<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, 1998.
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 10, 1998 there were 8,765,081 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, 1998 (unaudited)
and December 31, 1997 (audited) 2
Consolidated Statements of
Income for the Three Month and
Six Month Periods Ended
June 30, 1998 (unaudited) and
June 30, 1997 (unaudited) 3
Consolidated Statements of
Cash Flows for the Six
Month Periods Ended
June 30, 1998 (unaudited) and
June 30, 1997 (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 11
Signatures 11
<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, 1997 included in the Company's annual report filed on Form 10-K.
The results of operations for the six months ended June 30, 1998 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>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,205,301 $ 18,721,525
Accounts receivable, net 29,371,358 26,255,311
Inventories 24,436,358 21,707,497
Receivables, other 578,329 622,416
Other 702,782 469,982
Deferred tax benefit 1,287,164 1,114,508
------------ ------------
Total current assets 75,581,292 68,891,239
Equipment and leasehold improvements, net 2,538,201 2,122,465
Other assets 1,026,565 1,274,721
Intangible assets, net 7,576,927 7,993,992
------------ ------------
$ 86,722,985 $ 80,282,417
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable, banks $ 6,822,551 $ 3,063,393
Accounts payable 18,359,534 17,573,570
Income taxes payable 3,373,026 3,411,629
------------ ------------
Total current liabilities 28,555,111 24,048,592
------------ ------------
Long-term debt, less current portion 283,423 424,349
------------ ------------
Minority interests 6,260,107 5,615,564
------------ ------------
Shareholders' equity:
Common stock, $.001 par; authorized
30,000,000 shares; outstanding 8,765,081
and 8,862,781 shares at June 30, 1998 and
December 31, 1997, respectively 8,765 8,863
Additional paid-in capital 20,729,692 20,685,873
Retained earnings 45,109,908 42,729,807
Foreign currency translation adjustment (2,574,674) (2,368,609)
Treasury stock, at cost, 2,080,903 and
1,975,703 shares at June 30, 1998 and
December 31, 1997, respectively (11,649,347) (10,862,022)
------------ ------------
51,624,344 50,193,912
------------ ------------
$ 86,722,985 $ 80,282,417
============ ============
</TABLE>
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,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 24,093,204 $ 21,847,174 $ 44,899,306 $ 42,816,263
Cost of sales 12,840,178 11,596,403 23,742,062 22,518,951
------------ ------------ ------------ ------------
Gross margin 11,253,026 10,250,771 21,157,244 20,297,312
Selling, general and administrative 9,103,503 8,366,747 16,389,506 16,456,288
Loss on relinquishment of license 1,300,000
------------ ------------ ------------ ------------
Income from operations 2,149,523 1,884,024 4,767,738 2,541,024
------------ ------------ ------------ ------------
Other charges (income):
Interest 115,890 152,027 237,256 334,088
Loss on foreign currency 53,248 27,599 96,927 61,423
Interest and dividend (income) (220,983) (138,082) (426,163) (346,534)
(Gain) on sale of stock of subsidiary, net 18,274 35,838
------------ ------------ ------------ ------------
(33,571) 41,544 (56,142) 48,977
------------ ------------ ------------ ------------
Income before income taxes 2,183,094 1,842,480 4,823,880 2,492,047
Income taxes 785,191 561,613 1,975,406 725,235
------------ ------------ ------------ ------------
Net income before minority interest 1,397,903 1,280,867 2,848,474 1,766,812
Minority interest in net income
of consolidated subsidiary 239,877 175,262 468,373 320,423
------------ ------------ ------------ ------------
Net income $ 1,158,026 $ 1,105,605 $ 2,380,101 $ 1,446,389
============ ============ ============ ============
Net income per common share:
Basic $ 0.13 $ 0.12 $ 0.27 $ 0.15
Diluted $ 0.13 $ 0.12 $ 0.26 $ 0.15
============ ============ ============ ============
Number of common shares outstanding:
Basic 8,799,927 9,525,386 8,815,204 9,563,934
Diluted 9,151,554 9,545,285 9,087,962 9,575,345
============ ============ ============ ============
</TABLE>
See notes to financial statements.
Page 3
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30,
1998 1997
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 2,380,101 $ 1,446,389
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 655,437 633,381
Loss on divestiture of license 1,200,731
Gain on sale of stock of subsidiary 35,838
Minority interest in net income 468,373 320,423
Increase (decrease) in cash from changes in:
Accounts receivable (3,211,206) (2,235,228)
Inventories (2,843,265) (3,046,892)
Other assets 44,471 130,040
Deferred tax benefit (625,477) 145,707
Accounts payable 914,565 5,267,201
Income taxes payable 431,500 229,842
------------ ------------
Net cash provided by (used in) operating activites (1,749,663) 4,091,594
------------ ------------
Investing activities:
Purchase of equipment and leasehold improvements (764,115) (487,001)
Trademark and license acquisitions (18,020) (1,010,700)
Proceeds from sale of equipment 50,000
------------ ------------
Net cash (used in) investing activities (782,135) (1,447,701)
------------ ------------
Financing activities:
Increase (decrease) in loan payable, bank 3,778,406 (639,789)
Proceeds from sale of stock of subsidiary 58,134
Proceeds from exercise of options and warrants 43,827
Purchase of treasury stock (787,431) (641,491)
------------ ------------
Net cash provided by (used in) financing activities 3,092,936 (1,281,280)
------------ ------------
Effect of exchange rate changes on cash (77,362) (842,476)
------------ ------------
Increase in cash and cash equivalents 483,776 520,137
Cash and cash equivalents at beginning of period 18,721,525 20,205,391
------------ ------------
Cash and cash equivalents at end of period $ 19,205,301 $ 20,725,528
============ ============
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $ 853,192 $ 329,000
Income taxes 954,339 350,000
</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, 1997.
2. Earnings Per Share:
The Company previously adopted SFAS No. 128 "Earnings Per Share" in
the period ended December 31, 1997 and has retroactively applied the
effects for all periods presented herein. Accordingly, the
presentation of per share information includes calculations of basic
and diluted income per share. The impact on the per share amounts
previously reported was not significant.
Basic earnings per share are computed using the weighted average
number of shares outstanding during each period. Diluted earnings per
share are computed using the weighted average number of shares
outstanding during each period, plus the incremental shares
outstanding assuming the exercise of dilutive stock options.
3. Inventories:
Inventories consist of the following:
June 30, December 31,
1998 1997
----------- -----------
Raw materials and component parts $10,286,465 $10,566,904
Finished goods 14,149,893 11,140,593
----------- -----------
$24,436,358 $21,707,497
=========== ===========
Page 5
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Jean Philippe Fragrances is a leading manufacturer and distributor of
fragrances, cosmetics and personal care products, where innovation, diversity
and commitment to creating quality products for sale at intelligent prices are
achieved.
The Company, produces and distributes, world wide, a variety of fragrance,
personal care and cosmetic products including:
* Alternative Designer Fragrances and personal care products.
* International moderately priced fragrances.
* Brand name and licensed fragrances.
* Mass market cosmetics.
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. Jean Philippe is determined to remain a
diversified fragrance and personal care products company. Growth opportunities
exist in each of our product lines and management's goal is to develop them to
achieve competitive superiority and, thereby maximize shareholder value.
Three and Six Months Ended June 30, 1998 Compared to the
Three and Six Months Ended June 30, 1997
Net sales for the three months ended June 30, 1998 increased 10% to $24.1
million, as compared to $21.8 million for the corresponding period of the
prior year. Net sales for the six months ended June 30, 1998 increased 5% to
$44.9 million, as compared to $42.8 million for the corresponding period of
the prior year. On April 30, 1997, the Company divested its Cutex nail and lip
products license and net sales for the three and six month periods ended June
30, 1997 include $0.3 and $3.3 million, respectively, of Cutex product sales.
Excluding such sales, net sales for the three and six months ended June 30,
1998 increased 12% and 13%, respectively.
Page 6
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Excluding the effect of Cutex product sales, net sales generated by the
Company's domestic operations decreased 4% for the three months ended June 30,
1998 and were unchanged for the six months ended June 30, 1998, as compared to
the corresponding periods of the prior year. The overall market for
alternative designer fragrances has become extremely competitive and very
price sensitive. Although no further selling price reductions are anticipated,
customers are reducing their overall inventory levels. This trend is expected
to continue into the third quarter of 1998 and is affecting the entire
industry. To combat the negative impact of this industry trend, the Company is
in the process of developing a line of moderately priced fragrances which are
not Alternative Designer Fragrances. Utilizing prestige and upscale concepts
in bottle design and packaging, the Company is creating a line of unique and
high quality fragrances to be sold domestically and internationally in
existing and new distribution channels at mass market prices. The Company
believes that this new concept of moderately priced fragrances will not affect
its other core fragrance businesses. The expected launch date is set for the
fourth quarter of 1998.
Sales generated by the Company's French subsidiaries increased 22% for the
three months ended June 30, 1998 and 23% for the six months ended June 30,
1998, as compared to the corresponding periods of the prior year. At
comparable foreign currency exchange rates, sales by the Company's French
subsidiaries increased 27% and 31% for the three and six month periods ended
June 30, 1998, respectively. The increase in sales is primarily the result of
expanded distribution of the Company's Burberrys fragrance line as well as the
introduction of "I Love You" by Molyneux.
The Company achieved a 47% gross profit margin in both the three and six month
periods ended June 30, 1998 as compared to a consistent 47% margin for the
corresponding periods of the prior year. This gross profit margin was
sustained despite the fact that the 1998 periods did not include any sales of
higher margin Cutex products. The Company's program of "Product Value
Analysis" has more than achieved its original cost reduction goals.
Selling, general and administrative expenses increased to $9.1 million for the
three months ended June 30, 1998, as compared to $8.4 million for the
corresponding period of the prior year and aggregated 38% of sales for both
periods. Selling, general and administrative expenses decreased to $16.4
million or 36% of sales for the six months ended June 30, 1998, as compared to
$16.5 million or 38% of sales for the corresponding period of the prior year.
In support of the tremendous success of the Burberrys fragrance line, Inter
Parfums has significantly increased its spending on advertising and media. For
the three and six month periods ended June 30, 1998, such expenditures
aggregated $1.3 million and $1.9 million, respectively.
Page 7
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
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 to
$5.8 million or 36% of sales in for the six months ended June 30, 1998 as
compared to $7.2 million or 37% of sales for the corresponding period of the
prior year.
In 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.
Interest expense declined to $0.1 million and $0.2 million for the three and
six month periods ended June 30, 1998, respectively, as compared to $0.2
million and $0.3 million for the three and six month periods ended June 30,
1997. The Company uses its available credit lines, as needed, to finance its
working capital needs.
Despite increased advertising and media expenditures with respect to our
Burberrys fragrance line, income before income taxes and minority interest
increased to 9.0% and 10.7% of net sales for the three and six month periods
ended June 30, 1998, respectively, as compared to 8.4% and 8.9% of net sales
for the corresponding periods of the prior year (adjusted to eliminate the
effect of the 1997 $1.3 million nonrecurring charge referred to above.)
The Company's effective income tax rate was 36% and 41% for the three and six
month periods ended June 30, 1998, respectively, as compared to 30% and 29%
for the corresponding periods of the prior year. The 1997 periods benefitted
from reductions of valuation reserves on deferred tax assets relating to the
utilization of net operating loss carry forwards. No such benefit was
available for the 1998 periods. In addition, corporate income tax rates in
France have increased from 36% to approximately 43% over the last two years.
Net income increased to $1.2 million or $0.13 per diluted share for the three
months ended June 30, 1998, as compared to $1.1 million or $0.12 per diluted
share for the corresponding period of the prior year.
Net income increased to $2.4 million or $0.26 per diluted share for the six
months ended June 30, 1998, as compared to $1.4 million or $0.15 per diluted
share for the corresponding period of the prior year. Results for the six
months ended June 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 $2.2 million or $0.23 per diluted
share for the six months ended June 30, 1997.
Page 8
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
The weighted average shares outstanding were 8.8 million for both the three
and six month periods ended June 30, 1998, as compared to 9.5 million and 9.6
million for the three and six month periods ended June 30, 1997, respectively.
On a diluted basis, average shares outstanding were 9.2 million and 9.1
million for the three and six month periods ended June 30, 1998, respectively,
as compared to 9.5 million and 9.6 million for the corresponding periods of
the prior year. Such decline is the result of the Company's ongoing stock
buyback program.
Liquidity and Capital Resources
The Company's financial position remains very strong. At June 30, 1998,
working capital aggregated $47 million and the Company had cash and cash
equivalents on hand of $19 million. The Company's net book value was $5.89 per
share as of June 30, 1998.
The 1995 initial 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 stock sale provided to the
financial position of Inter Parfums, the proceeds of the offering have enabled
Inter Parfums to control its growth and invest for the future without
incurring any significant increase in debt. Long-term debt of Inter Parfums
stood at $0.3 million as of June 30, 1998.
As a result of the successful operating results of Inter Parfums and the
significant increase in its stock price, in January 1998, the Company
exercised its rights to convert the remaining portion of its convertible debt,
approximately $4.4 million, into 318,326 additional shares of Inter Parfums
bringing the total shares outstanding to 2,209,000. The conversion price was
approximately $14 per share while Inter Parfums stock is presently trading at
approximately $36 per share. The effect of this conversion increases the
Company's ownership percentage from 76.4% to 79.3%.
During the six month period ended June 30, 1998, the Company continued
repurchasing its common stock pursuant to an authorized repurchase plan
aggregating 2 million shares. As of June 30, 1998, 1,592,705 shares of common
stock have been purchased at an average price per share of $7.30.
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 June 30, 1998, cash generated by operations and short-term
credit lines provided by domestic and foreign banks. The principal credit
facilities for 1998 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.
A buildup of inventory, in preparation of the third quarter selling season,
along with an increase in accounts receivable required a use of cash from
operating activities for the six months ended June 30, 1998.
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.
The Company has substantially completed all projects to address "Year 2000"
compliance with respect to its internal information systems. As such,
management believes that "Year 2000" transition will not have a material
adverse effect on future results.
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 six
months ended June 30, 1998.
Page 10
<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 11th day of August 1998.
JEAN PHILIPPE FRAGRANCES, INC.
By: /s/ Russell Greenberg
--------------------------------
Russell Greenberg,
Executive Vice President and
Chief Financial Officer
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 19,205,301
<SECURITIES> 0
<RECEIVABLES> 29,371,358
<ALLOWANCES> 0
<INVENTORY> 24,436,358
<CURRENT-ASSETS> 75,581,292
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 86,722,985
<CURRENT-LIABILITIES> 28,555,111
<BONDS> 0
0
0
<COMMON> 9,089,110
<OTHER-SE> 42,535,234
<TOTAL-LIABILITY-AND-EQUITY> 86,722,985
<SALES> 44,899,306
<TOTAL-REVENUES> 44,899,306
<CGS> 23,742,062
<TOTAL-COSTS> 40,131,568
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (56,142)
<INTEREST-EXPENSE> 237,256
<INCOME-PRETAX> 4,823,880
<INCOME-TAX> 1,975,406
<INCOME-CONTINUING> 2,848,474
<DISCONTINUED> 0
<EXTRAORDINARY> 468,373
<CHANGES> 0
<NET-INCOME> 2,380,101
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.26
</TABLE>
