ALBERTO CULVER CO - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED:

June 30, 2003

-OR-

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-5050

ALBERTO-CULVER COMPANY

(Exact name of registrant as specified in its charter)

Delaware		36-2257936
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2525 Armitage Avenue

Melrose Park, Illinois

60160

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (708) 450-3000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

At June 30, 2003, the company had 26,433,301 shares of Class A common stock and 32,340,240 shares of Class B common stock outstanding.

PART I

ITEM 1. FINANCIAL STATEMENTS

ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Consolidated Statements of Earnings

Three Months Ended June 30, 2003 and 2002

(in thousands, except per share data)

	(Unaudited)
	2003		2002
Net sales	$	736,057	681,074
Cost of products sold		371,889	345,000

Gross profit		364,168	336,074
Advertising, marketing, selling and administrative		293,420	274,563

Operating earnings		70,748	61,511
Interest expense, net of interest income of $955 in 2003 and $680 in 2002		5,652	5,509

Earnings before provision for income taxes		65,096	56,002
Provision for income taxes		22,532	19,601

Net earnings		$42,564	36,401

Net earnings per share
Basic		$.73	.63

Diluted		$.71	.61

Cash dividends paid per share		$.105	.09

See Notes to Consolidated Financial Statements.

ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Consolidated Statements of Earnings

Nine Months Ended June 30, 2003 and 2002

(in thousands, except per share data)

	(Unaudited)
	2003		2002
Net sales	$	2,139,789	1,953,096
Cost of products sold		1,073,245	992,407

Gross profit		1,066,544	960,689
Advertising, marketing, selling and administrative		869,057	792,396

Operating earnings		197,487	168,293
Interest expense, net of interest income of $2,535 in 2003 and $2,549 in 2002		16,968	16,993

Earnings before provision for income taxes		180,519	151,300
Provision for income taxes		64,084	52,955

Net earnings		$116,435	98,345

Net earnings per share
Basic		$2.00	1.72

Diluted		$1.94	1.66

Cash dividends paid per share		$.30	.2625

See Notes to Consolidated Financial Statements.

ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

June 30, 2003 and September 30, 2002

(dollars in thousands, except share data)

	(Unaudited)
	June 30, 2003			September 30, 2002
ASSETS
Current assets:
Cash and cash equivalents		$301,143		217,485
Receivables, less allowance for doubtful accounts ($19,420 at 6/30/03 and $17,550 at 9/30/02)		216,729		209,010
Inventories:
Raw materials		35,563		39,932
Work-in-process		3,693		5,545
Finished goods		508,896		476,731

Total inventories		548,152		522,208
Other current assets		40,487		35,514

Total current assets		1,106,511		984,217

Property, plant and equipment at cost, less accumulated depreciation ($303,644 at 6/30/03 and $271,169 at 9/30/02)		252,690		247,850
Goodwill, net		354,167		343,431
Trade names, net		83,278		79,681
Other assets		73,788		74,312

Total assets	$	1,870,434		1,729,491

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt		$2,860		3,702
Accounts payable		222,475		233,942
Accrued expenses		209,043		208,311
Income taxes		15,169		14,492

Total current liabilities		449,547		460,447

Long-term debt		320,542		320,181
Deferred income taxes		38,579		38,337
Other liabilities		50,815		48,067

Stockholders’ equity:
Common stock, par value $.22 per share:
Class A authorized 150,000,000 shares; issued 30,612,798 shares		6,735		6,735
Class B authorized 150,000,000 shares; issued 37,710,655 shares		8,296		8,296
Additional paid-in capital		212,971		205,470
Retained earnings		995,974		897,106
Deferred compensation		(4,898	)	(5,849	)
Accumulated other comprehensive income—foreign currency translation		(44,589	)	(77,603	)

		1,174,489		1,034,155
Less treasury stock at cost (Class A common shares: 4,179,497 at 6/30/03 and 4,765,673 at 9/30/02; Class B common shares: 5,370,415 at 6/30/03 and 5,379,015 at 9/30/02)		(163,538	)	(171,696	)

Total stockholders’ equity		1,010,951		862,459

Total liabilities and stockholders’ equity	$	1,870,434		1,729,491

See Notes to Consolidated Financial Statements.

ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Nine Months Ended June 30, 2003 and 2002

(dollar amounts in thousands)

	(Unaudited)
	2003			2002
Cash Flows from Operating Activities:
Net earnings	$	116,435		98,345
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		34,266		32,603
Amortization		2,413		2,883
Cash effects of changes in (exclusive of acquisitions):
Receivables, net		1,697		(1,316	)
Inventories, net		(14,482	)	(15,627	)
Other current assets		(3,363	)	282
Accounts payable and accrued expenses		(20,070	)	40,349
Income taxes		5,430		(15,107	)
Other assets		1,318		(6,276	)
Other liabilities		(2,112	)	955

Net cash provided by operating activities		121,532		137,091

Cash Flows from Investing Activities:
Short-term investments		—		897
Capital expenditures		(34,911	)	(45,132	)
Payments for purchased businesses, net of acquired companies’ cash		(921	)	(100,635	)
Other, net		624		1,386

Net cash used by investing activities		(35,208	)	(143,484	)

Cash Flows from Financing Activities:
Short-term borrowings, net		109		1,009
Proceeds from issuance of long-term debt		407		193
Repayments of long-term debt		(1,190	)	(281	)
Repurchase of previously sold accounts receivable		—		(40,000	)
Cash dividends paid		(17,566	)	(15,122	)
Proceeds from exercise of stock options		18,205		36,293
Stock purchased for treasury		(10,693	)	(28,297	)

Net cash used by financing activities		(10,728	)	(46,205	)

Effect of foreign exchange rate changes on cash		8,062		92

Net increase (decrease) in cash and cash equivalents		83,658		(52,506	)
Cash and cash equivalents at beginning of period		217,485		201,970

Cash and cash equivalents at end of period	$	301,143		149,464

See Notes to Consolidated Financial Statements.

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, 2002. 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

During fiscal years 1998 and 1999, the Board of Directors authorized the company to purchase up to 9.0 million shares of its Class A common stock. Prior to the fourth quarter of fiscal year 2002, the company had purchased 7.3 million Class A common shares under this program at a total cost of $162.9 million with the last purchase occurring in October, 1999. In July, 2002, the Board of Directors re-authorized the company to purchase up to 1.7 million shares of Class A common stock remaining under the program. As of June 30, 2003, the company had purchased 331,700 Class A shares under the re-authorization at a total cost of $15.1 million. A total of 1,368,300 Class A shares remain available for purchase under the program as of June 30, 2003.

During the nine months ended June 30, 2003 and 2002, the company acquired $2.9 million and $28.3 million, respectively, 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 on basic and diluted weighted average shares outstanding (in thousands):

	Three Months Ended June 30		Nine Months Ended June 30
	2003	2002	2003	2002
Basic weighted average shares outstanding	58,374	57,544	58,209	57,240
Effect of dilutive securities:
Assumed exercise of stock options	1,351	1,689	1,350	1,443
Assumed vesting of restricted stock	348	399	348	399

Diluted weighted average shares outstanding	60,073	59,632	59,907	59,082

Stock options for 1,227,600 shares were excluded from the computation of diluted earnings per share for the three months and nine months ended June 30, 2003 as the options’ exercise prices were greater than the average market price and, therefore, were anti-dilutive. No stock options were anti-dilutive for the three months or nine months ended June 30, 2002.

ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(4) ACCOUNTING FOR STOCK-BASED COMPENSATION

The Financial Accounting Standards Board’s Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” requires either the adoption of a fair value based method of accounting for stock-based compensation or 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 Opinion No. 25, “Accounting for Stock Issued to Employees,” and, accordingly, no compensation cost related to stock options has been recognized in the consolidated statements of earnings.

Had compensation expense for these stock option 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 net earnings per share for the three and nine months ended June 30, 2003 and 2002 would have been as follows (in thousands, except per share amounts):

	Three Months Ended June 30					Nine Months Ended June 30
	2003			2002		2003		2002
Net earnings:
As reported	$	42,564		36,401		116,435		98,345
Add: Stock-based compensation expense included in reported net income, net of related income tax effects		203		281		749		844
Less: Stock-based compensation expense determined under the fair-value based method for all awards, net of related income tax effects		(2,615	)	(2,026	)	(7,029	)	(6,074	)