-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ha9gm8Hgxnd2ZMd6h3Ypjtw+YLQDTAVRnrvLddEH/PUWBNzMc5+ua5cJR24T2out yRtqMp4BbojqwIyS8zmE0g== 0000889812-98-001930.txt : 19980813 0000889812-98-001930.hdr.sgml : 19980813 ACCESSION NUMBER: 0000889812-98-001930 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JEAN PHILIPPE FRAGRANCES INC CENTRAL INDEX KEY: 0000822663 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 133275609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16469 FILM NUMBER: 98683296 BUSINESS ADDRESS: STREET 1: 551 FIFTH AVE STE 1500 CITY: NEW YORK STATE: NY ZIP: 10176 BUSINESS PHONE: 2129832640 MAIL ADDRESS: STREET 1: 551 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10176 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) /X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1998. OR / / Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from___________to ________. Commission File No. 0-16469 ------- JEAN PHILIPPE FRAGRANCES, INC. (Exact name of registrant as specified in its charter) Delaware 13-3275609 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 551 Fifth Avenue, New York, New York 10176 ------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrants telephone number, including area code: (212) 983-2640. 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 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 the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. At August 10, 1998 there were 8,765,081 shares of common stock, par value $.001 per share, outstanding. JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES INDEX Page Number Part I. Financial Information Item I. Financial Statements 1 Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997 (audited) 2 Consolidated Statements of Income for the Three Month and Six Month Periods Ended June 30, 1998 (unaudited) and June 30, 1997 (unaudited) 3 Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 1998 (unaudited) and June 30, 1997 (unaudited) 4 Notes to Unaudited Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Part II. Other Information 11 Signatures 11 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Part I. Financial Information Item I. Financial Statements In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented. Such financial statements have been condensed in accordance with the rules and regulations of the Securities and Exchange Commission and therefore, do not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 1997 included in the Company's annual report filed on Form 10-K. The results of operations for the six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the entire fiscal year. Page 1 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1998 1997 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 19,205,301 $ 18,721,525 Accounts receivable, net 29,371,358 26,255,311 Inventories 24,436,358 21,707,497 Receivables, other 578,329 622,416 Other 702,782 469,982 Deferred tax benefit 1,287,164 1,114,508 ------------ ------------ Total current assets 75,581,292 68,891,239 Equipment and leasehold improvements, net 2,538,201 2,122,465 Other assets 1,026,565 1,274,721 Intangible assets, net 7,576,927 7,993,992 ------------ ------------ $ 86,722,985 $ 80,282,417 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans payable, banks $ 6,822,551 $ 3,063,393 Accounts payable 18,359,534 17,573,570 Income taxes payable 3,373,026 3,411,629 ------------ ------------ Total current liabilities 28,555,111 24,048,592 ------------ ------------ Long-term debt, less current portion 283,423 424,349 ------------ ------------ Minority interests 6,260,107 5,615,564 ------------ ------------ Shareholders' equity: Common stock, $.001 par; authorized 30,000,000 shares; outstanding 8,765,081 and 8,862,781 shares at June 30, 1998 and December 31, 1997, respectively 8,765 8,863 Additional paid-in capital 20,729,692 20,685,873 Retained earnings 45,109,908 42,729,807 Foreign currency translation adjustment (2,574,674) (2,368,609) Treasury stock, at cost, 2,080,903 and 1,975,703 shares at June 30, 1998 and December 31, 1997, respectively (11,649,347) (10,862,022) ------------ ------------ 51,624,344 50,193,912 ------------ ------------ $ 86,722,985 $ 80,282,417 ============ ============
See notes to financial statements. Page 2 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Net sales $ 24,093,204 $ 21,847,174 $ 44,899,306 $ 42,816,263 Cost of sales 12,840,178 11,596,403 23,742,062 22,518,951 ------------ ------------ ------------ ------------ Gross margin 11,253,026 10,250,771 21,157,244 20,297,312 Selling, general and administrative 9,103,503 8,366,747 16,389,506 16,456,288 Loss on relinquishment of license 1,300,000 ------------ ------------ ------------ ------------ Income from operations 2,149,523 1,884,024 4,767,738 2,541,024 ------------ ------------ ------------ ------------ Other charges (income): Interest 115,890 152,027 237,256 334,088 Loss on foreign currency 53,248 27,599 96,927 61,423 Interest and dividend (income) (220,983) (138,082) (426,163) (346,534) (Gain) on sale of stock of subsidiary, net 18,274 35,838 ------------ ------------ ------------ ------------ (33,571) 41,544 (56,142) 48,977 ------------ ------------ ------------ ------------ Income before income taxes 2,183,094 1,842,480 4,823,880 2,492,047 Income taxes 785,191 561,613 1,975,406 725,235 ------------ ------------ ------------ ------------ Net income before minority interest 1,397,903 1,280,867 2,848,474 1,766,812 Minority interest in net income of consolidated subsidiary 239,877 175,262 468,373 320,423 ------------ ------------ ------------ ------------ Net income $ 1,158,026 $ 1,105,605 $ 2,380,101 $ 1,446,389 ============ ============ ============ ============ Net income per common share: Basic $ 0.13 $ 0.12 $ 0.27 $ 0.15 Diluted $ 0.13 $ 0.12 $ 0.26 $ 0.15 ============ ============ ============ ============ Number of common shares outstanding: Basic 8,799,927 9,525,386 8,815,204 9,563,934 Diluted 9,151,554 9,545,285 9,087,962 9,575,345 ============ ============ ============ ============
See notes to financial statements. Page 3 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1998 1997 ------------ ------------ Operating activities: Net income $ 2,380,101 $ 1,446,389 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 655,437 633,381 Loss on divestiture of license 1,200,731 Gain on sale of stock of subsidiary 35,838 Minority interest in net income 468,373 320,423 Increase (decrease) in cash from changes in: Accounts receivable (3,211,206) (2,235,228) Inventories (2,843,265) (3,046,892) Other assets 44,471 130,040 Deferred tax benefit (625,477) 145,707 Accounts payable 914,565 5,267,201 Income taxes payable 431,500 229,842 ------------ ------------ Net cash provided by (used in) operating activites (1,749,663) 4,091,594 ------------ ------------ Investing activities: Purchase of equipment and leasehold improvements (764,115) (487,001) Trademark and license acquisitions (18,020) (1,010,700) Proceeds from sale of equipment 50,000 ------------ ------------ Net cash (used in) investing activities (782,135) (1,447,701) ------------ ------------ Financing activities: Increase (decrease) in loan payable, bank 3,778,406 (639,789) Proceeds from sale of stock of subsidiary 58,134 Proceeds from exercise of options and warrants 43,827 Purchase of treasury stock (787,431) (641,491) ------------ ------------ Net cash provided by (used in) financing activities 3,092,936 (1,281,280) ------------ ------------ Effect of exchange rate changes on cash (77,362) (842,476) ------------ ------------ Increase in cash and cash equivalents 483,776 520,137 Cash and cash equivalents at beginning of period 18,721,525 20,205,391 ------------ ------------ Cash and cash equivalents at end of period $ 19,205,301 $ 20,725,528 ============ ============ Supplemental disclosure of cash flows information: Cash paid during the period for: Interest $ 853,192 $ 329,000 Income taxes 954,339 350,000
See notes to financial statements. Page 4 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Notes to Unaudited Financial Statements 1. Significant Accounting Policies: The accounting policies followed by the Company are set forth in the notes to the Company's financial statements included in its Form 10-K, which was filed with the Securities and Exchange Commission for the year ended December 31, 1997. 2. Earnings Per Share: The Company previously adopted SFAS No. 128 "Earnings Per Share" in the period ended December 31, 1997 and has retroactively applied the effects for all periods presented herein. Accordingly, the presentation of per share information includes calculations of basic and diluted income per share. The impact on the per share amounts previously reported was not significant. Basic earnings per share are computed using the weighted average number of shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of shares outstanding during each period, plus the incremental shares outstanding assuming the exercise of dilutive stock options. 3. Inventories: Inventories consist of the following: June 30, December 31, 1998 1997 ----------- ----------- Raw materials and component parts $10,286,465 $10,566,904 Finished goods 14,149,893 11,140,593 ----------- ----------- $24,436,358 $21,707,497 =========== =========== Page 5 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Jean Philippe Fragrances is a leading manufacturer and distributor of fragrances, cosmetics and personal care products, where innovation, diversity and commitment to creating quality products for sale at intelligent prices are achieved. The Company, produces and distributes, world wide, a variety of fragrance, personal care and cosmetic products including: * Alternative Designer Fragrances and personal care products. * International moderately priced fragrances. * Brand name and licensed fragrances. * Mass market cosmetics. The Company's business strategy of building core volume and profitability, developing products in new categories, exploring strategic acquisition opportunities, and pursuing expansion in international markets remains as management's primary long-term focus. Jean Philippe is determined to remain a diversified fragrance and personal care products company. Growth opportunities exist in each of our product lines and management's goal is to develop them to achieve competitive superiority and, thereby maximize shareholder value. Three and Six Months Ended June 30, 1998 Compared to the Three and Six Months Ended June 30, 1997 Net sales for the three months ended June 30, 1998 increased 10% to $24.1 million, as compared to $21.8 million for the corresponding period of the prior year. Net sales for the six months ended June 30, 1998 increased 5% to $44.9 million, as compared to $42.8 million for the corresponding period of the prior year. On April 30, 1997, the Company divested its Cutex nail and lip products license and net sales for the three and six month periods ended June 30, 1997 include $0.3 and $3.3 million, respectively, of Cutex product sales. Excluding such sales, net sales for the three and six months ended June 30, 1998 increased 12% and 13%, respectively. Page 6 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Excluding the effect of Cutex product sales, net sales generated by the Company's domestic operations decreased 4% for the three months ended June 30, 1998 and were unchanged for the six months ended June 30, 1998, as compared to the corresponding periods of the prior year. The overall market for alternative designer fragrances has become extremely competitive and very price sensitive. Although no further selling price reductions are anticipated, customers are reducing their overall inventory levels. This trend is expected to continue into the third quarter of 1998 and is affecting the entire industry. To combat the negative impact of this industry trend, the Company is in the process of developing a line of moderately priced fragrances which are not Alternative Designer Fragrances. Utilizing prestige and upscale concepts in bottle design and packaging, the Company is creating a line of unique and high quality fragrances to be sold domestically and internationally in existing and new distribution channels at mass market prices. The Company believes that this new concept of moderately priced fragrances will not affect its other core fragrance businesses. The expected launch date is set for the fourth quarter of 1998. Sales generated by the Company's French subsidiaries increased 22% for the three months ended June 30, 1998 and 23% for the six months ended June 30, 1998, as compared to the corresponding periods of the prior year. At comparable foreign currency exchange rates, sales by the Company's French subsidiaries increased 27% and 31% for the three and six month periods ended June 30, 1998, respectively. The increase in sales is primarily the result of expanded distribution of the Company's Burberrys fragrance line as well as the introduction of "I Love You" by Molyneux. The Company achieved a 47% gross profit margin in both the three and six month periods ended June 30, 1998 as compared to a consistent 47% margin for the corresponding periods of the prior year. This gross profit margin was sustained despite the fact that the 1998 periods did not include any sales of higher margin Cutex products. The Company's program of "Product Value Analysis" has more than achieved its original cost reduction goals. Selling, general and administrative expenses increased to $9.1 million for the three months ended June 30, 1998, as compared to $8.4 million for the corresponding period of the prior year and aggregated 38% of sales for both periods. Selling, general and administrative expenses decreased to $16.4 million or 36% of sales for the six months ended June 30, 1998, as compared to $16.5 million or 38% of sales for the corresponding period of the prior year. In support of the tremendous success of the Burberrys fragrance line, Inter Parfums has significantly increased its spending on advertising and media. For the three and six month periods ended June 30, 1998, such expenditures aggregated $1.3 million and $1.9 million, respectively. Page 7 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES In connection with the April 30, 1997 restructuring of the Company's domestic operations, which coincided with the divestiture of the Company's Cutex license, the Company reduced its domestic work force by approximately 20%. As a result of both the work force reduction and the divestiture of the Cutex license, domestic selling, general and administrative expenses declined to $5.8 million or 36% of sales in for the six months ended June 30, 1998 as compared to $7.2 million or 37% of sales for the corresponding period of the prior year. In the first quarter of 1997, the Company took a pre-tax charge against earnings of $1.3 million to write-off intangible assets and other expenses relating to the divestiture of the Cutex license. Management is confident that such charge is sufficient to cover all potential obligations relating to the Cutex business. Interest expense declined to $0.1 million and $0.2 million for the three and six month periods ended June 30, 1998, respectively, as compared to $0.2 million and $0.3 million for the three and six month periods ended June 30, 1997. The Company uses its available credit lines, as needed, to finance its working capital needs. Despite increased advertising and media expenditures with respect to our Burberrys fragrance line, income before income taxes and minority interest increased to 9.0% and 10.7% of net sales for the three and six month periods ended June 30, 1998, respectively, as compared to 8.4% and 8.9% of net sales for the corresponding periods of the prior year (adjusted to eliminate the effect of the 1997 $1.3 million nonrecurring charge referred to above.) The Company's effective income tax rate was 36% and 41% for the three and six month periods ended June 30, 1998, respectively, as compared to 30% and 29% for the corresponding periods of the prior year. The 1997 periods benefitted from reductions of valuation reserves on deferred tax assets relating to the utilization of net operating loss carry forwards. No such benefit was available for the 1998 periods. In addition, corporate income tax rates in France have increased from 36% to approximately 43% over the last two years. Net income increased to $1.2 million or $0.13 per diluted share for the three months ended June 30, 1998, as compared to $1.1 million or $0.12 per diluted share for the corresponding period of the prior year. Net income increased to $2.4 million or $0.26 per diluted share for the six months ended June 30, 1998, as compared to $1.4 million or $0.15 per diluted share for the corresponding period of the prior year. Results for the six months ended June 30, 1997 include a nonrecurring charge of $800,000, on an after tax basis, relating to the divestiture of the Cutex license. Excluding the nonrecurring charge, net income was $2.2 million or $0.23 per diluted share for the six months ended June 30, 1997. Page 8 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES The weighted average shares outstanding were 8.8 million for both the three and six month periods ended June 30, 1998, as compared to 9.5 million and 9.6 million for the three and six month periods ended June 30, 1997, respectively. On a diluted basis, average shares outstanding were 9.2 million and 9.1 million for the three and six month periods ended June 30, 1998, respectively, as compared to 9.5 million and 9.6 million for the corresponding periods of the prior year. Such decline is the result of the Company's ongoing stock buyback program. Liquidity and Capital Resources The Company's financial position remains very strong. At June 30, 1998, working capital aggregated $47 million and the Company had cash and cash equivalents on hand of $19 million. The Company's net book value was $5.89 per share as of June 30, 1998. The 1995 initial public offering in France of approximately 21% of the common stock of the Company's subsidiary, Inter Parfums, has proven to be extremely successful. In addition to the strength such stock sale provided to the financial position of Inter Parfums, the proceeds of the offering have enabled Inter Parfums to control its growth and invest for the future without incurring any significant increase in debt. Long-term debt of Inter Parfums stood at $0.3 million as of June 30, 1998. As a result of the successful operating results of Inter Parfums and the significant increase in its stock price, in January 1998, the Company exercised its rights to convert the remaining portion of its convertible debt, approximately $4.4 million, into 318,326 additional shares of Inter Parfums bringing the total shares outstanding to 2,209,000. The conversion price was approximately $14 per share while Inter Parfums stock is presently trading at approximately $36 per share. The effect of this conversion increases the Company's ownership percentage from 76.4% to 79.3%. During the six month period ended June 30, 1998, the Company continued repurchasing its common stock pursuant to an authorized repurchase plan aggregating 2 million shares. As of June 30, 1998, 1,592,705 shares of common stock have been purchased at an average price per share of $7.30. Page 9 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES The Company's short-term financing requirements are expected to be met by available cash at June 30, 1998, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 1998 are a $12.0 million unsecured revolving line of credit provided by a domestic commercial bank and $12.0 million in credit lines provided by a consortium of international financial institutions. A buildup of inventory, in preparation of the third quarter selling season, along with an increase in accounts receivable required a use of cash from operating activities for the six months ended June 30, 1998. Management of the Company believes that funds generated from operations, supplemented by its available credit facilities, will provide it with sufficient resources to meet all present and reasonably foreseeable future operating needs. The Company has substantially completed all projects to address "Year 2000" compliance with respect to its internal information systems. As such, management believes that "Year 2000" transition will not have a material adverse effect on future results. Inflation rates in the U.S. and foreign countries in which the Company operates have not had a significant impact on operating results for the six months ended June 30, 1998. Page 10 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Part II. Other Information Items 1, 2, 3, 4, 5 and 6 are omitted as they are either not applicable or have been included in Part I. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 11th day of August 1998. JEAN PHILIPPE FRAGRANCES, INC. By: /s/ Russell Greenberg -------------------------------- Russell Greenberg, Executive Vice President and Chief Financial Officer Page 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 6-MOS DEC-31-1998 JUN-30-1998 19,205,301 0 29,371,358 0 24,436,358 75,581,292 0 0 86,722,985 28,555,111 0 0 0 9,089,110 42,535,234 86,722,985 44,899,306 44,899,306 23,742,062 40,131,568 0 (56,142) 237,256 4,823,880 1,975,406 2,848,474 0 468,373 0 2,380,101 0.27 0.26
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