ALBERTO CULVER CO - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED:

June 30, 2004

-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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨

At June 30, 2004, the company had 90,694,668 shares of common stock outstanding.

PART I

ITEM 1. FINANCIAL STATEMENTS

ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Consolidated Statements of Earnings

Three Months Ended June 30, 2004 and 2003

(in thousands, except per share data)


	(Unaudited)
	2004			2003
Net sales	$	823,224		736,057
Cost of products sold		404,267		371,889

Gross profit		418,957		364,168
Advertising, marketing, selling and administrative		335,343		293,420
Non-cash charge related to conversion to one class of common stock (note 2)		7,769		—
Gain on sale of business (note 3)		(10,147	)	—

Operating earnings		85,992		70,748
Interest expense, net of interest income of $991 in 2004 and $955 in 2003		5,507		5,652

Earnings before provision for income taxes		80,485		65,096
Provision for income taxes		29,021		22,532

Net earnings	$	51,464		42,564

Net earnings per share
Basic	$	.57		.49

Diluted	$	.56		.47

Weighted average shares outstanding
Basic		90,218		87,561

Diluted		92,312		90,110

Cash dividends paid per share	$	.10		.07

See Notes to Consolidated Financial Statements.

ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Consolidated Statements of Earnings

Nine Months Ended June 30, 2004 and 2003

(in thousands, except per share data)


	(Unaudited)
	2004			2003
Net sales	$	2,407,296		2,139,789
Cost of products sold		1,188,795		1,073,245

Gross profit		1,218,501		1,066,544
Advertising, marketing, selling and administrative		987,292		869,057
Non-cash charge related to conversion to one class of common stock (note 2)		79,039		—
Gain on sale of business (note 3)		(10,147	)	—

Operating earnings		162,317		197,487
Interest expense, net of interest income of $3,011 in 2004 and $2,535 in 2003		16,716		16,968

Earnings before provision for income taxes		145,601		180,519
Provision for income taxes		51,811		64,084

Net earnings	$	93,790		116,435

Net earnings per share
Basic	$	1.04		1.33

Diluted	$	1.02		1.29

Weighted average shares outstanding
Basic		89,770		87,314

Diluted		91,662		89,861

Cash dividends paid per share	$	.27		.20

See Notes to Consolidated Financial Statements.

ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

June 30, 2004 and September 30, 2003

(dollars in thousands, except share data)


	(Unaudited) June 30, 2004			September 30, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	330,477		370,148
Short-term investments		19,026		—
Receivables, less allowance for doubtful accounts ($18,906 at 6/30/04 and $19,111 at 9/30/03)		233,179		226,054
Inventories:
Raw materials		38,416		35,714
Work-in-process		5,380		4,633
Finished goods		579,341		490,810

Total inventories		623,137		531,157
Other current assets		44,657		38,130

Total current assets		1,250,476		1,165,489

Property, plant and equipment at cost, less accumulated depreciation ($332,025 at 6/30/04 and $312,530 at 9/30/03)		284,127		264,335
Goodwill, net		472,082		355,285
Trade names, net		91,704		84,463
Other assets		78,562		76,037

Total assets	$	2,176,951		1,945,609

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt	$	577		295
Accounts payable		245,668		220,633
Accrued expenses		239,816		222,860
Income taxes		22,012		21,721

Total current liabilities		508,073		465,509

Long-term debt		320,613		320,587
Deferred income taxes		24,403		39,759
Other liabilities		69,788		57,625

Stockholders’ equity:
Common stock, par value $.22 per share, authorized 300,000,000 shares; issued 98,470,287 at 6/30/04 and 97,810,191 at 9/30/03 (notes 2 and 4)		21,663		15,031
Additional paid-in capital		317,083		215,777
Retained earnings		1,098,252		1,035,513
Deferred compensation		(4,084	)	(4,487	)
Accumulated other comprehensive income – foreign currency translation		(29,684	)	(40,695	)

		1,403,230		1,221,139
Less treasury stock at cost (7,775,619 shares at 6/30/04 and 9,349,977 at 9/30/03) (notes 2 and 4)		(149,156	)	(159,010	)

Total stockholders’ equity		1,254,074		1,062,129

Total liabilities and stockholders’ equity	$	2,176,951		1,945,609

See Notes to Consolidated Financial Statements.

ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Nine Months Ended June 30, 2004 and 2003

(dollar amounts in thousands)


	(Unaudited)
	2004			2003
Cash Flows from Operating Activities:
Net earnings	$	93,790		116,435
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		35,251		34,266
Amortization		2,299		2,413
Non-cash charge related to conversion to one class of common stock, net of taxes (note 2)		51,375		—
Gain on sale of business, net of taxes (note 3)		(5,745	)	—
Cash effects of changes in (excluding acquisitions and divestitures):
Receivables, net		(5,456	)	1,697
Inventories, net		(55,037	)	(14,482	)
Other current assets		(3,144	)	(3,363	)
Accounts payable and accrued expenses		28,811		(20,070	)
Income taxes		21,974		5,430
Other assets		(4,822	)	1,318
Other liabilities		2,910		(2,112	)

Net cash provided by operating activities		162,206		121,532

Cash Flows from Investing Activities:
Short-term investments		(19,026	)	—
Capital expenditures		(53,668	)	(34,911	)
Payments for purchased businesses, net of acquired companies’ cash		(157,420	)	(921	)
Proceeds from sale of business		33,730		—
Other, net		5,612		624

Net cash used by investing activities		(190,772	)	(35,208	)

Cash Flows from Financing Activities:
Short-term borrowings, net		395		109
Proceeds from issuance of long-term debt		275		407
Repayments of long-term debt		(214	)	(1,190	)
Cash dividends paid		(24,420	)	(17,566	)
Proceeds from exercise of stock options		50,538		18,205
Stock purchased for treasury		(40,079	)	(10,693	)

Net cash used by financing activities		(13,505	)	(10,728	)

Effect of foreign exchange rate changes on cash		2,400		8,062

Net increase (decrease) in cash and cash equivalents		(39,671	)	83,658
Cash and cash equivalents at beginning of period		370,148		217,485

Cash and cash equivalents at end of period	$	330,477		301,143

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 the company’s independent registered public accounting firm, except for balance sheet information presented at September 30, 2003. However, in the opinion of the company, the consolidated financial statements reflect all adjustments, which include only normal recurring 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) CONVERSION TO ONE CLASS OF COMMON STOCK

On October 22, 2003, the Board of Directors approved the conversion of all of the issued shares of Class A common stock into Class B common stock on a one share-for-one share basis in accordance with the terms of the company’s certificate of incorporation. The conversion became effective after the close of business on November 5, 2003. The single class of common stock continues to trade on the New York Stock Exchange under the symbol ACV. Following the conversion, all outstanding options to purchase shares of Class A common stock became options to purchase an equal number of shares of Class B common stock.

The company accounts for stock compensation expense in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” Under these rules, the conversion to one class of common stock requires the company to recognize a non-cash charge from the remeasurement of the intrinsic value of all Class A stock options outstanding on the conversion date. A portion of this non-cash charge was recognized on the conversion date for vested stock options and the remaining non-cash charges related to unvested stock options and restricted shares will be recognized over the remaining vesting periods. As a result, the company will record a non-cash charge against pre-tax earnings of $105.9 million ($68.8 million after taxes), of which $7.8 million ($5.1 million after taxes) and $79.0 million ($51.4 million after taxes) was recognized in the third quarter and nine months of fiscal year 2004, respectively, another $7.8 million ($5.0 million after taxes) will be recognized in the fourth quarter of fiscal year 2004 and $19.1 million ($12.4 million after taxes) will be recognized over the following three fiscal years in diminishing amounts. The non-cash charges reduce operating earnings, provision for income taxes, net earnings and basic and diluted net earnings per share. The balance sheet effect of the options remeasurement increased total stockholders’ equity by $2.7 million and $27.7 million in the third quarter and nine months of fiscal year 2004, respectively, and resulted in the recognition of a deferred tax asset of the same amount. Thereafter, the remaining non-cash charges will increase total stockholders’ equity and result in the recognition of additional deferred tax assets of $2.7 million in the fourth quarter of fiscal year 2004 and $6.7 million over the following three fiscal years in diminishing amounts.

(3) SALE OF BUSINESS

In June, 2004, the company sold its Indola European professional hair care business. As a result of the sale, the company recorded a $10.1 million gain ($5.7 million after taxes) in the third quarter of fiscal 2004 which increased basic and diluted net earnings per share by 6 cents.

ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

(4) STOCKHOLDERS’ EQUITY

In July, 2002, the Board of Directors authorized the company to purchase up to 2,384,150 shares of Class A common stock. As of October 22, 2003, the company had purchased 331,700 Class A shares under the authorization at a total cost of $15.1 million. On October 22, 2003, the Board of Directors authorized the company to purchase up to 2,052,450 shares of Class B common stock. This authorization replaced the Class A share repurchase program. A total of 2,052,450 shares remain available for purchase under the program as of June 30, 2004.

On January 21, 2004, the Board of Directors approved a 3-for-2 stock split in the form of a 50% stock dividend. The additional shares were distributed February 20, 2004 to shareholders of record at the close of business on February 2, 2004. The stock dividend was distributed on outstanding shares and not on shares held in the treasury. All share and per share information in this report, except for treasury shares, has been restated to reflect the 50% stock dividend.

On January 22, 2004, shareholders approved amendments to the company’s certificate of incorporation that eliminated Class A common stock from the authorized capital of the company and redesignated the Class B common stock as Common Stock. As a result of these amendments, the company has 300,000,000 shares of authorized Common Stock. The newly designated Common Stock continues to trade on the New York Stock Exchange under the symbol ACV.

During the nine months ended June 30, 2004 and 2003, the company acquired $40.1 million and $2.9 million, respectively, of common stock surrendered by employees in connection with the exercise 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.

(5) 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
	2004	2003	2004	2003
Basic weighted average shares outstanding	90,218	87,561	89,770	87,314
Effect of dilutive securities:
Assumed exercise of stock options	1,703	2,027	1,501	2,025
Assumed vesting of restricted stock	391	522	391	522

Diluted weighted average shares outstanding	92,312	90,110	91,662	89,861

No stock options were anti-dilutive for the three months or nine months ended June 30, 2004 or 2003.