<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 June 30, 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 August 12, 1997 there were 9,184,781 shares of common stock, par value $.001
per share, outstanding.
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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, 1997 (unaudited)
and December 31, 1996 (audited) 2
Consolidated Statements of
Income for the Three Month and
Six Month Periods Ended
June 30, 1997 (unaudited) and
June 30, 1996 (unaudited) 3
Consolidated Statements of
Cash Flows for the Six
Month Periods Ended
June 30, 1997 (unaudited) and
June 30, 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 9
Signatures 9
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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 six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the entire fiscal year.
Page 1
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JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1997 1996
------------ ------------
Current assets:
Cash and cash equivalents $ 20,725,527 $ 20,205,393
Accounts receivable, net 25,425,420 25,136,555
Inventories 24,930,963 23,327,815
Receivables, other 948,708 1,124,160
Other 1,052,862 1,057,092
Deferred tax benefit 1,651,361 1,875,218
------------ ------------
Total current assets 74,734,841 72,726,233
Equipment and leasehold improvements, net 1,786,413 1,734,554
Other assets 1,586,720 1,859,837
Intangible assets, net 8,421,686 9,264,585
------------ ------------
$ 86,529,660 $ 85,585,209
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable, banks $ 7,984,746 $ 9,467,954
Accounts payable 19,007,660 14,740,145
Due to broker 1,984,000
Income taxes payable 2,041,428 1,950,619
------------ ------------
Total current liabilities 31,017,834 26,158,718
------------ ------------
Long-term debt, less current portion 432,143 484,924
------------ ------------
Minority interests 5,278,571 5,575,954
------------ ------------
Shareholders' equity:
Common stock, $.001 par; authorized 30,000,000
shares; outstanding 9,184,781 and 9,602,481
shares at June 30, 1997 and December 31,
1996, respectively 9,185 9,602
Additional paid-in capital 20,685,873 20,685,873
Retained earnings 39,669,568 38,223,179
Foreign currency translation adjustment (1,995,368) 390,032
Treasury stock, at cost, 1,653,703 and
1,236,003 shares at June 30, 1997 and
December 31, 1996, respectively (8,568,146) (5,943,073)
------------ ------------
49,801,112 53,365,613
------------ ------------
$ 86,529,660 $ 85,585,209
============ ============
See notes to financial statements.
Page 2
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JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $21,847,174 $22,582,754 $42,816,263 $45,885,030
Cost of sales 11,596,403 12,588,684 22,518,951 24,798,367
----------- ----------- ----------- -----------
Gross margin 10,250,771 9,994,070 20,297,312 21,086,663
Selling, general and administrative 8,366,747 8,039,478 16,456,288 15,911,499
Loss on relinquishment of license 1,300,000
----------- ----------- ----------- -----------
Income from operations 1,884,024 1,954,592 2,541,024 5,175,164
----------- ----------- ----------- -----------
Other charges (income):
Interest 152,027 197,519 334,088 407,826
Loss on foreign currency 27,599 125,895 61,423 146,138
Interest and dividend (income) (138,082) (122,190) (346,534) (263,302)
(Gain) on sale of stock of
subsidiary, net (13,752) (13,752)
----------- ----------- ----------- -----------
41,544 187,472 48,977 276,910
----------- ----------- ----------- -----------
Income before income taxes 1,842,480 1,767,120 2,492,047 4,898,254
Income taxes 561,613 374,314 725,235 1,429,434
----------- ----------- ----------- -----------
Net income before minority interest 1,280,867 1,392,806 1,766,812 3,468,820
Minority interest in net income
of consolidated subsidiary 175,262 115,185 320,423 418,376
----------- ----------- ----------- -----------
Net income $ 1,105,605 $ 1,277,621 $ 1,446,389 $ 3,050,444
=========== =========== =========== ===========
Net income per common and
common equivalent share $0.12 $0.13 $0.15 $0.30
=========== =========== =========== ===========
Number of common and common
equivalent shares outstanding 9,545,285 10,148,168 9,575,345 10,115,963
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
Page 3
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JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
1997 1996
----------- -----------
Operating activities:
Net income $ 1,446,389 $ 3,050,444
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 633,381 709,055
Noncash portion of loss on relinquishment
of license 1,200,731
Gain on sale of stock of subsidiary (13,672)
Minority interest in net income 320,423 416,045
Increase (decrease) in cash from changes in:
Accounts receivable (2,235,228) (4,036,793)
Inventories (3,046,892) (1,902,104)
Other assets 130,040 (1,839,341)
Deferred tax benefit 145,707 1,510,016
Accounts payable 5,267,201 4,101,180
Income taxes payable 229,842 (758,917)
----------- -----------
Net cash provided by operating activities 4,091,594 1,235,913
----------- -----------
Investing activities:
Purchase of equipment and leasehold improvements (487,001) (291,132)
Trademark and license acquisitions (1,010,700) (10,825)
Proceeds from sale of equipment 50,000
Proceeds from sale of trademark 1,575,000
----------- -----------
Net cash provided by (used in) investing
activities (1,447,701) 1,273,043
----------- -----------
Financing activities:
(Decrease) in loan payable, bank (639,789) (645,594)
Purchase of treasury stock (641,491) (1,083,363)
----------- -----------
Net cash (used in) financing activities (1,281,280) (1,728,957)
----------- -----------
Effect of exchange rate changes on cash (842,476) (220,900)
----------- -----------
Increase in cash and cash equivalents 520,137 559,099
Cash and cash equivalents at beginning of period 20,205,391 14,203,713
----------- -----------
Cash and cash equivalents at end of period $20,725,528 $14,762,812
=========== ===========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $329,000 $405,000
Income taxes 350,000 883,000
See notes to financial statements.
Page 4
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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 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, are included in the computation when the results are dilutive.
3. Inventories:
Inventories consist of the following:
June 30, December 31,
1997 1997
----------- -----------
Raw materials and component parts $10,756,475 $10,738,100
Finished goods 14,174,488 12,589,715
----------- -----------
$24,930,963 $23,327,815
=========== ===========
Page 5
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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 decision to relinquish its
Cutex(R) license was an integral part of a planned restructuring of the
Company's domestic operations. As a result, the Company has now more efficiently
focused its resources on its profitable core fragrance business in the United
States and around the world.
Three and Six Months Ended June 30, 1997
Compared to the June 30, 1996 Periods
Net sales for the three months ended June 30, 1997 aggregated $21.8 million, as
compared to $22.6 million for the corresponding quarter of the prior year. Net
sales for the six months ended June 30, 1997 aggregated $42.8 million, as
compared to $45.9 million for the corresponding period of the prior year. On
April 30, 1997, the Company closed on its agreement with Carson, Inc., whereby
the Company relinquished its Cutex nail and lip products license. As such, the
1997 periods only include sales of Cutex products through April 30, 1997.
The Company's Alternative Designer Fragrance lines continued to be affected in
1997 by heavy discounting by certain competitors, which commenced in the fourth
quarter of 1996. 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 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 is expected to be realized in the
second half of 1997.
Sales generated by the Company's French subsidiaries increased 50% for the three
months ended June 30, 1997 and 21% for the six months ended June 30, 1997, as
compared to the corresponding periods of the prior year. At comparable foreign
currency exchange rates, sales by the Company's French subsidiaries increased
67% and 35% for the three and six month periods ended June 30, 1997,
respectively, as compared to the corresponding periods of the prior year. 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.
Page 6
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JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Gross profit margins were 47% of sales for both the three and six month periods
ended June 30, 1997, as compared to 44% and 46% for the three and six month
periods ended June 30, 1996, respectively. As previously mentioned, in response
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 and second
quarters 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
realized in the second half of 1997. However, the effect of the aforementioned
lower selling prices was offset during the six months ended June 30, 1997 by
increased margins from the Company's French subsidiaries. Such increased margins
resulted from the sale of products to customers outside of France in US dollars,
thereby benefitting from the substantial rise of the US dollar relative to the
French franc.
Selling, general and administrative expenses aggregated $8.4 million and $16.5
million for the three and six month periods ended June 30, 1997, respectively,
as compared to $8.0 million and $15.9 million for the three and six month
periods ended June 30, 1996, respectively. Such increases resulted from selling
expenses incurred by the Company's French subsidiaries to support new product
line introductions and build specific brand awareness. Such promotional activity
has enabled the Company's French subsidiaries to achieve excellent revenue
growth and should provide support for future revenue growth.
As a result of the April 30, 1997 relinquishment of the Cutex 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
license. Domestically, selling general and administrative expenses declined,
both in the aggregate and as a percentage of sales, during the three and six
month periods ending June 30, 1997, as compared to the corresponding periods of
the prior year.
Interest expense aggregated $152,000 and $334,000 for the three and six month
periods ended June 30, 1997, respectively, as compared to $198,000 and $408,000
for the corresponding periods of the prior year. The Company uses its available
credit lines, as needed, to finance its working capital needs.
The Company's effective income tax rate was 29% for both the six months ended
June 30, 1997 and 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
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JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Net income was $1.1 million or $0.12 per share for the three months ended June
30, 1997, as compared to $1.3 million or $0.13 per share for the three months
ended June 30, 1996. Net income was $1.4 million or $0.15 per share for the six
months ended June 30, 1997, as compared to $3.1 million or $0.30 per share for
the six months ended June 30, 1996. Results for the six months ended June 30,
1997 include a nonrecurring charge of $800,000, on an after tax basis, relating
to the relinquishment of the Cutex license. Excluding the nonrecurring charge,
net income was $2.2 million or $0.24 per share for the six months ended June 30,
1997.
The weighted average number of shares outstanding was 9.5 million and 9.6
million for the three and six months ended June 30, 1997, respectively, and 10.1
million for both corresponding periods of the prior year. Such decline is the
result of the Company's ongoing stock buy back program.
Liquidity and Capital Resources
The Company's financial position continues to show solid strength as a result of
profitable operating results. At June 30, 1997, working capital aggregated $43.7
million and the Company had cash and cash equivalents on hand aggregating $21.0
million. The Company's book value per share aggregated $5.42 per share as of
June 30, 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 June 30, 1997,
1,167,505 shares have been purchased at an average price per share of $7.34.
The Company's short-term financing requirements are expected to be met by
available cash at June 30, 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.
Operating activities provided $4.1 million of net cash from operations for the
six months ended June 30, 1997 as compared to $1.2 million for the six months
ended June 30, 1996. The nonrecurring charge of $1.3 million, taken in the first
quarter of 1997, is primarily a noncash charge relating to the write-off of
intangible assets associated with the relinquishment of the Company's Cutex
license. On April 30, 1997, such transaction closed and all current inventory
was purchased and certain liabilities were assumed by Carson Products Company.
Page 8
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JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
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.
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, 1997.
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 13th day of August 1997.
JEAN PHILIPPE FRAGRANCES, INC.
By: /s/ Russell Greenberg
Russell Greenberg,
Executive Vice President and
Chief Financial Officer
Page 9
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