<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 March 31, 1997.
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 May 9, 1997 there were 9,522,481 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 March 31, 1997 (unaudited)
and December 31, 1996 (audited) 2
Consolidated Statements of
Income for the Three Months Ended
March 31, 1997 (unaudited) and
March 31, 1996 (unaudited) 3
Consolidated Statements of
Cash Flows for the Three Months
Ended March 31, 1997 (unaudited) and
March 31, 1996 (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 5. Other Information 9
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,
1996 included in the Company's annual report filed on Form 10-K.
The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
--------- ------------
Current assets:
Cash and cash equivalents $21,010,009 $20,205,393
Accounts receivable, net 24,202,091 25,136,555
Inventories 24,704,820 23,327,815
Receivables, other 1,524,496 1,124,160
Other 1,333,253 1,057,092
Deferred tax benefit 1,842,475 1,875,218
----------- -----------
Total current assets 74,617,144 72,726,233
Equipment and leasehold improvements, net 2,018,001 1,734,554
Other assets 1,621,284 1,859,837
Intangible assets, net 7,852,006 9,264,585
----------- -----------
$86,108,435 $85,585,209
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable, banks $9,367,299 $9,467,954
Accounts payable 16,745,510 14,740,145
Income taxes payable 2,013,452 1,950,619
----------- -----------
Total current liabilities 28,126,261 26,158,718
Long-term debt, less current portion 451,172 484,924
----------- -----------
Minority interests 5,331,676 5,575,954
----------- -----------
Shareholders' equity:
Common stock, $.001 par; authorized
30,000,000 shares; outstanding 9,602,481
shares at March 31, 1997 and
December 31, 1996 9,602 9,602
Additional paid-in capital 20,685,873 20,685,873
Retained earnings 38,563,963 38,223,179
Foreign currency translation adjustment (1,117,039) 390,032
Treasury stock, at cost, 1,236,003
shares at March 31, 1997 and
December 31, 1996 (5,943,073) (5,943,073)
52,199,326 53,365,613
$86,108,435 $85,585,209
=========== ===========
See notes to financial statements.
Page 2
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
1997 1996
---- ----
Net sales $20,969,089 $23,302,276
Cost of sales 10,922,548 12,209,683
----------- -----------
Gross margin 10,046,541 11,092,593
Selling, general and administrative 8,089,541 7,872,021
Loss on relinquishment of license 1,300,000
----------- -----------
Income from operations 657,000 3,220,572
----------- -----------
Other charges (income):
Interest 182,061 210,307
Loss on foreign currency 33,824 20,243
Interest and dividend (income) (208,452) (141,112)
----------- -----------
7,433 89,438
----------- -----------
Income before income taxes 649,567 3,131,134
Income taxes 163,622 1,055,120
----------- -----------
Net income before minority interest 485,945 2,076,014
Minority interest in net income
of consolidated subsidiary 145,161 303,191
----------- -----------
Net income $340,784 $1,772,823
=========== ===========
Net income per common and
common equivalent share $0.04 $0.18
=========== ===========
Number of common and common
equivalent shares outstanding 9,605,404 10,083,757
=========== ===========
See notes to financial statements.
Page 3
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income $340,784 $1,772,823
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 353,329 450,024
Loss on relinquishment of license 1,300,000
Minority interest in net income 145,161 303,192
Increase (decrease) in cash from changes in:
Accounts receivable (179,546) (2,816,023)
Inventories (2,228,627) (1,168,231)
Other assets (603,744) (1,370,082)
Deferred tax benefit (17,025) 1,174,684
Accounts payable 2,170,592 3,294,984
Income taxes payable 141,962 (468,365)
----------- -----------
Net cash provided by operating activites 1,422,886 1,173,006
----------- -----------
Investing activities:
Purchase of equipment and leasehold improvements (482,755) (268,163)
Trademark and license acquisitions (6,733)
Proceeds from sale of trademark 1,575,000
----------- -----------
Net cash provided by (used in) investing activities (482,755) 1,300,104
----------- -----------
Financing activities:
Increase (decrease) in loan payable, bank 431,093 (1,138,887)
Purchase of treasury stock (1,083,363)
----------- -----------
Net cash provided by (used in) financing activities 431,093 (2,222,250)
----------- -----------
Effect of exchange rate changes on cash (566,606) (94,678)
----------- -----------
Increase in cash and cash equivalents 804,618 156,182
Cash and cash equivalents at beginning of period 20,205,391 14,203,713
----------- -----------
Cash and cash equivalents at end of period $21,010,009 $14,359,895
=========== ===========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $180,000 $210,000
Income taxes 85,000 883,000
</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, 1996.
2. Earnings Per Share:
Net income per 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:
March 31, December 31,
1997 1996
--------- ------------
Raw materials and component parts $10,825,477 $10,738,100
Finished goods 13,879,343 12,589,715
----------- -----------
$24,704,820 $23,327,815
=========== ===========
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 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. The Company's recent decision to
relinquish its Cutex(R) license is an integral part of a planned restructuring
of the Company's domestic operations. As a result, the Company can now more
efficiently focus its resources on its profitable core fragrance business in the
United States and around the world.
Three Months Ended March 31, 1997 Compared to March 31, 1996
Net sales aggregated $21.0 million in 1997, as compared to $23.3 million in
1996. Heavy discounting by certain competitors, which commenced in the fourth
quarter of 1996, continued to affect the Company's Alternative Designer
Fragrance lines in the first quarter of 1997. In January 1997, the Company
matched the competition's pricing structure and has regained much of the market
share initially lost as a result of such price competition. The Company only
lowered its selling prices after completion of its newly developed program of
product value analysis which assured the Company that gross margins would not be
affected in the long-term. The positive impact of the measures taken are
expected to be realized in the second half of 1997.
Sales generated by the Company's French subsidiaries declined 5% for the three
months ended March 31, 1997 as compared to the three months ended March 31, 1996
as a result of the substantial increase of the US dollar relative to the French
franc. At comparable foreign currency exchange rates, sales by the Company's
French subsidiaries increased 6%. Recent new product introductions and product
line enhancements with respect to the Company's Burberrys line have been very
successful and continue to achieve substantial growth.
Sales of Cutex(R) products increased $0.6 million for the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996. However,
such increase also required an increase in selling expenses and did not
contribute to the bottom line. On April 30, 1997, the Company closed on its
agreement with Carson, Inc. whereby the Company relinquished its Cutex(R) nail
and lip products license.
Page 6
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
The Company's Aziza(R) hypo-allergenic eye cosmetic line, which made its debut
in February 1996, represented approximately 3% of sales for the three months
ended March 31, 1997. Aziza(R) continues to enjoy a very strong sell through at
the retail level. Heavy competition for retail space in the eye-care category at
mass market merchandisers and drug store chains continues.
Gross profit margin was 48% of sales for both the 1997 and 1996 periods. As
previously mentioned, in reaction to heavy discounting by certain competitors in
the Alternative Designer Fragrance lines, the Company developed a program of
product value analysis which enabled the Company to match the competition's
pricing structure without affecting gross margin in the long-term. Gross margin
in the first quarter of 1997 has been affected by the lower selling prices put
into effect in January 1997. The positive impact of the measures taken is
expected to be seen in the second half of 1997. The effect of the aforementioned
was offset during the three months ended March 31, 1997 by increased, higher
margin, Cutex(R) sales and increased margins from the Company's French
subsidiaries, which sell products to certain customers, outside of France, in US
dollars.
Selling, general and administrative expenses increased to $8.1 million for the
three months ended March 31, 1997, as compared to $7.9 million for the three
months ended March 31, 1996 and represented 39% of sales for the 1997 period as
compared to 34% of sales for the 1996 period. Such increase is primarily
attributable to the increased sales of Cutex(R) products for the period as
compared to that of the prior year.
As a result of the April 30, 1997 relinquishment of the Cutex(R) license, the
Company has restructured its domestic operations and reduced its domestic work
force in excess of 20%. In addition, the Company has taken a pre-tax charge
against earnings of $1.3 million in the first quarter of 1997 to write-off
intangible assets and other expenses relating to the relinquishment of the
Cutex(R) license. The combination of the restructuring and the elimination of
selling, general and administrative expenses relating to the Cutex(R) operations
should enable the Company to significantly reduce its domestic selling, general
and administrative expenses, both in the aggregate and as a percentage of sales.
Interest expense decreased to $182,000 for the three months ended March 31,
1997, as compared to $210,000 for the three months ended March 31, 1996. The
Company uses its available credit lines, as needed, to finance its working
capital needs.
The Company's effective income tax rate was 25% for the three months ended March
31, 1997, as compared to 34% for the three months ended March 31, 1996. Both the
1997 and 1996 rates were favorably impacted by reductions of valuation reserves
on deferred tax assets, relating 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.
Page 7
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Net income was $341,000 or $0.04 per share for the three months ended March 31,
1997, as compared to $1,773,000 or $0.18 per share for the three months ended
March 31, 1996. Results for 1997 include a nonrecurring charge of $800,000, on
an after tax basis, relating to the relinquishment of the Cutex(R) license.
Excluding the nonrecurring charge, net income was $1,141,000 or $0.12 per share
for the three months ended March 31, 1997.
The weighted average number of shares outstanding was 9,605,404 for the 1997
period and 10,083,757 for the 1996 period. Such decline is the result of the
Company's ongoing stock buyback program.
Liquidity and Capital Resources
The Company's financial position continues to show solid strength as a result of
profitable operating results. At March 31, 1997, working capital aggregated
$46.5 million and the Company had cash and cash equivalents on hand aggregating
$21.0 million. The Company's book value per share aggregated $5.43 per share as
of March 31, 1997.
The Board of Directors of the Company has authorized the repurchase of up to
1,500,000 shares of the Company's common stock and as of March 31, 1997, 749,805
shares have been purchased at an average price per share of $7.93.
The Company's short-term financing requirements are expected to be met by
available cash at March 31, 1997, cash generated by operations and short-term
credit lines provided by domestic and foreign banks. The principal credit
facilities for 1997 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.
The non recurring charge of $1.3 million, taken in the first quarter ended March
31, 1997, is primarily a noncash charge relating to the write-off of intangible
assets associated with the relinquishment of the Company's Cutex(R) license. On
April 30, 1997, such transaction closed and all current inventory was purchased
and certain liabilities were assumed by Carson Products Company.
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.
Page 8
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Operating activities provided $1.4 million of net cash from operations for the
three months ended March 31, 1997 as compared to $1.2 million for the three
months ended March 31, 1996. Improved techniques in forecasting and materials
requisition planning continue to enable the Company to maximize cash flow.
Inventory levels reflect anticipated needs for the upcoming selling season and
new product introductions.
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
March 31, 1997.
Part II. Other Information
Items 1, 2, 3, 4, and 6 are omitted as they are either not applicable
or have been included in Part I.
Item 5. Other Information
On April 30, 1997, Jean Philippe Fragrances, Inc. (the "Company")
closed the transaction whereby it relinquished its Cutex nail and lip
products license. At the closing, all current inventory was purchased
and certain liabilities were assumed by Carson Products Company
("Buyer"), a wholly-owned subsidiary of Carson, Inc., a New York Stock
Exchange listed Company. The Company received approximately $3.3
million in return for the sale of current inventory, which is subject
to adjustment in accordance with the terms of the Asset Repurchase
Agreement dated March 27, 1997 between the Company and Carson, Inc.
Page 9
<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 15th day of May 1997.
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> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 21,010
<SECURITIES> 0
<RECEIVABLES> 24,202
<ALLOWANCES> 0
<INVENTORY> 24,704
<CURRENT-ASSETS> 74,617
<PP&E> 2,018
<DEPRECIATION> 0
<TOTAL-ASSETS> 86,108
<CURRENT-LIABILITIES> 28,126
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 20,685
<TOTAL-LIABILITY-AND-EQUITY> 86,108
<SALES> 20,969
<TOTAL-REVENUES> 20,969
<CGS> 10,922
<TOTAL-COSTS> 20,311
<OTHER-EXPENSES> 7
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182
<INCOME-PRETAX> 649
<INCOME-TAX> 163
<INCOME-CONTINUING> 340
<DISCONTINUED> 0
<EXTRAORDINARY> 145
<CHANGES> 0
<NET-INCOME> 340
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
