<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, 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 November 10, 1997 there were 8,938,781 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, 1997 (unaudited)
and December 31, 1996 (audited) 2
Consolidated Statements of
Income for the Three Month and
Nine Month Periods Ended
September 30, 1997 (unaudited) and
September 30, 1996 (unaudited) 3
Consolidated Statements of
Cash Flows for the Nine
Month Periods Ended
September 30, 1997 (unaudited) and
September 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
Item 4. Submission of Matters to a Vote of
Security Holders 10
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,
1996 included in the Company's annual report filed on Form 10-K.
The results of operations for the nine months ended September 30, 1997
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
September 30, December 31,
1997 1996
------------- -------------
Current assets:
Cash and cash equivalents $17,851,795 $20,205,391
Accounts receivable, net 29,223,895 25,136,557
Inventories 22,422,221 23,327,815
Receivables, other 1,726,795 1,124,160
Other 777,604 1,057,092
Deferred tax benefit 1,644,239 1,875,218
------------- -------------
Total current assets 73,646,549 72,726,233
Equipment and leasehold improvements, net 1,783,437 1,734,554
Other assets 1,434,107 1,859,837
Intangible assets, net 8,202,109 9,264,585
------------- -------------
$85,066,202 $85,585,209
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable, banks $10,297,469 $9,467,954
Accounts payable 16,210,733 14,740,145
Income taxes payable 3,045,479 1,950,619
------------- -------------
Total current liabilities 29,553,681 26,158,718
------------- -------------
Long-term debt, less current portion 427,418 484,924
------------- -------------
Minority interests 5,464,592 5,575,954
------------- -------------
Shareholders' equity:
Common stock, $.001 par; authorized
30,000,000 shares; outstanding
8,958,781 and 9,602,481 shares
at September 30, 1997 and
December 31, 1996, respectively 8,959 9,602
Additional paid-in capital 20,685,873 20,685,873
Retained earnings 41,304,453 38,223,179
Foreign currency translation
adjustment (2,212,024) 90,032
Treasury stock, at cost, 1,879,703
and 1,236,003 shares at
September 30, 1997 and
December 31, 1996, respectively (10,166,750) (5,943,073)
------------- -------------
49,620,511 53,365,613
------------- -------------
$85,066,202 85,585,209
============= =============
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,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $24,464,337 $22,578,172 $67,280,600 $68,463,202
Cost of sales 14,199,642 12,640,763 36,718,593 37,439,130
----------- ----------- ----------- -----------
Gross margin 10,264,695 9,937,409 30,562,007 31,024,072
Selling, general and administrative 7,012,297 7,469,531 23,468,585 23,381,030
Loss on divestiture of license 1,300,000
----------- ----------- ----------- -----------
Income from operations 3,252,398 2,467,878 5,793,422 7,643,042
Other charges (income):
Interest 190,608 239,700 524,696 647,526
Loss on foreign currency 252,232 24,389 313,655 170,527
Interest and dividend (income) (180,105) (142,237) (526,639) (405,539)
(Gain) on sale of stock of subsidiary, net (13,752)
----------- ----------- ----------- -----------
262,735 121,852 311,712 398,762
----------- ----------- ----------- -----------
Income before income taxes 2,989,663 2,346,026 5,481,710 7,244,280
Income taxes 1,112,551 800,239 1,837,786 2,229,673
----------- ----------- ----------- -----------
Net income before minority interest 1,877,112 1,545,787 3,643,924 5,014,607
Minority interest in net income
of consolidated subsidiary 242,228 67,907 562,651 486,283
----------- ----------- ----------- -----------
Net income $ 1,634,884 $ 1,477,880 $ 3,081,273 $ 4,528,324
=========== =========== =========== ===========
Net income per common and
common equivalent share $ 0.18 $ 0.15 $ 0.33 $ 0.45
=========== =========== =========== ===========
Number of common and common
equivalent shares outstanding 9,283,661 9,911,691 9,478,117 10,047,872
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
Page 3
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
September 30,
1997 1996
----------- ----------
Operating activities:
Net income $3,081,273 $4,528,324
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 923,709 1,075,646
Noncash portion of loss on divestiture of
license 854,728
Gain on sale of stock of subsidiary (13,672)
Minority interest in net income 562,651 486,283
Increase (decrease) in cash from changes in:
Accounts receivable (6,093,310) (4,882,471)
Inventories (578,320) 43,800
Other assets (181,689) (1,337,982)
Deferred tax benefit 146,081 1,717,412
Accounts payable 2,642,234 48,979
Income taxes payable 1,250,028 (1,052,350)
----------- -----------
Net cash provided by operating activites 2,607,385 613,969
----------- -----------
Investing activities:
Purchase of equipment and leasehold improvements (619,827) (351,984)
Trademark and license acquisitions (1,003,235) (14,176)
Proceeds from sale of equipment 50,000
Proceeds from sale of trademark 2,150,000
----------- -----------
Net cash provided by (used in) investing
activities (1,573,062) 1,783,840
----------- -----------
Financing activities:
Increase in loan payable, bank 1,774,573 2,683,296
Purchase of treasury stock (4,224,321) (1,083,363)
----------- -----------
Net cash provided by (used in) financing
activities (2,449,748) 1,599,933
----------- -----------
Effect of exchange rate changes on cash (938,171) (294,126)
----------- -----------
Increase (decrease) in cash and cash equivalents (2,353,596) 3,703,616
Cash and cash equivalents at beginning of period 20,205,391 14,203,713
----------- -----------
Cash and cash equivalents at end of period $17,851,795 $17,907,329
=========== ===========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $570,000 $633,000
Income taxes 563,000 853,000
=========== ===========
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, 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:
September 30, December 31,
1997 1996
------------- ------------
Raw materials and component parts $11,654,748 $10,738,100
Finished goods 10,767,473 12,589,715
----------- -----------
$22,422,221 $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 April 30, 1997 restructuring of the
Company's domestic operations, which coincided with the divestiture of the
Company's Cutex(R) license, has enabled the Company to more efficiently focus
its resources on its profitable core fragrance business in the United States and
around the world. Earnings growth for the current quarter, which is the first
increase in quarterly earnings since the first quarter of 1996, demonstrates
that the Company's strategy is beginning to take effect. The Company is now well
positioned to build upon its successful businesses to produce further
improvements in sales and earnings growth.
Three and Nine Months Ended September 30, 1997
Compared to the September 30, 1996 Periods
Net sales for the three months ended September 30, 1997 increased 8% to $24.5
million, as compared to $22.6 million for the corresponding period of the prior
year. Net sales for the nine months ended September 30, 1997 aggregated $67.3
million, as compared to $68.5 million for the corresponding period of the prior
year. Excluding Cutex product sales, net sales for the three and nine months
ended September 30, 1997 increased 25% and 8%, respectively. On April 30, 1997,
the Company divested its Cutex nail and lip products license. As such, the 1997
periods include sales of Cutex products through April 30, 1997.
The Company's Alternative Designer Fragrance lines have been 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 by reducing selling prices by approximately 30%, and has regained much
of the market share initially lost as a result of such price competition.
Despite the 30% selling price reduction, sales in this category only declined
14% for the nine months ended September 30, 1997, as compared to the
corresponding period of the prior year. This result demonstrates that unit
volume in the Company's Alternative Designer Fragrance business continues to
grow. The sales decline for the three months ended September 30, 1997 narrowed
to only 7%, reflecting the increasing unit growth trend and the success of new
product development, and effective marketing strategies.
Page 6
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Sales generated by the Company's French subsidiary ("Inter Parfums") increased
77% for the three months ended September 30, 1997 and 34% for the nine months
ended September 30, 1997, as compared to the corresponding periods of the prior
year. At comparable foreign currency exchange rates, sales by Inter Parfums
increased 106% and 53% for the three and nine month periods ended September 30,
1997, respectively, as compared to the corresponding periods of the prior year.
The Burberrys perfume line, which was completely redesigned by Inter Parfums,
has achieved great success in all markets where Burberrys products are sold.
This success has confirmed the potential that the Burberrys name has with
distributors around the world. Increasing distribution in over 70 countries
world wide and the constant opening of new markets should reinforce this
potential. Burberrys has become the flagship brand in the collection of designer
fragrance product lines offered by Inter Parfums and is expected to be the
catalyst for future sales growth of the entire collection. Inter Parfums
extraordinary growth rate, achieved during the three and nine month periods
ended September 30, 1997, includes the initial "sell in" to the American and
duty-free markets, as well as the initial launch of the new Burberrys "Week end"
line.
As part of the Company's business strategy of exploring strategic acquisition
opportunities, and pursuing expansion in international markets, as well as in an
effort to build upon the success of the Burberrys lines, Inter Parfums signed a
license agreement with S.T. Dupont for the development of an original perfume
line. Product design and development is well under way for the expected launch
in the fourth quarter of 1998.
Gross margins were 42% and 45% of sales for the three and nine month periods
ended September 30, 1997, respectively, as compared to 44% and 45% for the three
and nine month periods ended September 30, 1996, respectively. Gross margins
include the benefit of higher margin Cutex sales for all of the 1996 periods and
the 1997 period through April 30, 1997, the date the Company divested its Cutex
nail and lip products license.
Historically, the Company's combined fragrance business (designer and
alternative designer fragrances) achieved an approximate 45% gross margin. 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 margins in the first and second
quarters of 1997, and to a lesser extent in the third quarter of 1997, have been
affected by the lower selling prices put into effect in January 1997. The
positive impact of the measures taken began to take affect during the third
quarter of 1997 and is expected to benefit future quarters, to an even greater
extent, as the Company completes selling its higher cost inventory.
Page 7
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
During the first six months of 1997, gross margins were favorably impacted by an
increase in margins from Inter Parfums, the Company's French subsidiary. Such
increase resulted from exports sold in US dollars, thereby benefitting Inter
Parfums from the substantial rise of the US dollar relative to the French franc.
Selling, general and administrative expenses aggregated $7.0 million or 29% of
sales for the three months ended September 30, 1997, as compared to $7.5 million
or 33% of sales for the three months ended September 30, 1996. Selling, general
and administrative expenses aggregated $23.5 million and $23.4 million for the
nine months ended September 30, 1997 and September 30, 1996, respectively. 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, both in the aggregate and
as a percentage of sales, during the three and nine month periods ending
September 30, 1997, as compared to the corresponding periods of the prior year.
In addition, during 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.
Selling, general and administrative expenses incurred by Inter Parfums for the
three and nine month periods ended September 30, 1997, increased as compared to
the corresponding periods of the prior year. Such increase is the result of
additional expenses incurred to support new Burberrys product line
introductions, build upon the brands awareness, as well as to support Inter
Parfums revenue growth.
Interest expense aggregated $191,000 and $525,000 for the three and nine month
periods ended September 30, 1997, respectively, as compared to $240,000 and
$648,000 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 37% and 34% for the three and nine
month periods ended September 30, 1997, respectively, as compared to 34% and 31%
for the three and nine month periods ended September 30, 1996, respectively.
Reductions of valuation reserves on deferred tax assets, relating to the
utilization of net operating loss carryforwards, made available as a result of
the March 1996 sale of the Bal a Versailles trademarks have benefitted both the
1997 and, to an even greater extent, the 1996 effective tax rates.
Page 8
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Net income for the three months ended September 30, 1997 increased 11% to $1.63
million as compared to $1.48 million for the corresponding period of the prior
year. Earnings per share increased 20% to $0.18 per share for the three months
ended September 30, 1997, as compared to $0.15 per share for the corresponding
period of the prior year.
Net income for the nine months ended September 30, 1997 was $3.08 million or
$0.33 per share, as compared to $4.53 million or $0.45 per share for the
corresponding period of the prior year. Results for the nine months ended
September 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 $3.88 million or $0.41 per share for the
nine months ended September 30, 1997.
The weighted average number of shares outstanding was 9.3 million and 9.5
million for the three and nine months ended September 30, 1997, respectively, as
compared to 9.9 million and 10.0 million for the corresponding periods of the
prior year. Such declines are 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 and positive cash flow. At September 30, 1997,
working capital aggregated $44.1 million and the Company had cash and cash
equivalents on hand aggregating $17.9 million. The Company's book value per
share aggregated $5.54 per share as of September 30, 1997.
The previously disclosed 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 offering added to the
balance sheet of Inter Parfums, the proceeds of the offering has enabled Inter
Parfums to control its growth and make investments for the future without
incurring any significant increase in debt. Long-term debt stood at $427,000 as
of September 30, 1997.
In September 1997, the Board of Directors of the Company once again authorized
an increase of 500,000 shares to the Company's stock repurchase program bringing
the total authorized to be repurchased to 2,000,000 shares of the Company's
common stock. As of September 30, 1997, 1,393,505 shares have been purchased at
an average price per share of $7.29.
Page 9
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
The Company's short-term financing requirements are expected to be met by
available cash at September 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 $2.6 million of net cash from operations for the
nine months ended September 30, 1997 as compared to $0.6 million for the nine
months ended September 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 divestiture of the Company's
Cutex license.
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
September 30, 1997.
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 August 1, 1997 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 Greenberg, Francois Heilbronn,
Joseph A. Caccamo, Jean Levy and Robert Bensoussan-Torres.
Page 10
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
A vote was taken and the results thereof tabulated by the Inspector of Election.
The results were as follows: 9,706,432 votes for Jean Madar, 60,684 withheld;
9,709,706 votes for Philippe Benacin, 57,410 withheld; 9,709,706 votes for
Russell Greenberg, 57,410 withheld; 9,706,706 votes for Francois Heilbronn,
57,410 withheld; 9,709,706 votes for Joseph A. Caccamo, 57,410 withheld;
9,709,706 votes for Jean Levy, 57,410 withheld; and 9,709,706 votes for Robert
Bensoussan-Torres, 57,410 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) (i) The second item of business was the resolution to adopt the
1997 Nonemployee Director Stock Option Plan. The results of the voting were as
follows:
9,026,067 (approximately 92%) votes for the resolution,
357,693 votes against and
364,650 votes abstained.
A majority of the outstanding shares were cast for resolution no. 2,
and the resolution was duly passed.
(c) (ii) 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:
9,692,892 votes for the resolution,
40,844 votes against and
9,840 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 12th day of November 1997.
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 17851795
<SECURITIES> 0
<RECEIVABLES> 29223895
<ALLOWANCES> 0
<INVENTORY> 22422221
<CURRENT-ASSETS> 73646549
<PP&E> 1783437
<DEPRECIATION> 0
<TOTAL-ASSETS> 85066202
<CURRENT-LIABILITIES> 29553681
<BONDS> 0
0
0
<COMMON> 10528082
<OTHER-SE> 39092429
<TOTAL-LIABILITY-AND-EQUITY> 85066202
<SALES> 67280600
<TOTAL-REVENUES> 67280600
<CGS> 36718593
<TOTAL-COSTS> 61487178
<OTHER-EXPENSES> 311712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 524696
<INCOME-PRETAX> 5481710
<INCOME-TAX> 1837786
<INCOME-CONTINUING> 3643924
<DISCONTINUED> 0
<EXTRAORDINARY> 562651
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<EPS-PRIMARY> 0.18
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</TABLE>
