ITEM 1. BUSINESS
BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION
Alberto-Culver Company and its consolidated subsidiaries (herein referred to collectively as the "company", unless indicated otherwise) have two principal business segments. One segment, "Consumer Products" principally includes developing, manufacturing, distributing and marketing branded consumer products worldwide and includes the company's Alberto-Culver USA and Alberto-Culver International business units. This segment also includes products intended for end use by institutions and industries and the manufacturing of custom label products for other companies. The second segment, "Specialty Distribution - -Sally", consists of Sally Beauty Company, a specialty distributor of professional beauty supplies with 1,656 stores as of September 30, 1996 in the United States, Puerto Rico, the United Kingdom, Japan and Germany.
In February 1996, the company acquired St. Ives Laboratories, Inc. (St. Ives) for approximately $110 million. St. Ives develops, manufactures and markets personal care products under its SWISS FORMULA brand and manufactures custom label products for sale by other companies.
Financial information about business segments and geographic area information is incorporated herein by reference to the Business Segments and Geographic Area Information note of "Notes to Consolidated Financial Statements" in the registrant's annual report to stockholders for the year ended September 30, 1996.
PRODUCTS
The classes of products in the "Consumer Products" business segment include health and beauty care products and food and household products. Health and beauty care products accounted for approximately 43%, 39% and 39% of the company's consolidated net sales for the years ended September 30, 1996, 1995 and 1994, respectively. Food and household products accounted for approximately 8%, 10% and 9% of the company's consolidated net sales for the years ended September 30, 1996, 1995 and 1994, respectively.
The company's major health and beauty care products in the United States include the ALBERTO VO5, TRESemme and CONSORT lines of hair care products, the St. Ives SWISS FORMULA line of hair and skin care products, FDS feminine deodorant sprays and the TCB line of hair care products for the ethnic market.
Food and household products sold in the United States include MRS. DASH salt-free seasonings, MOLLY McBUTTER dairy sprinkles, SUGARTWIN sugar substitute and STATIC GUARD anti-static spray. The company sold its Milani, Diafoods, Thick-It and Smithers institutional food lines in July, 1996.
The company's consumer products are sold in more than 100 countries. Through its Cederroth subsidiary, the company manufactures and markets health and beauty care products throughout Scandanavia and Europe. Major products include SALVEKVICK adhesive bandages, ALBERTO VO5 hair care products, SAMARIN antacids, SELTIN salt substitute, LACTACYD liquid soap, TOPZ cotton buds, BLIW liquid soaps, DATE anti-perspirants and cologne for women, FAMILY FRESH shampoo and shower products, SUKETTER artificial sweetener, HEMANENT home permanents, HTH and L300 skin care products and GRUMME TVATTSAPA detergents.
In the United Kingdom, the company markets, among other products, the ALBERTO VO5 line of hair care products, the St. Ives SWISS FORMULA line of hair and skin care products, ALBERTO BALSAM shampoo and conditioner and the TRESemme line of hair care products. INDOLA professional color bleaches, shampoos, conditioners and styling products are sold throughout Europe and other international markets. Other major international markets include Australia, Canada, China, Hong Kong, Italy, Mexico, New Zealand and Puerto Rico.
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The "Specialty Distribution - Sally" business segment represents the operations of Sally Beauty Company, Inc. which operates a network of cash-and-carry professional beauty supply stores and also sells professional beauty products to hairdressers, beauticians and cosmetologists through its own full-service distributors. Sally stores provide salon owners, hairdressers and consumers with an extensive selection of hair care and skin care products, cosmetics, styling appliances and other beauty items. Sales of the "Specialty Distribution - Sally" business segment accounted for approximately 49%, 51% and 52% of the company's consolidated net sales for the years ended September 30, 1996, 1995 and 1994, respectively.
Many of the company's consumer products are developed in the company's laboratories. New products introduced by the company are assigned product managers who guide the products from development to the consumer. The product managers are responsible for the overall marketing plans for the products and coordinate advertising, promotion and market research activities.
MARKETING
The company allocates a large portion of its revenues to advertising, promotion and market research. Net earnings for all periods are materially affected by advertising, promotion and market research expenditures. These expenditures are charged to income in the period in which they are incurred. Advertising, promotion and market research expenditures were $208.4 million in 1996, $188.0 million in 1995 and $178.5 million in 1994.
Advertising, promotion, and market research expenditures relating to a new product will ordinarily constitute a higher percentage of sales than in the case of a well-established product. There can be no assurance that such expenditures will result in consumer acceptance and profitability for a product.
The company regards television as the best medium for its advertising and uses it to conduct extensive network, spot and cable television advertising campaigns. The company also advertises through other media such as newspapers, magazines and radio as well as through Sally Beauty Company's direct mailings to professional customers.
Extensive advertising and promotion are required to build and protect a product's market position. The company believes there is significant consumer awareness of its major brands and that such awareness is an important factor in the company's operating results.
COMPETITION
The markets for the company's branded consumer products are highly competitive and sensitive to changes in consumer preferences and demands. The company's competitors range in size from large, highly diversified companies (some of which have substantially greater financial resources than the company) to small, specialized producers. The company competes on the basis of product quality and price and believes that brand loyalty and consumer acceptance are important factors. The company's markets are characterized by frequent introductions of competitive products and by the entry of other manufacturers as new competitors, both typically accompanied by extensive advertising and promotional campaigns. Such campaigns are often very costly and can significantly affect the sales and earnings of the company and its competitors.
Sally Beauty Company experiences competition from local and regional professional beauty supply stores, full-service dealers calling directly on salons and a wide range of retail outlets carrying a limited selection of professional beauty products.
DISTRIBUTION IN THE UNITED STATES
Retail health and beauty care products and food and household products are sold in the United States primarily through the company's sales force of approximately 68 employees and 122 food brokers calling upon wholesale drug establishments and retail outlets such as supermarkets, drug stores, mass merchandisers and variety stores.
Hair care products for the professional trade in the United States are sold by company sales representatives and brokers to beauty supply outlets and to beauty distributors who in turn sell to beauty salons, barber shops and beauty schools.
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Sally Beauty Company sells its professional beauty supplies through full-service distributors and its 1,656 stores located in 46 states, Puerto Rico, the United Kingdom, Japan and Germany. Sally's stores are self-service, cash-and-carry and are primarily located in shopping centers. Sally operates the world's largest chain of professional beauty supply stores and as such is a major customer of some of the company's competitors in the personal care products industry. Sally sells the company's professional hair care products, but these products represent only a small portion of Sally's selection of salon brands.
FOREIGN OPERATIONS
Products of the company are sold in more than 100 countries or geographic regions, primarily through direct sales by subsidiaries, independent distributors and licensees.
The company's foreign operations are subject to risks inherent in transactions involving foreign currencies and fluctuating exchange rates.
EMPLOYEES
In its domestic and foreign operations, the company had approximately 10,700 full-time equivalent employees as of September 30, 1996, consisting of 6,200 hourly personnel and 4,500 salaried employees. At September 30, 1995, the company had approximately 9,900 full-time equivalent employees. The increase in employees in fiscal year 1996 is principally due to the growth in the number of Sally Beauty Company stores and the acquisition of St. Ives Laboratories, Inc.
Certain subsidiaries of the company have union contracts covering production, warehouse, shipping and maintenance personnel. The company considers relations with its employees to be satisfactory.
REGULATION
The company is subject to the regulations of several federal and state agencies, including the Federal Food and Drug Administration and the Federal Trade Commission.
TRADEMARKS AND PATENTS
The company's trademarks, certain of which are material to its business, are registered or legally protected in the United States, Canada and other countries throughout the world in which products of the company are sold. Although the company owns patents and has other patent applications pending, its business is not materially dependent upon patents or patent protection.
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ITEM 2.
ITEM 2. PROPERTIES
The company's properties, plants and equipment are maintained in good condition and are suitable and adequate to support the business. The company's principal properties and their general characteristics are described in the following table
Business Location Type of Facility Segment
Company-Owned Properties:
Melrose Park, Illinois (2525 Armitage Avenue) Executive Offices, Manufacturing, Warehouse (1) (2150 N. 15th Avenue) Manufacturing, Warehouse (1) (2100 N. 15th Avenue) Warehouse (1) (1930 George Street) Office, Warehouse (1) Atlanta, Georgia Warehouse (1) Columbus, Ohio Warehouse (2) Denton, Texas Office, Warehouse (2) Falun, Sweden Office, Manufacturing, Warehouse (1) Jacksonville, Florida Warehouse (2) Madrid, Spain Office, Manufacturing, Warehouse (1) Naguabo, Puerto Rico Manufacturing, Warehouse (1) Naucalpan de Juarez, Mexico Office, Manufacturing, Warehouse (1) North Rocks, New South Wales, Australia Office, Manufacturing, Warehouse (1) Reno, Nevada Warehouse (2) Swansea, Wales, England Office, Manufacturing, Warehouse (1) Tilburg, Holland Office, Manufacturing, Warehouse (1) Toronto, Ontario, Canada Office, Manufacturing, Warehouse (1)
Leased Properties:
Albertslund, Denmark Office, Warehouse (1) Auckland, New Zealand Office (1) Basingstoke, Hampshire, England Office (1) Chatsworth, California Office, Manufacturing, Warehouse (1) Espoo, Finland Office, Warehouse (1) Macedonia, Ohio Warehouse (2) Morrow, Georgia Warehouse (2) Rakkestad, Norway Office, Warehouse (1) Sparks, Nevada Office, Warehouse (1) Stockholm, Sweden Office, Manufacturing, Warehouse (1) Various (1,656 locations in 46 states, Puerto Rico, the United Kingdom, Japan and Germany) Sally Beauty Company Stores (2)
(1) Consumer Products (2) Specialty Distribution - Sally
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ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended September 30, 1996.
EXECUTIVE OFFICERS
The following table sets forth the names and current positions of the registrant's executive officers, including their five-year business history and ages. Executive officers of the company and its subsidiaries are elected annually.
Name Current Position and Five-Year Business History Age
Leonard H. Lavin (1) October, 1994 - Chairman; previously Chairman and 77 Chief Executive Officer for more than five years
Howard B. Bernick (1) October, 1994 - President and Chief Executive Officer; 44 previously President and Chief Operating Officer for more than five years
Bernice E. Lavin (1) July, 1994 - Vice Chairman, Secretary and Treasurer; 71 previously Vice President, Secretary and Treasurer for more than five years
Carol L. Bernick (1) October, 1994 - Executive Vice President and Assistant 44 Secretary, Alberto-Culver Company and President, Alberto-Culver USA, Inc., a subsidiary of registrant; September, 1992 to October, 1994-Executive Vice President and Assistant Secretary; October, 1990 to September, 1992 - Executive Vice President, Worldwide Marketing and Assistant Secretary
John T. Boone June, 1994 - Group Vice President, Domestic Consumer 61 Products, Alberto-Culver USA, Inc., a subsidiary of registrant; August, 1993 to June, 1994 - Vice President, Operations, Modami Services, Inc.; August, 1991 to August, 1993 - President, JTB Management, Inc.
William J. Cernugel October, 1993 - Senior Vice President, Finance & 54 Controller; April, 1982 to October, 1993 -Vice President, Finance & Controller
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Name Current Position and Five-Year Business History Age
David D. DeTomaso October, 1993 - Senior Vice President, Professional 53 Domestic Division, Alberto-Culver USA, Inc., a subsidiary of registrant; May, 1983 to October, 1993 - Vice President, Professional Domestic Division
Raymond W. Gass Vice President and General Counsel 59
John G. Horsman, Jr. January, 1994 -President, Alberto-Culver International, 58 Inc., a subsidiary of registrant; January, 1992 to January, 1994 - Retired; 1978 to January, 1992 - Group Vice President, American Home Products Corporation
Thomas J. Pallone Vice President, Research and Development 51
Michael H. Renzulli President, Sally Beauty Company, Inc., a subsidiary of 56 registrant
(1) Leonard H. Lavin and Bernice E. Lavin are husband and wife. Carol L. Bernick is the wife of Howard B. Bernick and the daughter of Mr. and Mrs. Lavin.
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PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required for this Item is incorporated herein by reference to the section entitled "Market Price of Common Stock and Cash Dividends Per Share" and note 4 of "Notes to Consolidated Financial Statements" in the registrant's annual report to stockholders for the year ended September 30, 1996.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Information required for this Item is incorporated herein by reference to the section entitled "Selected Financial Data" in the registrant's annual report to stockholders for the year ended September 30, 1996.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information required for this Item is incorporated herein by reference to the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the registrant's annual report to stockholders for the year ended September 30, 1996.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required for this Item is incorporated herein by reference to the consolidated financial statements and notes and "Independent Auditors' Report" of KPMG Peat Marwick LLP in the registrant's annual report to stockholders for the year ended September 30, 1996.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required for this Item regarding the directors of the company and regarding delinquent filers pursuant to Item 405 of Regulation S-K is incorporated herein by reference to the sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance", respectively, in the registrant's proxy statement for its annual meeting of stockholders on January 23, 1997. Information concerning Executive Officers of the registrant is included in Part I of this report.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information required for this Item is incorporated herein by reference to the section entitled "Executive Compensation" in the registrant's proxy statement for its annual meeting of stockholders on January 23, 1997.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required for this Item is incorporated herein by reference to the sections entitled "Share Ownership of Directors and Executive Officers" and "Principal Stockholders" in the registrant's proxy statement for its annual meeting of stockholders on January 23, 1997.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial statements:
The consolidated financial statements and notes to be included in Part II, Item 8 are incorporated by reference to the registrant's annual report to stockholders for the year ended September 30, 1996, which is filed as an exhibit to this report.
2. Financial statement schedules:
Description Schedule
Valuation and Qualifying Accounts II
Schedules I, III, IV, and V are omitted as the information required by these schedules is not applicable.
3. Exhibits:
Exhibit Number Description
2 (a) Copy of Agreement and Plan of Merger, dated as of October 30, 1995, between Alberto- Culver Company, AC Acquiring Co., and St. Ives Laboratories, Inc. (filed as Exhibit 2 and incorporated herein by reference from the company's Schedule 13D filed on November 7, 1995).
2 (b) Copy of stockholders stock option agreement, dated as of october 30, 1995, among alberto-culver company, gary h. Worth, john r. Worth, the house of worth trust dated july 9, 1982 as amended, the worth family trust under an agreement dated november 24, 1990 and the worth family partnership, l.P. (Filed as exhibit 1 and incorporated herein by reference from the company's schedule 13d filed on november 7, 1995).
3(i)(a) Copy of Restated Certificate of Incorporation of Alberto-Culver Company (filed as Exhibit 3(a) and incorporated herein by reference from the company's Form 10-K Annual Report for the year ended September 30, 1988).
3(i)(b) Copy of the amendment to the Restated Certificate of Incorporation of Alberto-Culver Company (filed as Exhibit 3(a)(1) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended December 31, 1989).
3(ii) Copy of the By-Laws of Alberto-Culver Company, as amended and in effect as of January 17, 1990 (filed as Exhibit 3(b)(1) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended December 31, 1989).
3. Exhibits: (continued)
Exhibit Number Description
4 Certain instruments defining the rights of holders of long-term obligations of the
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registrant and certain of its subsidiaries (the total amount of securities authorized under each of which does not exceed ten percent of the registrant's consolidated assets) are omitted pursuant to part 4 (iii) (A) of Item 601 (b) of Regulation S-K. The registrant agrees to furnish copies of any such instruments to the Securities and Exchange Commission upon request.
4 (a) Copy of Note Agreement dated September 28, 1993 among Alberto-Culver Company and Institutional Investors (filed as Exhibit 4(f) and incorporated herein by reference from the company's Form 10-K Annual Report for the year ended September 30, 1993).
4 (b) Copy of Indenture dated June 30, 1995 by and between Alberto-Culver Company as Issuer and Bankers Trustee Company Limited as Trustee of 5-1/2% Convertible Subordinated Debentures due June 30, 2005 (filed as Exhibit 4(C)and incorporated herein by reference from the company's Form 10-K Annual Report for the year ended September 30, 1995).
10 (a) Copy of Alberto-Culver Company Management Incentive Plan dated October 27, 1994 *(filed as Exhibit 10(a) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended March 31, 1995).
10 (b) Copy of Alberto-Culver Company Employee Stock Option Plan of 1988, as amended. *(filed as Exhibit 10(b) and incorporated herein by reference from the company's Form 10-K Annual Report for the year ended September 30, 1995).
10 (c) Copy of Alberto-Culver Company 1994 Shareholder Value Incentive Plan * (filed as Exhibit 10(C)and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended March 31, 1995).
10 (d) Copy of Alberto-Culver Company 1994 Restricted Stock Plan *(filed as Exhibit 10(d) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended March 31, 1995.)
10 (e) Copy of Alberto-Culver Company 1994 Stock Option Plan for Non-Employee Directors *(filed as Exhibit 10(e) and incorporated herein by reference from the company's Form 10-Q Quarterly Report for the quarter ended March 31, 1995).
10 (f) Copy of Split Dollar Life Insurance Agreement dated September 30, 1993 between Alberto-Culver company and the trustee of the Lavin Survivorship Insurance Trust * (filed as Exhibit 10(e) and incorporated herein by reference from the company's Form 10-K Annual Report for the year ended September 30, 1993).
3. Exhibits: (continued)
Exhibit Number Description
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11 Computation of net earnings per share
13 Portions of annual report to stockholders for the year ended September 30, 1996 incorporated herein by reference.
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
* This exhibit is a management contract or compensatory plan or arrangement of the registrant.
(b) Reports on Form 8-K: None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 12th day of December, 1996. ALBERTO-CULVER COMPANY
By /s/ Howard B. Bernick Howard B. Bernick President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Independent Auditors' Report
The Board of Directors and Stockholders Alberto-Culver Company:
Under date of October 23, 1996, we reported on the consolidated balance sheets of Alberto-Culver Company and subsidiaries as of September 30, 1996 and 1995 and the related consolidated statements of earnings, retained earnings, and cash flows for each of the years in the three-year period ended September 30, 1996, as contained in the 1996 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in Item 14(a)2 of the annual report on Form 10-K. This financial statement schedule is the responsibility of the company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Chicago, Illinois October 23, 1996
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Schedule II
ALBERTO-CULVER COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts (Thousands)
Year Ended September 30,
1996 1995 1994 Allowance for doubtful accounts:
Balance at beginning of period $5,663 5,497 5,493
Additions (deductions):
Charged to costs and expenses 6,309 3,277 3,412
Uncollectible accounts written off, net of recoveries (4,326) (3,187) (3,588)
Allowance for doubtful accounts of acquired company 580 -- 83
Other (18) 76 97
Balance at end of period $8,208 5,663 5,497
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