<PAGE>
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 September 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)
Registrant's 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 issuer's classes of
common stock, as of the latest practicable date.
At November 12, 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 September 30, 1996 (unaudited)
and December 31, 1995 (audited) 2
Consolidated Statements of
Income for the Three Month and
Nine Month Periods Ended
September 30, 1996 (unaudited) and
September 30, 1995 (unaudited) 3
Consolidated Statements of
Cash Flows for the Nine
Month Periods Ended
September 30, 1996 (unaudited) and
September 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
Item 4. Submission of Matters to a Vote of
Security Holders 11
Signatures 12
<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 nine months ended September 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
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1996 1995
-------------------- --------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $17,907,329 $14,203,713
Accounts receivable, net 27,037,826 22,884,355
Inventories 25,388,306 26,093,106
Receivables, other 1,450,024 970,468
Other 1,323,151 987,017
Deferred tax benefit 1,181,030 2,400,935
-------------------- --------------------
Total current assets 74,287,666 67,539,594
Equipment and leasehold improvements, net 1,813,000 1,970,126
Other assets 1,727,986 1,313,694
Deferred tax benefit 581,507
Intangible assets, net 9,564,137 12,596,322
-------------------- --------------------
$87,392,789 $84,001,243
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable, banks $12,193,177 $9,921,881
Accounts payable 14,610,104 15,012,125
Income taxes payable 144,583 1,241,933
-------------------- --------------------
Total current liabilities 26,947,864 26,175,939
-------------------- --------------------
Long-term debt 491,870 596,092
-------------------- --------------------
Minority interests 5,517,241 5,252,979
-------------------- --------------------
Shareholders' equity:
Common stock, $.001 par; authorized
30,000,000 shares; outstanding 9,871,981 and
10,009,981 shares at September 30, 1996 and
December 31, 1995, respectively 9,872 10,010
Additional paid-in capital 20,609,985 20,609,985
Retained earnings 37,093,420 32,565,096
Foreign currency translation adjustment 695,925 1,681,305
Treasury stock, at cost, 948,503 and
810,503 shares at September 30, 1996 and
December 31, 1995, respectively (3,973,388) (2,890,163)
-------------------- --------------------
54,435,814 51,976,233
-------------------- --------------------
$87,392,789 $84,001,243
==================== ====================
</TABLE>
See notes to financial statements.
Page 2
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 22,578,172 $ 25,479,586 $ 68,463,202 $ 69,244,113
Cost of sales 12,640,763 13,514,405 37,439,130 35,361,205
------------ ------------ ------------ ------------
Gross margin 9,937,409 11,965,181 31,024,072 33,882,908
Selling, general and administrative 7,469,531 8,496,998 23,381,030 24,323,086
------------ ------------ ------------ ------------
Income from operations 2,467,878 3,468,183 7,643,042 9,559,822
------------ ------------ ------------ ------------
Other charges (income):
Interest 239,700 296,639 647,526 826,565
Loss (gain) on foreign currency 24,389 (87,506) 170,527 171,142
Interest and dividend (income) (142,237) (66,002) (405,539) (191,554)
(Gain) on sale of stock of subsidiary, net (12,183) (13,752) (32,064)
------------ ------------ ------------ ------------
121,852 130,948 398,762 774,089
------------ ------------ ------------ ------------
Income before income taxes 2,346,026 3,337,235 7,244,280 8,785,733
Income taxes 800,239 1,238,022 2,229,673 3,367,745
------------ ------------ ------------ ------------
Net income before minority interest 1,545,787 2,099,213 5,014,607 5,417,988
Minority interest in net income
of consolidated subsidiary 67,906 27,421 486,283 97,605
------------ ------------ ------------ ------------
Net income $ 1,477,881 $ 2,071,792 $ 4,528,324 $ 5,320,383
============ ============ ============ ============
Net income per common and
common equivalent share $ 0.15 $ 0.20 $ 0.45 $ 0.51
============ ============ ============ ============
Number of common and common
equivalent shares outstanding 9,911,691 10,561,214 10,047,872 10,482,994
============ ============ ============ ============
</TABLE>
See notes to financial statements.
Page 3
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30,
1996 1995
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Operating activities:
Net income $ 4,528,324 $ 5,320,383
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,075,646 1,022,884
Gain on sale of stock of subsidiary (13,672) (32,064)
Minority interest in net income 486,283 97,605
Increase (decrease) in cash from changes in:
Accounts receivable (4,882,471) (5,672,227)
Inventories 43,800 (4,512,189)
Other assets (1,337,982) 979,753
Deferred tax benefit 1,717,412 126,856
Accounts payable 48,979 963,339
Income taxes payable (1,052,350) (176,272)
------------ ------------
Net cash provided by (used in) operating activites 613,969 (1,881,932)
------------ ------------
Investing activities:
Purchase of equipment and leasehold improvements (351,984) (489,667)
Trademark and license acquisitions (14,176) (65,413)
Proceeds from sale of trademark 2,150,000
------------ ------------
Net cash provided by (used in) investing activities 1,783,840 (555,080)
------------ ------------
Financing activities:
Increase (decrease) in loan payable, bank 2,683,296 4,944,936
Repayment of long-term debt (189,200)
Proceeds from sale of stock of subsidiary 67,200
Proceeds from exercise of options and warrants 102,247
Purchase of treasury stock (1,083,363) (2,140,232)
------------ ------------
Net cash provided by financing activities 1,599,933 2,784,951
------------ ------------
Effect of exchange rate changes on cash (294,126) 6,878
------------ ------------
Increase in cash and cash equivalents 3,703,616 354,817
Cash and cash equivalents at beginning of period 14,203,713 5,275,142
------------ ------------
Cash and cash equivalents at end of period $ 17,907,329 $ 5,629,959
============ ============
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $ 633,000 $ 826,000
Income taxes 853,000 3,907,000
</TABLE>
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:
September 30, December 31,
1996 1995
----------- -----------
Raw materials and component parts $11,592,669 $10,981,751
Finished Goods 13,795,637 15,111,355
----------- -----------
$25,388,306 $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
remains as management's primary long-term focus. Current quarter sales and
earnings however, reflect the difficulties encountered in the current retail
environment and obstacles encountered in bringing the Company's newly acquired
lines to the profitability levels originally anticipated. Management has and
will continue to take the steps it deems necessary to resume sales growth at
improved profitability levels.
Three Months Ended September 30, 1996 Compared to
September 30, 1995
Net sales decreased 11% to $22.6 million, as compared to $25.5 million in 1995.
This decline is primarily the result of the Company's decision to curtail
certain promotional programs which did not contribute to the overall bottom
line. The Company's decision not to repeat its Romantic Illusions promotion of
1995 was the result of a poor sell through which resulted in a very high return
rate. Such returns negatively impacted net sales in the second and early part
of the third quarters of 1996. Certain Jordache lip and nail promotions, which
did not achieve the desired overall sell through, were either curtailed or
deleted. Excluding the effect of the 1995 Romantic Illusion promotion and the
related returns, sales of the Company's core Alternative Designer Fragrance
lines increased 17% for the three months ended September 30, 1996.
The Aziza hypo-allergenic eye cosmetic line, which made its debut in the latter
part of the first quarter of 1996, represented just over 2% of sales for the
three months ended September 30, 1996. Aziza continues to enjoy a very strong
sell through at the retail level. However, the sell in, to mass market
merchandisers and drug store chains, continues to be slow because competition
for retail space in the eye care category remains very intense. Sales in the
Cutex product categories were down approximately 9%, which is the result of
decreased promotional activity.
Page 6
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Sales generated by the Company's French subsidiaries decreased 15%; at
comparable foreign currency exchange rates, sales by the Company's French
subsidiaries decreased 12%. Although the Company's French operations continue
to endure a very competitive marketplace, new product introductions are
underway to help fuel future growth. The decline in sales of the French
operations was also affected by the sale of the Bal Versaille trademarks in
March of 1996.
Gross profit margin for 1996 was 44% of sales as compared to 47% in 1995. The
lower gross margin is the result of the decline in high margin Cutex sales
along with the decline in higher margin fragrance promotions. In addition, the
Company continues to convert discontinued and returned merchandise into cash,
via closeout sales, at prices below normal margins. The Company is in process
of clearing its inventory of returns which resulted from the discontinuance of
the Cutex Color Splash lip line.
Selling, general and administrative expenses declined $1.0 million to $7.5 in
1996 from $8.5 in 1995 and represented 33% of net sales in both 1996 and 1995.
Management has made it a top priority to control such expenditures and plans to
continue to take the actions it deems necessary to reduce its overall selling,
general and administrative expenses.
Interest expense decreased to $240,000 in 1996 from $297,000 in 1995. The
Company uses its available credit lines, as needed, to finance its working
capital needs.
In 1996, the Company incurred a loss on foreign currency of $24,000 as compared
to a gain of $88,000 in 1995. The Company on occasion enters into foreign
currency forward exchange contracts as a hedge for short-term intercompany
borrowings.
The Company's effective income tax rate decreased to 34% in 1996 from 37% 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 Versailles trademarks.
Net income was $1.5 million for the three months ended September 30, 1996 as
compared to $2.1 million for the corresponding quarter of the prior year.
Earnings per share was $0.15 per share as compared to $0.20 per share for the
corresponding quarter of the prior year.
The weighted average number of shares outstanding was 9,911,691 in 1996 and
10,561,214 in 1995; such decline is the result of the Company's ongoing stock
buyback program.
Page 7
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Nine Months Ended September 30, 1996 Compared to
September 30, 1995
Net sales decreased 1% to $68.5 million, as compared to $69.2 million in 1995.
This decline is primarily the result of the Company's third quarter decision to
curtail certain promotional programs which did not contribute to the overall
bottom line. The Company's decision not to repeat its Romantic Illusions
promotion of 1995 was the result of a poor sell through which resulted in a
very high return rate. Such returns negatively impacted net sales in the
second and early part of the third quarters of 1996. Certain Jordache lip and
nail promotions, which did not achieve the desired overall sell through, were
either curtailed or deleted. Excluding the effect of the 1995 Romantic
Illusion promotion and the related returns, sales of the Company's core
Alternative Designer Fragrance lines increased 14% for the nine months ended
September 30, 1996.
The Aziza hypo-allergenic eye cosmetic line, which made its debut in the latter
part of the first quarter of 1996, represented just over 3% of sales for the
nine months ended September 30, 1996. Aziza continues to enjoy a very strong
sell through at the retail level. However, the sell in, to mass market
merchandisers and drug store chains, continues to be slow because competition
for retail space in the eye care category remains very intense. Sales of the
Cutex product lines were down approximately 23%, which is the result of
decreased promotional activity and the discontinuance of the Cutex Color Splash
lip line.
Sales generated by the Company's French subsidiaries increased 3%; at
comparable foreign currency exchange rates, sales by the Company's French
subsidiaries increased 7%. Although the Company's French operations continue to
endure a very competitive marketplace, new product introductions are underway
to help fuel future growth. The sales growth of the French operations was
achieved despite the sale of the Bal Versaille trademarks in March of 1996.
Gross profit margin for 1996 was 45% of sales as compared to 49% in 1995. The
lower gross margin is the result of the decline in high margin Cutex sales
along with the decline in higher margin fragrance promotions. 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. In addition, the
Company continues to convert discontinued and returned merchandise into cash,
via closeout sales, at prices below normal margins. The Company is in process
of clearing its inventory of returns which resulted from the discontinuance of
the Cutex Color Splash lip line.
Page 8
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Selling, general and administrative expenses declined $0.9 million to $23.4 in
1996 from $24.3 in 1995 and represented 34% of net sales in 1996 as compared to
35% in 1995. Management has made it a top priority to control such expenditures
and plans to continue to take the actions it deems necessary to reduce its
overall selling, general and administrative expenses.
Interest expense decreased to $648,000 in 1996 from $827,000 in 1995. The
Company uses its available credit lines, as needed, to finance its working
capital needs.
The Company incurred a loss on foreign currency of $171,000 in both 1995 and
1996. The 1995 loss was the effect of the steep decline of the U.S. dollar
relative to the French franc and 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 31% in 1996 from 38% 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 Versailles trademarks.
Net income was $4.5 million for the nine months ended September 30, 1996 as
compared to $5.3 million for the corresponding period of the prior year.
Earnings per share was $0.45 per share compared to $0.50 per share for the
corresponding period of the prior year.
The weighted average number of shares outstanding was 10,047,872 in 1996 and
10,482,994 in 1995; such decline is the result of the Company's ongoing stock
buyback program.
Page 9
<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. At September 30, 1996, working capital
aggregated $47.3 million and the Company had cash and cash equivalents on hand
aggregating $17.9 million. The Company's working capital ratio has improved
from 2.58 : 1 as of December 31, 1995 to 2.76 : 1 as of September 30, 1996 and
the Company's book value per share aggregated $5.51 per share as of September
30, 1996. The Board of Directors has authorized the repurchase of up to
1,000,000 shares of the Company's common stock and as of September 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 September 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 $9.0 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 $0.6 million of net cash from operations for the
nine months ended September 30, 1996 as compared to a use of $1.9 million of
net cash for the nine months ended September 30, 1995. In prior years, the
gear up for Christmas promotional selling required a use of funds for operating
purposes. With current years reduced promotional activities and the ongoing
inventory reduction activities, through closeout sales, the Company has been
able to maintain a positive cash flow from operations.
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
September 30, 1996.
Page 10
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Part II. Other Information
Items 1,2,3,5 and 6 are omitted as they are either not
applicable or have been included in Part I.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders (the "Meeting") of Jean Philippe
Fragrances, Inc. (the "Corporation") was held on July 9, 1996 at 10:00 a.m.,
local time, at the offices of the Corporation, 551 Fifth Avenue, New York, New
York 10176.
(b) The following individuals were nominated for election as members of the
Board of Directors to hold office for a term of one (1) year until the next
annual meeting of stockholders and until their successors are elected and
qualify: Jean Madar, Philippe Benacin, Russell A. Greenberg, Francois
Heilbronn and Joseph A. Caccamo.
A vote was taken and the results thereof tabulated by the Inspector of
Election. The results were as follows: 9,223,122 votes for Jean Madar, 109,450
withheld; 9,223,122 votes for Philippe Benacin, 109,450 withheld; 9,223,122
votes for Russell Greenberg, 109,450 withheld; 9,223,222 votes for Francois
Heilbronn, 10,350 withheld; and 9,223,122 votes for Joseph A. Caccamo,
109,450 withheld. A plurality of the votes having been cast in favor of each of
the above-named Directors, they were duly elected to serve a one (1) year term.
(c) The final item of business was the proposal to ratify the appointment of
Richard A. Eisner & Company LLP, the independent certified public accountants
of the Corporation, for the current fiscal year. The results of the voting
were as follows:
9,336,361 votes for the resolution,
29,230 votes against and
17,250 votes abstained.
A majority of the votes cast at the meeting have voted for the resolution, and
the resolution was duly passed.
Page 11
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
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 November 1996.
JEAN PHILIPPE FRAGRANCES, INC.
By: /s/ Russell Greenberg,
-----------------------------
Russell Greenberg,
Executive Vice President and
Chief Financial Officer
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 SEP-30-1996
<CASH> 14,762,812 17,907,329
<SECURITIES> 0 0
<RECEIVABLES> 26,248,148 27,037,826
<ALLOWANCES> 0 0
<INVENTORY> 27,384,210 25,388,306
<CURRENT-ASSETS> 73,748,572 74,287,666
<PP&E> 1,926,852 1,813,000
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 87,047,668 87,392,789
<CURRENT-LIABILITIES> 28,032,608 26,947,864
<BONDS> 0 0
0 0
0 0
<COMMON> 16,646,469 16,646,469
<OTHER-SE> 36,402,135 37,789,345
<TOTAL-LIABILITY-AND-EQUITY> 87,047,668 87,392,789
<SALES> 45,885,030 68,463,202
<TOTAL-REVENUES> 45,885,030 68,463,202
<CGS> 24,798,367 37,439,130
<TOTAL-COSTS> 40,709,866 60,820,160
<OTHER-EXPENSES> 276,910 398,762
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 407,826 647,526
<INCOME-PRETAX> 4,898,254 7,244,280
<INCOME-TAX> 1,429,434 2,229,673
<INCOME-CONTINUING> 3,468,820 5,014,607
<DISCONTINUED> 0 0
<EXTRAORDINARY> 418,376 486,283
<CHANGES> 0 0
<NET-INCOME> 3,050,444 4,528,324
<EPS-PRIMARY> 0.30 0.45
<EPS-DILUTED> 0.30 0.45
</TABLE>
