.40
2001...................................... 3,357 $20.04
The company is also authorized to grant up to 1,000,000 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. The total value of restricted shares is
recorded as deferred compensation at the time of grant based on the fair market
value of the shares on the date of grant. The deferred compensation balance is
amortized into expense over the seven year vesting period. During fiscal year
2001, employees were granted 80,000 restricted shares at a weighted average
fair value of $24.94 per share on the date of grant. At September 30, 2001
there were 344,450 restricted shares outstanding, and the deferred compensation
balance included as a separate component of stockholders' equity was $4.8
million.
F-12
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Income Taxes
The provisions for income taxes consist of the following:
2001 2000 1999
------- ------ ------
(In thousands)
Current:
Federal..................................... $45,989 35,739 30,965
Foreign..................................... 7,624 12,000 9,966
State....................................... 2,509 3,285 4,480
------- ------ ------
56,122 51,024 45,411
------- ------ ------
Deferred:
Federal..................................... 808 (874) 2,189
Foreign..................................... 134 1,327 (402)
State....................................... (204) (380) 295
------- ------ ------
738 73 2,082
------- ------ ------
$56,860 51,097 47,493
======= ====== ======
The difference between the United States statutory federal income tax rate
and the effective income tax rate is summarized below:
2001 2000 1999
---- ---- ----
Statutory tax rate................................ 35.0% 35.0% 35.0%
Effect of foreign income tax rates................ (.5) (2.6) (2.5)
State income taxes, net of federal tax benefit.... .9 1.2 2.3
Tax exempt interest income........................ (.6) (.3) (.1)
Other, net........................................ (.8) (.2) .8
---- ---- ----
Effective tax rate................................ 34.0% 33.1% 35.5%
==== ==== ====
Significant components of the company's deferred tax assets and liabilities
at September 30, 2001 and 2000 are as follows:
2001 2000
------- ------
(In thousands)
Deferred tax assets attributable to:
Accrued expenses................................. $15,052 17,195
Other............................................ 3,045 1,946
------- ------
Total deferred tax assets........................ 18,097 19,141
------- ------
Deferred tax liabilities attributable to:
Depreciation and amortization.................... 41,802 39,761
Inventory adjustments............................ 1,617 4,269
State income taxes............................... 329 534
------- ------
Total deferred tax liabilities................... 43,748 44,564
------- ------
Net deferred tax liabilities........................ $25,651 25,423
======= ======
Other current assets at September 30, 2001 and 2000 include $13.4 million
and $12.9 million, respectively, of net deferred tax assets. Management
believes that it is more likely than not that results
F-13
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of future operations will generate sufficient taxable income to realize the
deferred tax assets. Accordingly, there is no valuation allowance recorded at
September 30, 2001 and 2000.
Domestic earnings before income taxes were $140.7 million, $124.4 million
and $107.2 million in 2001, 2000 and 1999, respectively. Foreign operations had
earnings before income taxes of $26.5 million, $29.9 million (including the
non-recurring gain) and $26.6 million in 2001, 2000 and 1999, respectively.
Undistributed earnings of the company's foreign operations amounting to
$202.8 million are intended to remain permanently invested to finance future
growth and expansion. Accordingly, no United States income taxes have been
provided on those earnings at September 30, 2001. Should such earnings be
distributed, the credits for foreign income taxes paid would substantially
offset applicable United States 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 and data processing equipment. At September 30, 2001, future
minimum payments under non-cancelable leases are as follows:
Operating Capital
Leases Leases
--------- -------
(In thousands)
2002................................................... $ 61,194 125
2003................................................... 50,682 70
2004................................................... 36,973 27
2005................................................... 24,752 9
2006................................................... 14,535 --
2007 and later......................................... 13,700 --
-------- ---
Total minimum lease payments........................... $201,836 231
======== ===
Total rental expense for operating leases amounted to $82.7 million in
2001, $74.9 million in 2000 and $69.8 million in 1999. Certain leases require
the company to pay real estate taxes, insurance, maintenance and special
assessments.
(8) Business Segments and Geographic Area Information
The presentation of segment information reflects the manner in which
management organizes segments for making operating decisions and assessing
performance. The company's consumer products business includes two segments,
"Alberto-Culver North America" and "Alberto-Culver International," and includes
developing, manufacturing, distributing and marketing branded consumer products
worldwide. The Alberto-Culver North America segment also includes the
manufacturing of custom label products for other companies. The "Specialty
Distribution--Sally" business segment consists of Sally Beauty Company, a
distributor of professional beauty supplies through its Sally Beauty Supply
stores and its Beauty Systems Group full-service operations.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The company accounts for sales
between segments as if the sales were to a third party, however, sales between
segments are eliminated in consolidation.
F-14
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment data for the years ended September 30, 2001, 2000 and 1999 is as
follows:
Business Segments Information 2001 2000 1999
----------------------------- ---------- --------- ---------
(In thousands)
Net sales:
Consumer products:
Alberto-Culver North America......... $ 616,909 551,595 466,014
Alberto-Culver International......... 445,778 437,861 430,952
---------- --------- ---------
Total consumer products.............. 1,062,687 989,456 896,966
Specialty Distribution--Sally............ 1,460,137 1,281,065 1,096,867
Eliminations............................. (28,644) (23,358) (17,905)
---------- --------- ---------
$2,494,180 2,247,163 1,975,928
========== ========= =========
Earnings before provision for income taxes:
Consumer products:
Alberto-Culver North America......... $ 52,511 37,284 30,229
Alberto-Culver International......... 15,945 15,874 20,273
---------- --------- ---------
Total consumer products.............. 68,456 53,158 50,502
Specialty Distribution--Sally............ 144,688 125,640 111,252
---------- --------- ---------
Segment operating profit................. 213,144 178,798 161,754
Non-recurring gain (note 9).............. -- 9,257 --
Unallocated expenses, net*............... (24,078) (14,565) (15,252)
Interest expense, net of interest income. (21,830) (19,209) (12,719)
---------- --------- ---------
$ 167,236 154,281 133,783
========== ========= =========
Identifiable assets:
Consumer products:
Alberto-Culver North America......... $ 324,495 316,656 256,334
Alberto-Culver International......... 361,144 374,206 382,345
---------- --------- ---------
Total consumer products.............. 685,639 690,862 638,679
Specialty Distribution--Sally............ 655,825 589,955 497,570
Corporate**.............................. 175,037 104,781 45,245
---------- --------- ---------
$1,516,501 1,385,598 1,181,494
========== ========= =========
Depreciation and amortization expense:
Consumer products:
Alberto-Culver North America......... $ 14,849 14,587 12,358
Alberto-Culver International......... 12,197 12,471 10,713
---------- --------- ---------
Total consumer products.............. 27,046 27,058 23,071
Specialty Distribution--Sally............ 22,132 20,527 17,931
Corporate................................ 2,227 2,053 1,172
---------- --------- ---------
$ 51,405 49,638 42,174
========== ========= =========
F-15
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Business Segments Information 2001 2000 1999
----------------------------- ------- ------ ------
(In thousands)
Capital expenditures:
Consumer products:
Alberto-Culver North America..... $13,237 10,259 17,488
Alberto-Culver International..... 5,785 10,337 12,002
------- ------ ------
Total consumer products.......... 19,022 20,596 29,490
Specialty Distribution--Sally........ 17,730 16,931 18,601
------- ------ ------
$36,752 37,527 48,091
======= ====== ======
--------
* "Unallocated expenses, net" principally consists of general corporate
expenses.
** Corporate identifiable assets are primarily cash, cash equivalents,
short-term investments and equipment.
Geographic data for the years ended September 30, 2001, 2000 and 1999 is as
follows:
Geographic Area Information 2001 2000 1999
--------------------------- ---------- --------- ---------
(In thousands)
Net sales:
United States.......... $1,941,499 1,703,438 1,448,701
Foreign................ 571,041 565,970 549,688
Eliminations........... (18,360) (22,245) (22,461)
---------- --------- ---------
$2,494,180 2,247,163 1,975,928
========== ========= =========
Segment operating profit:
United States.......... $ 178,177 147,021 129,773
Foreign................ 34,967 31,777 31,981
---------- --------- ---------
$ 213,144 178,798 161,754
========== ========= =========
Identifiable assets:
United States.......... $ 935,874 871,727 708,524
Foreign................ 405,590 409,090 427,725
Corporate*............. 175,037 104,781 45,245
---------- --------- ---------
$1,516,501 1,385,598 1,181,494
========== ========= =========
--------
* Corporate identifiable assets are primarily cash, cash equivalents,
short-term investments and equipment.
(9) Non-Recurring Gain
In the first quarter of fiscal year 2000, the company sold a European
trademark with a nominal carrying value for $10.0 million. The transaction
resulted in a non-recurring pre-tax gain of $9.3 million and an increase in net
earnings of $6.0 million. The non-recurring gain added 11 cents to the
company's basic and diluted earnings per share in fiscal year 2000.
F-16
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) Quarterly Financial Data
Unaudited quarterly consolidated statement of earnings information for the
years ended September 30, 2001 and 2000 is summarized below (in thousands,
except per share amounts):
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- ------- ------- -------
2001:
Net sales............... $593,560 622,558 634,416 643,646
Gross profit............ $301,377 323,288 324,810 327,276
Net earnings............ $ 23,626 25,892 29,071 31,787
Earnings per share:
Basic................ $ .42 .46 .52 .56
Diluted.............. $ .41 .45 .50 .55
2000:
Net sales............... $525,799 553,813 573,095 594,456
Gross profit............ $268,429 282,293 292,718 297,973
Net earnings............ $ 26,833* 22,757 25,466 28,128
Earnings per share:
Basic................ $ .48* .41 .46 .50
Diluted.............. $ .48* .40 .45 .50
--------
* The first quarter of fiscal year 2000 includes a non-recurring gain from
the sale of a trademark. The non-recurring gain increased net earnings by
$6.0 million and basic and diluted earnings per share by 11 cents.
(11) Acquisitions
The company made acquisitions during fiscal years 2001, 2000 and 1999 which
individually were insignificant to the consolidated financial statements. The
total amount paid for the acquisitions in fiscal years 2001, 2000 and 1999 were
$18.8 million, $144.8 million and $62.3 million, respectively. The acquisitions
were accounted for using the purchase method, and accordingly, the results of
operations of the acquired businesses have been included in the consolidated
financial statements from the dates of acquisition. Total goodwill of $11.6
million, $101.9 million and $39.3 million was recorded in fiscal years 2001,
2000 and 1999, respectively, as a result of the acquisitions.
F-17
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands, except per share data)
(Unaudited)
----------------
2002 2001
-------- -------
Net sales (Note 7)......................................................... $657,762 592,942
Cost of products sold (Note 7)............................................. 339,924 302,961
-------- -------
Gross profit............................................................ 317,838 289,981
Advertising, marketing, selling and administrative (Note 7)................ 261,452 244,546
-------- -------
Operating earnings...................................................... 56,386 45,435
Interest expense, net of interest income of $671 in 2002
and $1,307 in 2001...................................................... 6,155 5,670
-------- -------
Earnings before provision for income taxes.............................. 50,231 39,765
Provision for income taxes................................................. 17,581 13,873
-------- -------
Net earnings (Note 6)................................................... $ 32,650 25,892
======== =======
Net earnings per share (Note 6):
Basic................................................................... $ 0.57 0.46
======== =======
Diluted................................................................. $ 0.55 0.45
======== =======
Cash dividends paid per share.............................................. $ 0.09 0.0825
======== =======
See Notes to Consolidated Financial Statements.
F-18
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
SIX MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands, except per share data)
(Unaudited)
--------------------
2002 2001
---------- ---------
Net sales (Note 7)...................................................... $1,272,022 1,156,809
Cost of products sold (Note 7).......................................... 653,512 597,218
---------- ---------
Gross profit......................................................... 618,510 559,591
Advertising, marketing, selling and administrative (Note 7)............. 511,728 473,141
---------- ---------
Operating earnings................................................... 106,782 86,450
Interest expense, net of interest income of $1,869 in 2002 and $2,509 in
2001.................................................................. 11,484 11,422
---------- ---------
Earnings before provision for income taxes........................... 95,298 75,028
Provision for income taxes.............................................. 33,354 25,510
---------- ---------
Net earnings (Note 6)................................................ $ 61,944 49,518
========== =========
Net earnings per share (Note 6):
Basic................................................................ $ 1.09 0.88
========== =========
Diluted.............................................................. $ 1.05 0.86
========== =========
Cash dividends paid per share........................................... $ .1725 .1575
========== =========
See Notes to Consolidated Financial Statements.
F-19
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND SEPTEMBER 30, 2001
(dollars in thousands, except share data)
(Unaudited)
March 31, September 30,
2002 2001
----------- -------------
ASSETS
------
Current assets:
Cash and cash equivalents.............................................. $ 100,155 201,970
Short-term investments................................................. 414 869
Receivables, less allowance for doubtful accounts ($14,023 at 3/31/02
and $11,387 at 9/30/01).............................................. 208,733 169,657
Inventories:
Raw materials...................................................... 38,173 41,521
Work-in-process.................................................... 3,932 4,782
Finished goods..................................................... 466,822 432,008
---------- ---------
Total inventories............................................... 508,927 478,311
Other current assets................................................... 23,844 26,142
---------- ---------
Total current assets............................................ 842,073 876,949
---------- ---------
Property, plant and equipment at cost, less accumulated depreciation
($253,199 at 3/31/02 and $236,035 at 9/30/01)........................... 247,081 235,822
Goodwill, net............................................................. 334,257 264,339
Trade names, net.......................................................... 74,368 79,532
Other assets.............................................................. 63,896 59,859
---------- ---------
Total assets.................................................... $1,561,675 1,516,501
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings and current maturities of long-term debt......... $ 3,268 2,886
Accounts payable....................................................... 210,072 191,410
Accrued expenses....................................................... 169,510 165,525
Income taxes........................................................... 16,141 30,482
---------- ---------
Total current liabilities....................................... 398,991 390,303
---------- ---------
Long-term debt............................................................ 321,122 321,183
Deferred income taxes..................................................... 37,841 39,086
Other liabilities......................................................... 31,400 29,920
Stockholders' equity:
Common stock, par value $.22 per share:
Class A authorized 75,000,000 shares; issued 30,612,798 shares..... 6,735 6,735
Class B authorized 75,000,000 shares; issued 37,710,655 shares..... 8,296 8,296
Additional paid-in capital............................................. 195,644 190,368
Retained earnings...................................................... 831,824 779,792
Deferred compensation.................................................. (6,705) (4,826)
Accumulated other comprehensive income--foreign currency
translation.......................................................... (86,944) (61,284)
---------- ---------
948,850 919,081
Less treasury stock at cost (Class A common shares: 5,163,531 at
3/31/02 and 6,741,946 at 9/30/01; Class B common shares:
5,379,015 at 3/31/02 and 4,753,184 at 9/30/01)....................... (176,529) (183,072)
---------- ---------
Total stockholders' equity...................................... 772,321 736,009
---------- ---------
Total liabilities and stockholders' equity...................... $1,561,675 1,516,501
========== =========
See Notes to Consolidated Financial Statements.
F-20
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands)
(Unaudited)
------------------
2002 2001
--------- -------
Cash Flows from Operating Activities:
Net earnings........................................................... $ 61,944 49,518
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation........................................................ 21,236 18,859
Amortization of goodwill, trade names and other assets.............. 1,888 6,925
Cash effects of changes in (exclusive of acquisitions):
Receivables, net................................................ 2,834 (5,143)
Inventories, net................................................ (18,663) (27,524)
Other current assets............................................ 657 (966)
Accounts payable and accrued expenses........................... 15,935 17,259
Income taxes.................................................... (8,171) (5,209)
Other assets.................................................... 1,156 (417)
Other liabilities............................................... 2,171 2,559
--------- -------
Net cash provided by operating activities.................... 80,987 55,861
--------- -------
Cash Flows from Investing Activities:
Short-term investments................................................. 458 (700)
Capital expenditures................................................... (32,223) (13,735)
Payments for purchased businesses, net of acquired companies' cash..... (101,222) (12,646)
Other, net............................................................. (1,910) (541)
--------- -------
Net cash used by investing activities........................ (134,897) (27,622)
--------- -------
Cash Flows from Financing Activities:
Short-term borrowings, net............................................. 641 2,228
Proceeds from long-term debt........................................... -- 27
Repayments of long-term debt........................................... (200) (8,657)
Repurchase of previously sold accounts receivable...................... (40,000) --
Cash dividends paid.................................................... (9,912) (8,858)
Proceeds from exercise of stock options................................ 29,744 11,365
Stock purchased for treasury........................................... (28,015) (1,348)
--------- -------
Net cash used by financing activities........................ (47,742) (5,243)
--------- -------
Effect of foreign exchange rate changes................................ (163) 2,823
--------- -------
Net increase (decrease) in cash and cash equivalents................... (101,815) 25,819
Cash and cash equivalents at beginning of period....................... 201,970 114,637
--------- -------
Cash and cash equivalents at end of period............................. $ 100,155 140,456
========= =======
See Notes to Consolidated Financial Statements.
F-21
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The consolidated financial statements contained in this report have not
been audited by independent public accountants, except for balance sheet
information presented at September 30, 2001. However, in the opinion of the
company, the consolidated financial statements reflect all adjustments, which
include only normal adjustments, necessary to present fairly the data contained
therein. The results of operations for the periods covered are not necessarily
indicative of results for a full year. Certain amounts for the prior year have
been reclassified to conform to the current year's presentation.
(2) Stockholders' Equity
In fiscal year 1998, the Board of Directors authorized the company to
purchase up to 6.0 million shares of its Class A common stock. This
authorization was increased to 9.0 million shares in fiscal year 1999. As of
March 31, 2002, the company had purchased 7,290,400 Class A common shares under
this program at a total cost of $162.9 million. No Class A shares have been
purchased under this program since October, 1999.
During the three months ended March 31, 2002, the company acquired $28.0
million of Class A and Class B common shares surrendered by employees in
connection with the exercises of stock options and the payment of withholding
taxes as provided under the terms of certain incentive plans. Shares acquired
under these plans are not subject to the above-mentioned stock repurchase
program.
(3) Weighted Average Shares Outstanding
The following table provides information about basic and diluted weighted
average shares outstanding (in thousands):
Three Months Six Months
Ended March 31, Ended March 31,
--------------- ---------------
2002 2001 2002 2001
------ ------ ------ ------
Basic weighted average shares outstanding.. 57,309 56,134 57,077 55,978
Effect of dilutive securities:
Assumed exercise of stock options....... 1,579 1,391 1,402 1,242
Assumed vesting of restricted stock..... 411 372 411 372
------ ------ ------ ------
Diluted weighted average shares outstanding 59,299 57,897 58,890 57,592
====== ====== ====== ======
No stock options were anti-dilutive for the three months or six months
ended March 31, 2002 or 2001.
(4) Comprehensive Income
Comprehensive income consists of net earnings and foreign currency
translation adjustments as follows (in thousands):
Three Months Six Months
Ended March 31, Ended March 31,
--------------- ---------------
2002 2001 2002 2001
------- ------ ------- ------
Net earnings................................ $32,650 25,892 61,944 49,518
Other comprehensive income--foreign currency
translation............................... (9,219) (8,518) (25,660) (5,458)
------- ------ ------- ------
Comprehensive income........................ $23,431 17,374 36,284 44,060
======= ====== ======= ======
F-22
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign currency translation losses in fiscal year 2002 were primarily due
to the devaluation of the Argentine peso.
(5) Business Segment Information
Segment data for the three and six months ended March 31, 2002 and 2001 is
as follows (in thousands):
Three Months Six Months
Ended March 31, Ended March 31,
----------------- --------------------
2002 2001 2002 2001
-------- ------- --------- ---------
Net sales:
Consumer products:
Alberto-Culver North
America................. $150,511 140,266 297,616 271,596
Alberto-Culver
International........... 95,457 97,055 188,389 190,416
-------- ------- --------- ---------
Total consumer
products............ 245,968 237,321 486,005 462,012
Specialty
Distribution--Sally........ 418,562 361,941 799,068 708,522
Eliminations................. (6,768) (6,320) (13,051) (13,725)
-------- ------- --------- ---------
$657,762 592,942 1,272,022 1,156,809
======== ======= ========= =========
Earnings before
provision for income
taxes:
Consumer products:
Alberto-Culver North
America................. $ 14,952 11,723 30,650 24,883
Alberto-Culver
International........... 2,702 2,195 3,639 2,914
-------- ------- --------- ---------
Total consumer
products............ 17,654 13,918 34,289 27,797
Specialty
Distribution--Sally........ 43,885 36,655 82,367 71,177
-------- ------- --------- ---------
Segment operating
profit.................. 61,539 50,573 116,656 98,974
Unallocated expenses, net.... (5,153) (5,138) (9,874) (12,524)
Interest expense, net of
interest income............ (6,155) (5,670) (11,484) (11,422)
-------- ------- --------- ---------
$ 50,231 39,765 95,298 75,028
======== ======= ========= =========
(6) Goodwill and Trade Names
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 addresses financial accounting and reporting for business combinations.
SFAS No. 142 addresses financial accounting and reporting for acquired goodwill
and other intangible assets, requires companies to discontinue the amortization
of goodwill and certain other intangible assets and requires an impairment test
of existing goodwill and certain other intangible assets based on a fair value
method. The company adopted SFAS No. 141 in the fourth quarter of fiscal year
2001. The company also adopted SFAS No. 142 in the fourth quarter of fiscal
year 2001 for new acquisitions and in the first quarter of fiscal year 2002 for
previously acquired intangibles. In accordance with SFAS No. 142, the company
determined that its trade names have indefinite lives and, therefore, the
amortization of trade names was discontinued effective October 1, 2001. Based
on the results of the company's transitional impairment testing, no impairment
of indefinite-lived trade names existed at October 1, 2001. In addition, as
required by SFAS No. 142, the company ceased the amortization of goodwill
effective October 1, 2001. In accordance with the adoption provisions of SFAS
No. 142, the company has completed the required transitional goodwill
impairment tests and has
F-23
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
determined that goodwill was not impaired as of October 1, 2001, the date of
adoption. Prospectively, goodwill will be reviewed for impairment at least
annually, with its ongoing recoverability monitored based on applicable
reporting unit performance and consideration of significant events or changes
in the overall business environment.
In accordance with SFAS No. 142, fiscal year 2001 results in the
consolidated statement of earnings have not been restated for the effects of
ceasing goodwill and trade name amortization. Had goodwill and trade name
amortization been discontinued effective October 1, 2000, net earnings and
earnings per share for the three and six months ended March 31, 2002 and 2001
would have been as follows (in thousands, except per share data):
Three Months Six Months
Ended March 31 Ended March 31,
-------------- ---------------
2002 2001 2002 2001
------- ------ ------ ------
Reported net earnings........................ $32,650 25,892 61,944 49,518
Elimination of goodwill and trade name
amortization, net of income taxes.......... -- 2,221 -- 4,232
------- ------ ------ ------
Pro forma net earnings....................... $32,650 28,113 61,944 53,750
======= ====== ====== ======
Reported basic net earnings per share........ $ 0.57 0.46 1.09 0.88
Elimination of goodwill and trade name
amortization, net of income taxes.......... -- 0.04 -- 0.08
------- ------ ------ ------
Pro forma basic net earnings per share....... $ 0.57 0.50 1.09 0.96
======= ====== ====== ======
Reported diluted net earnings per share...... $ 0.55 0.45 1.05 0.86
Elimination of goodwill and trade name
amortization, net of income taxes.......... -- 0.03 -- 0.07
------- ------ ------ ------
Pro forma diluted net earnings per share..... $ 0.55 0.48 1.05 0.93
======= ====== ====== ======
The change in the carrying amount of goodwill by operating segment for the
six months ended March 31, 2002 is as follows (in thousands):
Consumer Products Specialty
-------------------------- Distribution--
North America International Sally Total
------------- ------------- -------------- -------
Goodwill, net:
--------------
Balance as of September 30, 2001... $69,379 79,648 115,312 264,339
Additions.......................... 151 -- 83,587 83,738
Foreign currency translation effect -- (13,675) (145) (13,820)
------- ------- ------- -------
Balance as of March 31, 2002....... $69,530 65,973 198,754 334,257
======= ======= ======= =======
F-24
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Indefinite-lived trade names by operating segment at March 31, 2002 and
September 30, 2001 are as follows (in thousands):
March 31, September 30,
2002 2001
--------- -------------
Trade names, net:
-----------------
Consumer products:
Alberto-Culver North America.... $45,412 45,414
Alberto-Culver International.... 28,733 33,857
------- ------
Total consumer products..... 74,145 79,271
Specialty Distribution--Sally...... 223 261
------- ------
$74,368 79,532
======= ======
(7) New Accounting Pronouncements
In May 2000, the FASB's Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives." EITF
Issue No. 00-14 addresses the recognition, measurement and income statement
classification for various types of sales incentives including coupons, rebates
and free products. In April 2001, the EITF reached a consensus on Issue No.
00-25, "Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendor's Products." EITF Issue No. 00-25 addresses the income
statement classification for various types of consideration paid by a vendor to
a retailer. The company adopted the provisions of EITF Issue Nos. 00-14 and
00-25 in the first quarter of fiscal year 2002. In connection with the adoption
of EITF Issue Nos. 00-14 and 00-25, the company reclassified certain amounts
for the second quarter and first half of fiscal year 2001 to conform to the
current year presentation resulting in a $29.6 million reduction in net sales,
a $3.7 million increase in cost of products sold and a $33.3 million decrease
in promotion expense for the three months ended March 31, 2001 and a $59.3
million reduction in net sales, a $5.8 million increase in cost of products
sold and a $65.1 million decrease in promotion expenses for the six months
ended March 31, 2001. Consolidated net earnings were not affected by these
reclassifications.
(8) Subsequent Event
On May 1, 2002, the company entered into an interest rate swap agreement
with a notional amount of $100 million in order to convert a portion of its
fixed rate 8.25% senior notes into a variable rate obligation. The swap
agreement, which matures on November 1, 2005, is designated as a fair value
hedge. Under the interest rate swap agreement, the company will receive
semi-annual interest payments at a fixed rate of 8.25% and is required to make
semi-annual interest payments at a variable rate based on a fixed spread over
the six-month London Interbank Offered Rate ("LIBOR"). The differential to be
paid or received on the interest rate swap will be recorded as an adjustment to
interest expense over each semi-annual period. On a pro-forma basis taking into
account the interest rate swap, approximately 69% of the company's $321.1
million of long-term debt at March 31, 2002 is based on a fixed interest rate
with the remaining 31% based on a variable interest rate.
F-25
[PHOTOS OF ALBERTO-CULVER LOGOS AND STORES]
1
================================================================================
No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
Page
----
Prospectus Summary........................ 1
Risk Factors.............................. 5
Forward-Looking Statements................ 11
Price Range of Class B Common Stock and
Dividends............................... 12
Use of Proceeds........................... 12
Capitalization............................ 13
Selected Consolidated Financial Data...... 14
Management's Discussion and Analysis of
Results of Operations and Financial
Condition............................... 16
Business.................................. 25
Management................................ 31
Selling Stockholders...................... 33
Description of Capital Stock.............. 35
Shares Eligible for Future Sale........... 37
Underwriting.............................. 38
Legal Matters............................. 40
Experts................................... 40
Where You Can Find More Information....... 40
Incorporation by Reference................ 40
Index to Consolidated Financial Statements F-1
================================================================================
================================================================================
6,000,000 Shares
Alberto-Culver Company
Class B Common Stock
----------------
PROSPECTUS
----------------
Goldman, Sachs & Co.
Merrill Lynch & Co.
Banc of America Securities LLC
Salomon Smith Barney
Representatives of the Underwriters
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses payable in connection with the sale of the Class B
common stock offered hereby are as follows:
Amount
--------
Securities and Exchange Commission
Registration Fee....................... $ 33,220
Printing Costs.......................... 150,000
Legal Fees and Expenses................. 150,000
Accounting Fees and Expenses............ 50,000
Blue Sky Qualification Fees and Expenses 5,000
Miscellaneous........................... 61,780
--------
Total................................ $450,000
========
The selling stockholders will be responsible for the initial $500,000 of
expenses. To the extent that expenses exceed $500,000, such expenses shall be
payable by Alberto-Culver.
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of Delaware authorizes
indemnification of directors, officers and employees of Delaware corporations.
Article VIII of the Registrant's Bylaws (i) authorizes the indemnification of
directors and officers (the "Indemnitees") under specified circumstances to the
fullest extent authorized by the General Corporation Law of Delaware, (ii)
provides for the advancement of expenses to the Indemnitees for defending any
proceedings related to specified circumstances, (iii) gives the Indemnitees the
right to bring suit against the registrant to enforce the foregoing rights to
indemnification and advancement of expenses, and (iv) authorizes the registrant
to maintain certain policies of insurance to protect itself and any of its
directors, officers or employees. The registrant currently maintains insurance
policies under which the directors and officers of registrant are insured,
within the limits and subject to the limitations of the policies, against
certain expenses in connection with the defense of actions, suits or
proceedings, and certain liabilities which must be imposed as a result of such
actions, suits or proceedings, to which they are parties by reason of being or
having been such directors or officers.
Item 16. Exhibits.
The exhibits to this registration statement are listed in the Exhibit Index
hereto, which is incorporated herein by reference.
Item 17. Undertakings.
(a) Not applicable.
(b) The undersigned registration hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-1
(c) --(g) Not applicable.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to provisions described in Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that: (1) for purpose of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective; and (2) for the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(j) Not applicable.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Melrose Park, State of Illinois on June 13, 2002.
ALBERTO-CULVER COMPANY
By: /s/ HOWARD B. BERNICK*
-----------------------------------
Howard B. Bernick
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on June 13, 2002 by the following
persons in the capacities indicated.
Name Title
---- ----- -
/S/ LEONARD H. LAVIN* Chairman of the Board and
------------------------ Director
Leonard H. Lavin
/S/ HOWARD B. BERNICK* President, Chief Executive
------------------------ Officer and Director (Principal
Howard B. Bernick Executive Officer)
/S/ BERNICE E. LAVIN* Vice Chairman, Secretary,
------------------------ Treasurer and Director
Bernice E. Lavin
/S/ CAROL L. BERNICK* Vice Chairman, President
------------------------ Alberto-Culver Consumer
Carol L. Bernick Products Worldwide, Assistant
Secretary and Director
/S/ WILLIAM J. CERNUGEL Senior Vice President and Chief
------------------------ Financial Officer (Principal
William J. Cernugel Financial & Accounting Officer)
/S/ A. ROBERT ABBOUD* Director
------------------------
A. Robert Abboud
/S/ A.G. ATWATER, JR.* Director
------------------------
A.G. Atwater, Jr.
/S/ ALLAN B. MUCHIN* Director
------------------------
Allan B. Muchin
/S/ ROBERT H. ROCK* Director
------------------------
Robert H. Rock
II-3
Name Title
---- -----
/S/ SAM J. SUSSER* Director
----------------------
Sam J. Susser
---------------------- Director
Dr. Harold M. Visotsky
/S/ WILLIAM W. WIRTZ* Director
----------------------
William W. Wirtz
*By: /S/ GARY P. SCHMIDT
-----------------------------
Gary P. Schmidt,
Attorney-in-fact
II-4
ALBERTO-CULVER COMPANY
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
------- ----------------------
1.1... Form of Underwriting Agreement
4.1... Restated Certificate of Incorporation of the Company (incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year ended September 30, 1988
(File No. 1-5050))
4.2... Certificate of Amendment to Restated Certificate of Incorporation of the Company
(incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 (File No. 1-5050))
4.3... Bylaws of the Company (incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended September 30, 2000 (File No. 1-5050))
5.1... Opinion of Gary P. Schmidt, Esq., General Counsel of the Company*
23.1.. Consent of Gary P. Schmidt, Esq. (contained in opinion filed as Exhibit 5.1)*
23.2.. Consent of KPMG LLP
24.1.. Power of attorney*
--------
* Previously filed.
II-5