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, 1996.
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 13, 1996 there were 9,871,981 shares of common stock, par value $.001
per share, outstanding.
<PAGE>
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, 1996 (unaudited)
and December 31, 1995 (audited) 2
Consolidated Statements of
Income for the Three Month and
Six Month Periods Ended
June 30, 1996 (unaudited) and
June 30, 1995 (unaudited) 3
Consolidated Statements of
Cash Flows for the Six
Month Periods Ended
June 30, 1996 (unaudited) and
June 30, 1995 (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 10
Signatures 10
<PAGE>
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,
1995 included in the Company's annual report filed on Form 10-K.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the entire fiscal year.
Page 1
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December31,
1996 1995
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 14,762,812 $ 14,203,713
Accounts receivable, net 26,248,148 22,884,355
Inventories 27,384,210 26,093,106
Receivables, other 2,485,169 970,468
Other 1,465,807 987,017
Deferred tax benefit 1,402,426 2,400,935
------------ ------------
Total current assets 73,748,572 67,539,594
Equipment and leasehold improvements, net 1,926,852 1,970,126
Other assets 1,569,544 1,313,694
Deferred tax benefit 0 581,507
Intangible assets, net 9,802,700 12,596,322
------------ -------------
$ 87,047,668 $ 84,001,243
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable, banks $ 8,895,287 $ 9,921,881
Accounts payable 18,695,305 15,012,125
Income taxes payable 442,016 1,241,933
------------ ------------
Total current liabilities 28,032,608 26,175,939
------------ ------------
Long-term debt, less current portion 493,878 596,092
------------ ------------
Minority interests 5,472,578 5,252,979
------------ ------------
Shareholders' equity:
Common stock, $.001 par; authorized
30,000,000 shares; outstanding 9,871,981
and 10,009,981 shares at June 30, 1996 and
December 31, 1995, respectively 9,872 10,010
Additional paid-in capital 20,609,985 20,609,985
Retained earnings 35,615,540 32,565,096
Foreign currency translation adjustment 786,595 1,681,305
Treasury stock, at cost, 948,503 and
810,503 shares at June 30, 1996 and
December 31, 1995, respectively (3,973,388) (2,890,163)
------------ ------------
53,048,604 51,976,233
------------ ------------
$ 87,047,668 $ 84,001,243
============ ============
See notes to financial statements.
Page 2
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----------- ------------ ----------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 22,582,754 $ 22,152,130 $ 45,885,030 $ 43,764,527
Cost of sales 12,588,684 11,187,095 24,798,367 21,846,800
------------ ------------ ------------ ------------
Gross margin 9,994,070 10,965,035 21,086,663 21,917,727
Selling, general and
administrative 8,039,477 7,977,722 15,911,499 15,826,088
Income from operations 1,954,593 2,987,313 5,175,164 6,091,639
------------ ------------ ------------ ------------
Other charges (income):
Interest 197,519 287,463 407,826 529,926
Loss on foreign currency 125,895 19,932 146,138 258,648
Interest and dividend
(income) (122,190) (56,862) (263,302) (125,552)
(Gain) on sale of stock
of subsidiary, net (13,752) (19,881) (13,752) (19,881)
------------ ------------ ------------ ------------
187,472 230,652 276,910 643,141
------------ ------------ ------------ ------------
Income before income taxes 1,767,121 2,756,661 4,898,254 5,448,498
Income taxes 374,314 1,090,746 1,429,434 2,129,723
------------ ------------ ------------ ------------
Net income before
minority interest 1,392,807 1,665,915 3,468,820 3,318,775
Minority interest in net
income of consolidated
subsidiary 115,184 37,908 418,376 70,184
------------ ------------ ------------ ------------
Net income $ 1,277,623 $ 1,628,007 $ 3,050,444 $ 3,248,591
============ ============ ============ ============
Net income per common and
common equivalent share $ 0.13 $ 0.16 $ 0.30 $ 0.31
============ ============ ============ ============
Number of common and
common equivalent shares
outstanding 10,148,168 10,458,483 10,115,963 10,443,885
============ ============ ============ ============
</TABLE>
See notes to financial statements.
Page 3
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
June 30,
1996 1995
----------- ----------
(unaudited) (unaudited)
Operating activities:
Net income $ 3,050,444 $ 3,248,591
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 709,055 669,386
Gain on sale of stock of subsidiary (13,672) 19,881
Minority interest in net income 416,045 70,184
Increase (decrease) in cash from
changes in:
Accounts receivable (4,036,793) (1,531,570)
Inventories (1,902,104) (6,560,643)
Other assets (1,839,341) 874,320
Deferred tax benefit 1,510,016 292,422
Accounts payable 4,101,180 4,155,620
Income taxes payable (758,917) (958,442)
------------ -----------
Net cash provided by operating
activities 1,235,913 279,749
------------ -----------
Investing activities:
Purchase of equipment and leasehold
improvements (291,132) (339,279)
Trademark and license acquisitions (10,825) (96,099)
Proceeds from sale of trademark 1,575,000
------------ -----------
Net cash provided by (used in)
investing activities 1,273,043 (435,378)
------------ -----------
Financing activities:
Increase (decrease) in loan payable, bank (645,594) 3,026,676
Repayment of long-term debt (48,638)
Proceeds from sale of stock of subsidiary 0 40,454
Purchase of treasury stock (1,083,363) (2,031,612)
------------ -----------
Net cash provided by (used in)
financing activities (1,728,957) 986,880
------------ -----------
Effect of exchange rate changes on cash (220,900) 1,665
------------ -----------
Increase in cash and cash equivalents 559,099 832,916
Cash and cash equivalents at beginning of
period 14,203,713 5,275,142
------------ -----------
Cash and cash equivalents at end of period $ 14,762,812 $ 6,108,058
============ ===========
Supplemental disclosure of cash flows
information:
Cash paid during the period for:
Interest $ 210,000 $ 545,000
Income taxes 883,000 3,038,000
See notes to financial statements.
Page 4
<PAGE>
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, 1995.
2. Earnings Per Share:
Net income per common and common equivalent share is based on the weighted
average number of common and common equivalent shares outstanding during
each period. Common equivalent shares, which consist of unissued shares
under options and warrants, are included in the computation when the
results are dilutive.
3. Inventories:
Inventories consist of the following:
June 30, December 31,
1996 1995
----------- -------------
Raw materials and component parts $11,770,092 $10,981,751
Finished goods 15,614,118 15,111,355
----------- -----------
$27,384,210 $26,093,106
=========== ===========
Page 5
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company's long-term business strategy of building core volume and
profitability, developing products in new categories, exploring strategic
acquisition opportunities, and pursuing expansion in international markets, have
resulted in another quarter of continued growth in sales.
Three Months Ended June 30, 1996 Compared to June 30, 1995
Net sales increased 2% to $22.6 million, as compared to $22.2 million in 1995.
This increase is the result of continued growth of the Company's Alternative
Designer Fragrance lines and initial sales of the Company's recently introduced
line of Aziza eye cosmetics. Sales, generated by the company's core Alternative
Designer Fragrance lines, which increased 2%, were negatively impacted by
customer returns of the Company's Romantic Illusion line of Alternative Designer
Fragrances in excess of management's anticipation. The line was introduced on a
promotional basis to select retail customers and the ultimate sell through was
significantly below projections. Aziza, which made its debut in the latter part
of the first quarter of 1996, represented approximately 4% of sales for the
three months ended June 30, 1996. The Company's Cutex product line was down
approximately 10%, which is reflective of the 1995 discontinuance of the Cutex
Color Splash lip line.
Sales by the Company's foreign subsidiaries were flat in both translated US
dollars and at comparable foreign currency exchange rates. After a very strong
second quarter in 1995, where sales increased 33%, and an exceptional first
quarter in 1996, where sales increased 27%, our French subsidiaries have endured
a very competitive marketplace and are preparing new product introductions to
help fuel future growth. In addition, 1996 results include the effect of the
sale of the Bal a Versaille trademarks in March of 1996.
Gross margin for 1996 decreased to 44% of sales from 50% in 1995. The decline is
primarily the result of the absorption of returns of Romantic Illusion products
and the cost to refurbish such products for eventual resale. Such resale will
include sales to the Company's wholesale and international customer base where
the Company's return liability is minimal.
Selling, general and administrative expenses represented 36% of net sales in
both 1996 and 1995. Management has made it a top priority to control such
expenditures and such efforts have been successful. Such efforts have been
partially mitigated by a significant media advertising campaign which was
launched during the three months ended June 30, 1996, in support of the
introduction of the Company's Aziza eye cosmetic line.
Page 6
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Interest expense decreased to $198,000 in 1996 from $287,000 in 1995. The
Company's French subsidiaries used a portion of the proceeds of their November
1995 public offering to reduce short term borrowings. The Company continues to
use its available credit lines, as needed, to finance its working capital needs.
In 1996, the Company incurred a loss on foreign currency of $126,000 as compared
to a loss of $20,000 in 1995. The 1996 loss was the effect of currency rate
changes on a portion of intercompany borrowings, which were repaid by our French
subsidiaries, during the three month period ended June 30, 1996.
The Company's effective income tax rate decreased to 21% in 1996 from 40% in
1995. Such decline is due to the utilization of net operating loss carryforwards
made available to the Company's foreign subsidiaries as a result of the March
1996 sale of the Bal a Versailles trademarks.
Net income was $1.3 million for the three months ended June 30, 1996 as compared
to $1.6 million for the corresponding quarter of the prior year. Earnings per
share was $0.13 per share as compared to $0.16 per share for the corresponding
quarter of the prior year.
The weighted average number of shares outstanding was 10,148,168 in 1996 and
10,458,483 in 1995; such decline is the result of the Company's ongoing stock
buyback program.
Six Months Ended June 30, 1996 Compared to June 30, 1995
Net sales increased 5% to $45.9 million, as compared to $43.8 million in 1995.
This increase is the result of continued growth of the Company's Alternative
Designer Fragrance lines along with the continued success of new product
development by the Company's international operations. Sales generated by the
Company's core Alternative Designer Fragrance lines increased 9% and sales by
the Company's French subsidiaries increased 12%; at comparable foreign currency
exchange rates, sales by the Company's French subsidiaries increased 13%. The
overall sales increase was achieved despite a significant decline in net sales
of Cutex products caused, in part, by the 1995 discontinuance of the Cutex Color
Splash lip line.
Gross margin for 1996 decreased to 46% of sales from 50% in 1995. The decline in
Cutex sales for the six months ended June 30, 1996, as compared to the
corresponding period of the prior year, had a direct impact on gross margin as
Cutex sales provide the Company with a higher gross margin than the Company's
other product lines. The decline is also the result of the absorption of returns
of Romantic Illusion products and the cost to refurbish such products for
eventual resale. Such resale will include sales to the Company's wholesale and
international customer base where the Company's return liability is minimal.
Page 7
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Selling, general and administrative expenses decreased to 35% of net sales in
1996 as compared to 36% in 1995 reflecting our successful efforts in controlling
such expenditures. Such efforts have been partially mitigated by a significant
media advertising campaign which was launched during the three months ended June
30, 1996, in support of the introduction of the Company's Aziza eye cosmetic
line.
Interest expense decreased to $408,000 in 1996 from $530,000 in 1995. The
Company's French subsidiaries used a portion of the proceeds of their November
1995 public offering to reduce short term borrowings. The Company continues to
use its available credit lines, as needed, to finance its working capital needs.
In 1996, the Company incurred a loss on foreign currency of $146,000 as compared
to a loss of $259,000 in 1995. The 1995 loss was the effect of the steep decline
of the U.S. dollar relative to the French franc. The 1996 loss was the effect of
currency rate changes on a portion of intercompany borrowings, which were repaid
by our French subsidiaries.
The Company's effective income tax rate decreased to 29% in 1996 from 39% in
1995. Such decline is due to the utilization of net operating loss carryforwards
made available to the Company's foreign subsidiaries as a result of the March
1996 sale of the Bal a Versailles trademarks.
Net income was $3.1 million for the six months ended June 30, 1996 as compared
to $3.2 million for the corresponding period of the prior year. Earnings per
share was $0.30 per share compared to $0.31 per share for the corresponding
period of the prior year.
The weighted average number of shares outstanding was 10,115,963 in 1996 and
10,443,885 in 1995; such decline is the result of the Company's ongoing stock
buyback program.
Page 8
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
The Company's financial position continues to show solid strength as a result of
profitable operating results and positive operating cash flow. At June 30, 1996,
working capital aggregated $45.7 million and the Company had cash and cash
equivalents on hand of approximately $14.8 million. The Company's Board of
Directors has authorized the repurchase of up to 1,000,000 shares of the
Company's common stock and as of June 30, 1996, 462,305 shares had been
purchased at an average price per share of $8.60.
The Company's short-term financing requirements are expected to be met by
available cash at June 30, 1996, cash generated by operations and short-term
credit lines provided by domestic and foreign banks. The principal credit
facilities for 1996 are a $12.0 million unsecured revolving line of credit
provided by a domestic commercial bank and $6.0 million in credit lines provided
by a consortium of international financial institutions. Borrowings under the
domestic revolving line of credit are due on demand and bear interest at the
prime rate.
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.
Operating activities provided $1.2 million of net cash for the six months ended
June 30, 1996. The Company continues to closely monitor and improve its
procedures with respect to collection of outstanding receivables and inventory
levels reflect the increase necessary to support the upcoming selling season.
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 period ended June
30, 1996.
Page 9
<PAGE>
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 14th day of August 1996.
JEAN PHILIPPE FRAGRANCES, INC.
By: /s/ Russell Greenberg
------------------------------
Russell Greenberg,
Executive Vice President and
Chief Financial Officer
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 14,762,812
<SECURITIES> 0
<RECEIVABLES> 26,248,148
<ALLOWANCES> 0
<INVENTORY> 27,384,210
<CURRENT-ASSETS> 73,748,572
<PP&E> 1,926,852
<DEPRECIATION> 0
<TOTAL-ASSETS> 87,047,668
<CURRENT-LIABILITIES> 28,032,608
<BONDS> 0
0
0
<COMMON> 16,646,469
<OTHER-SE> 36,402,135
<TOTAL-LIABILITY-AND-EQUITY> 87,047,668
<SALES> 45,885,030
<TOTAL-REVENUES> 45,885,030
<CGS> 24,798,367
<TOTAL-COSTS> 40,709,866
<OTHER-EXPENSES> 276,910
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 407,826
<INCOME-PRETAX> 4,898,254
<INCOME-TAX> 1,429,434
<INCOME-CONTINUING> 3,468,820
<DISCONTINUED> 0
<EXTRAORDINARY> 418,376
<CHANGES> 0
<NET-INCOME> 3,050,444
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
